pre14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
|
|
|
Filed by the Registrant x |
|
Filed by a Party other than the Registrant o |
|
|
Check the appropriate box: |
|
|
|
x Preliminary Proxy Statement |
|
o
Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
|
o Definitive Proxy Statement |
|
o Definitive Additional Materials |
|
o
Soliciting Material Pursuant to §240.14a-12 |
ELI LILLY AND COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|
|
|
x No fee required. |
|
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11. |
|
|
|
1) Title of each class of securities to which transaction applies: |
|
|
|
2) Aggregate number of securities to which transaction applies: |
|
|
|
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
|
|
|
4) Proposed maximum aggregate value of transaction: |
|
|
|
o Fee paid previously with preliminary materials. |
|
|
|
o Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
|
|
|
1) Amount Previously Paid: |
|
|
|
2) Form, Schedule or Registration Statement No.: |
|
|
SEC 1913 (11-01) |
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number. |
Notice of 2008 Annual Meeting and Proxy Statement
March 10, 2008
Dear Shareholder:
You are cordially invited to attend our annual meeting of shareholders on Monday, April 21, 2008,
at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, at 11:00 a.m. EDT.
The notice of meeting and proxy statement that follow describe the business we will consider
at the meeting. Your vote is very important. I urge you to vote by mail, by telephone, or on the
Internet in order to be certain your shares are represented at the meeting, even if you plan to
attend.
Please note our procedures for admission to the meeting described on page 5.
I look forward to seeing you at the meeting.
Sidney Taurel
Chairman of the Board and Chief Executive Officer
Notice of Annual Meeting of Shareholders
April 21, 2008
The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center
Auditorium, Lilly Corporate Center, Indianapolis, Indiana, on Monday, April 21, 2008, at 11:00 a.m.
EDT for the following purposes:
|
|
|
to elect four directors of the company to serve three-year terms |
|
|
|
|
to ratify the appointment by the audit committee of Ernst & Young LLP as principal
independent auditors for the year 2008 |
|
|
|
|
to approve amendments to the articles of incorporation to provide for the
declassification of the board of directors |
|
|
|
|
to approve amendments to the articles of incorporation to provide for election of
directors by majority vote |
|
|
|
|
to amend the companys 2002 Lilly Stock Plan |
|
|
|
|
to consider and vote on a shareholder proposal regarding the international
outsourcing of animal research |
|
|
|
|
to consider and vote on a shareholder proposal requesting that the company amend its
articles of incorporation to allow shareholders to amend the companys bylaws by
majority vote |
|
|
|
|
to consider and vote on a shareholder proposal requesting that the board of directors
adopt a simple majority vote standard for certain matters other than the election of
directors |
|
|
|
|
to consider and vote on a shareholder proposal requesting that the company prepare a
semi-annual report on its political contributions |
|
|
|
|
to consider and vote on a shareholder proposal adopting principles for comprehensive
health care reform. |
Shareholders of record at the close of business on February 15, 2008, will be entitled to vote
at the meeting and at any adjournment of the meeting.
Attendance at the meeting will be limited to shareholders, those holding proxies from
shareholders, and invited guests from the media and financial community. A page at the back of this
proxy statement contains an admission ticket. If you plan to attend the meeting, please bring this
ticket with you.
This combined proxy statement and annual report to shareholders and the proxy are being mailed
on or about March 10, 2008.
By order of the board of directors,
James B. Lootens
Secretary
March 10, 2008
Indianapolis, Indiana
2
General Information
Why did I receive this proxy statement?
The board of directors of Eli Lilly and Company is soliciting proxies to be voted at the annual
meeting of shareholders (the annual meeting) to be held on Monday, April 21, 2008, and at any
adjournment of the annual meeting. When the company asks for your proxy, we must provide you with a
proxy statement that contains certain information specified by law.
What will the shareholders vote on at the annual meeting?
Ten items:
|
|
|
election of directors |
|
|
|
|
ratification of the appointment of principal independent auditors |
|
|
|
|
amending the companys articles of incorporation to provide for declassification of
the board |
|
|
|
|
amending the companys articles of incorporation to provide for election of directors
by majority vote |
|
|
|
|
amending the companys stock plan |
|
|
|
|
a shareholder proposal on international outsourcing of animal research |
|
|
|
|
a shareholder proposal on allowing shareholders to amend the companys bylaws |
|
|
|
|
a shareholder proposal on adopting a simple majority vote standard for matters other
than election of directors |
|
|
|
|
a shareholder proposal requesting a semi-annual report on the companys political
contributions |
|
|
|
|
a shareholder proposal on adopting principles for comprehensive health care reform. |
Will there be any other items of business on the agenda?
We do not expect any other items of business because the deadline for shareholder proposals and
nominations has already passed. Nonetheless, in case there is an unforeseen need, the accompanying
proxy gives discretionary authority to the persons named on the proxy with respect to any other
matters that might be brought before the meeting. Those persons intend to vote that proxy in
accordance with their best judgment.
Who is entitled to vote?
Shareholders as of the close of business on February 15, 2008 (the record date) may vote at the
annual meeting. You have one vote for each share of common stock you held on the record date,
including shares:
|
|
held directly in your name as the shareholder of record |
|
|
|
held for you in an account with a broker, bank, or other nominee |
|
|
|
attributed to your account in the Lilly Employee 401(k) Plan (the 401(k) plan). |
What constitutes a quorum?
A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the
annual meeting. As of the record date, ___ shares of company
common stock were issued and outstanding.
How many votes are required for the approval of each item?
There are differing vote requirements for the various proposals.
|
|
|
The four nominees for director receiving the most votes will be elected. Abstentions
and instructions to withhold authority to vote for one or more of the nominees will
result in those nominees receiving fewer votes but will not count as votes against a
nominee. |
|
|
|
|
The following items of business will be approved if the votes cast for the proposal
exceed those cast against the proposal: |
|
|
|
the appointment of principal independent auditors |
|
|
|
|
the management proposal to amend the articles of incorporation
to provide for election of directors by majority vote |
|
|
|
|
the management proposal to amend the companys stock plan |
|
|
|
|
the shareholder proposals. |
|
|
|
Abstentions will not be counted either for or against these proposals. |
|
|
|
|
The management proposal to amend the articles of incorporation to declassify the
board requires the vote of 80 percent of the outstanding shares. For this item,
abstentions and broker nonvotes have the same effect as a vote against the proposal. |
Broker nonvotes. If your shares are held by a broker, the broker will ask you how you want your
shares to be voted. If you give the broker instructions, your shares will be voted as you direct.
If you do not give instructions, one of two things can happen, depending on the type of proposal.
For the election of directors and the ratification of auditors, the broker may vote your shares in
its discretion. For all other proposals, the broker may not vote your shares at all. When that
happens, it is called a broker nonvote.
How do I vote by proxy?
If you are a shareholder of record, you may vote your proxy by any one of the following methods.
By
mail. Sign and date each proxy card you receive and return it in the prepaid envelope. Sign
your name exactly as it appears on the proxy. If you
3
are signing in a representative capacity (for
example, as an attorney-in-fact, executor, administrator, guardian, trustee, or the officer or
agent of a corporation or partnership), please indicate your name and your title or capacity. If
the stock is held in custody for a minor (for example, under the Uniform Transfers to Minors Act),
the custodian should sign, not the minor. If the stock is held in joint ownership, one owner may
sign on behalf of all owners. If you return your signed proxy but do not indicate your voting
preferences, we will vote on your behalf for the election of the nominees for director listed
below, for the ratification of the appointment of the independent auditors, for the management
proposals on amending the articles of incorporation and amending the companys stock plan, and
against the shareholder proposals.
Note that if you previously elected to receive these materials electronically, you did not
receive a proxy card. If you wish to vote by mail, rather than by telephone or on the Internet as
discussed below, you may request paper copies of these materials, including a proxy card, by
calling 317-433-5112. Please make sure you give us the control number from the e-mail message that
you received notifying you of the electronic availability of these materials, along with your name
and mailing address.
By telephone. Shareholders in the United States, Puerto Rico, and Canada may vote by telephone
by following the instructions on the enclosed proxy card or, if you received these materials
electronically, by following the instructions in the e-mail message that notified you of their
availability. Voting by telephone has the same effect as voting by mail. If you vote by telephone,
do not return your proxy card. Telephone voting will be available until 11:59 p.m. EDT April 20,
2008.
On the Internet. You may vote online at www.proxyvote.com. Follow the instructions on the
enclosed proxy card or, if you received these materials electronically, follow the instructions in
the e-mail message that notified you of their availability. Voting on the Internet has the same
effect as voting by mail. If you vote on the Internet, do not return your proxy card. Internet
voting will be available until 11:59 p.m. EDT April 20, 2008.
You have the right to revoke your proxy at any time before the meeting by (1) notifying the
companys secretary in writing or (2) delivering a later-dated proxy by telephone, on the Internet,
or by mail. If you are a shareholder of record, you may also revoke your proxy by voting in person
at the meeting.
How do I
vote shares that are held by my broker?
If you have shares held by a broker or other nominee, you may instruct your broker or other nominee
to vote your shares by following instructions that the broker or nominee provides for you. Most
brokers offer voting by mail, telephone, and on the Internet.
How do I vote in person?
If you are a shareholder of record, you may vote your shares in person at the meeting. However, we
encourage you to vote by mail, by telephone, or on the Internet even if you plan to attend the
meeting.
How do I vote my shares in the 401(k) plan?
You may instruct the plan trustee on how to vote your shares in the 401(k) plan by mail, by
telephone, or on the Internet as described above, except that, if you vote by mail, the card that
you use will be a voting instruction card rather than a proxy card.
How many shares in the 401(k) plan can I vote?
You may vote all the shares allocated to your account on the record date. In addition, unless you
decline, your vote will also apply to a proportionate number of other shares held in the 401(k)
plan for which voting directions are not received. These undirected shares include:
|
|
|
shares credited to the accounts of participants who do not return their voting
instructions (except for a small number of shares from a prior stock ownership plan,
which can be voted only on the directions of the participants to whose accounts the
shares are credited) |
|
|
|
|
shares held in the plan that are not yet credited to individual participants
accounts. |
All participants are named fiduciaries under the terms of the 401(k) plan and under the
Employee Retirement Income Security Act (ERISA) for the limited purpose of voting shares credited
to their accounts and the portion of undirected shares to which their vote applies. Under ERISA,
fiduciaries are required to act prudently in making voting decisions.
If you do not want to have your vote applied to the undirected shares, you should check the
box marked I decline. Otherwise, the trustee will automatically apply your voting preferences to
the undirected shares proportionally with all other participants who elected to have their votes
applied in this manner.
What happens if I do not vote my 401(k) plan shares?
Your shares will be voted by other plan participants who have elected to have their voting
preferences applied proportionally to all shares for which voting instructions are not otherwise
received.
What does it mean if I receive more than one proxy card?
It means that you hold shares in more than one account. To ensure that all your shares are voted,
sign and return each card. Alternatively, if you vote by telephone or on the Internet, you will
need to vote once for each proxy card and voting instruction card you receive.
4
Who tabulates the votes?
The votes are tabulated by an independent inspector of election, IVS Associates, Inc.
What should I do if I want to attend the annual meeting?
All shareholders as of the record date may attend by presenting the admission ticket that appears
at the end of this proxy statement. Please fill it out and bring it with you to the meeting. The
meeting will be held at the Lilly Center Auditorium. Please use the Lilly Center entrance to the
south of the fountain at the intersection of Delaware and McCarty streets. You will need to pass
through security, including a metal detector. Present your ticket to the usher at the meeting.
Parking will be available on a first-come, first-served basis in the garage indicated on the
map on page 62.
If you have questions about admittance or parking, you may call 317-433-5112.
How do I contact the board of directors?
You can send written communications to one or more members of the board, addressed to:
Presiding Director, Board of Directors
Eli Lilly and Company
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, Indiana 46285
All such communications will be forwarded to the relevant director(s), except for
solicitations or other matters unrelated to the company.
How do I submit a shareholder proposal for the 2009 annual meeting?
The companys 2009 annual meeting is scheduled for April 20, 2009. If a shareholder wishes to have
a proposal considered for inclusion in next years proxy statement, he or she must submit the
proposal in writing so that we receive it by November 10, 2008. Proposals should be addressed to
the companys corporate secretary, Lilly Corporate Center, Indianapolis, Indiana 46285. In
addition, the companys bylaws provide that any shareholder wishing to propose any other business
at the annual meeting must give the company written notice by November 10, 2008. That notice must
provide certain other information as described in the bylaws. Copies of the bylaws are available
online at http://investor.lilly.com/bylaws.cfm.
Does the company offer an opportunity to receive future proxy materials electronically?
Yes. If you are a shareholder of record or a member of the 401(k) plan, you may, if you wish,
receive future proxy statements and annual reports online. If you elect this feature, you will
receive an e-mail message notifying you when the materials are available along with a web address
for viewing the materials and instructions for voting by telephone or on the Internet. If you have
more than one account, you may receive separate e-mail notifications for each account.
You may sign up for electronic delivery in two ways:
|
|
|
If you vote online as described above, you may sign up for electronic delivery at
that time. |
|
|
|
|
You may sign up at any time by visiting http://proxyonline.lilly.com. |
If you received these materials electronically, you do not need to do anything to continue
receiving materials electronically in the future.
If you hold your shares in a brokerage account, you may also have the opportunity to receive
proxy materials electronically. Please follow the instructions of your broker.
What are the benefits of electronic delivery?
Electronic delivery reduces the companys printing and mailing costs. It is also a convenient way
for you to receive your proxy materials and makes it easy to vote your shares online. If you have
shares in more than one account, it is an easy way to avoid receiving duplicate copies of proxy
materials.
What are the costs of electronic delivery?
The company charges nothing for electronic delivery. You may, of course, incur the usual expenses
associated with Internet access, such as telephone charges or charges from your Internet service
provider.
May I change my mind later?
Yes. You may discontinue electronic delivery at any time. For more information, call 317-433-5112.
What is householding?
We have adopted householding, a procedure under which shareholders of record who have the same
address and last name and do not receive proxy materials electronically will receive only one copy
of our annual report and proxy statement unless one or more of these shareholders notifies us that
they wish to continue receiving individual copies. This procedure saves printing and postage costs
by reducing duplicative mailings.
Shareholders who participate in householding will continue to receive separate proxy cards.
Householding will not affect dividend check mailings.
5
Beneficial shareholders can request information about householding from their banks, brokers,
or other holders of record.
What if I want to receive a separate copy of the annual report and proxy statement?
If you participate in householding and wish to receive a separate copy of the 2007 annual report
and 2008 proxy statement, or if you wish to receive separate copies of future annual reports and
proxy statements, please call 800-542-1061 or write to: Householding Department, 51 Mercedes
Way, Edgewood, New York 11717. We will deliver the requested documents to you promptly upon your
request.
6
Board of Directors
Directors Biographies
Class of 2008
The following four directors terms will expire at this years annual meeting. Each of these
directors has been nominated and is standing for election to serve another term that will expire in
2011. See page 41 of this proxy statement for more information.
George M.C. Fisher
Age 67
Director since 2000
Former
Chairman of the Board and Chief Executive Officer, Motorola, Inc. and
Eastman Kodak Company
Mr. Fisher served as chairman of the board of Eastman Kodak Company from 1993 to December 2000. He
also served as chief executive officer from 1993 to January 2000 and as president from 1993 until
1996. Prior to joining Kodak, he was an executive officer of Motorola, Inc., serving as chairman
and chief executive officer from 1990 to October 1993, and president and chief executive officer
from 1988 to 1990. Mr. Fisher is a senior advisor for Kohlberg Kravis Roberts & Company, Presiding
Director of General Motors Corporation, and a director of Visant Corporation. He is a former
chairman of PanAmSat Corporation, and was chairman of the National Academy of Engineering from 2000
to 2004.
Alfred G. Gilman, M.D., Ph.D.
Age 66
Director since 1995
Executive Vice President for Academic Affairs and Provost, The University of Texas Southwestern
Medical Center at Dallas; Dean, Southwestern Medical School; and Regental Professor of Pharmacology
and Director of the Cecil and Ida Green Center for Molecular, Computational, and Systems Biology,
The University of Texas Southwestern Medical Center
Dr. Gilman has served as executive vice president for academic affairs and provost of The
University of Texas Southwestern Medical Center at Dallas and dean of The University of Texas
Southwestern Medical School since 2005 and professor of pharmacology at The University of Texas
Southwestern Medical Center since 1981. He holds the Raymond and Ellen Willie Distinguished Chair
of Molecular Neuropharmacology, the Nadine and Tom Craddick Distinguished Chair in Medical Science,
and the Atticus James Gill, M.D., Chair in Medical Science at the university and was named a
regental professor in 1995. Dr. Gilman was on the faculty of the University of Virginia School of
Medicine from 1971 to 1981 and was named a professor of pharmacology there in 1977. He is a
director of Regeneron Pharmaceuticals, Inc. Dr. Gilman was a recipient of the Nobel Prize in
Physiology or Medicine in 1994.
Karen N. Horn, Ph.D.
Age 64
Director since 1987
Retired President,
Private Client Services, and Managing Director, Marsh, Inc.
Ms. Horn served as president of Private Client Services and managing director of Marsh, Inc., a
subsidiary of MMC, from 1999 until her retirement in 2003. Prior to joining Marsh, she was senior
managing director and head of international private banking, Bankers Trust Company; chair and chief
executive officer of Bank One, Cleveland, N.A.; president of the Federal Reserve Bank of Cleveland;
treasurer of Bell Telephone Company of Pennsylvania; and vice president of First National Bank of
Boston. Ms. Horn serves as director of T. Rowe Price Mutual Funds; The U.S. Russia Investment Fund,
a presidential appointment; Simon Property Group, Inc.; and Fannie Mae. Ms. Horn has been senior
managing director of Brock Capital Group since 2004.
John C. Lechleiter, Ph.D.
Age 54
Director since 2005
President and Chief
Operating Officer
Dr. Lechleiter was named president and chief operating officer of the company in 2005, and on April
1, 2008, he will become president and chief executive officer. He joined Lilly in 1979 as a senior
organic chemist and has held management positions in England and the U.S. He was named vice
president of pharmaceutical product development in 1993 and vice president of regulatory affairs in
1994. In 1996, he was named vice president for development and regulatory affairs. Dr. Lechleiter
became senior vice president of pharmaceutical products in 1998, and executive vice president,
pharmaceutical products and corporate development in 2001. He was named executive vice president,
pharmaceutical operations, in 2004. He is a member of the American Chemical Society. In 2004, Dr.
Lechleiter was appointed to the Visiting Committee of Harvard Business School and to the Health
Policy and Management Executive Council of the Harvard School of Public Health. He also serves as a
member of the Board of Trustees of Xavier University (Cincinnati, Ohio). In addition, he serves as
a distinguished advisor to The Childrens Museum of Indianapolis, a member of the board of
directors and executive committee of Fairbanks Institute, and a member of the United Way of Central
Indiana board of directors. He also serves on the board of Indianapolis Downtown, Inc.
Class of 2009
The
following four directors will continue in office until 2009, except
for Mr. Taurel, who will resign from the board effective December 31, 2008.
Martin S. Feldstein, Ph.D.
Age 68
Director since 2002
President and Chief Executive Officer, National Bureau of Economic Research and George F. Baker
Professor of Economics, Harvard University
Dr. Feldstein is president and chief executive officer of the National Bureau of Economic Research
and the George F. Baker Professor of Economics at Harvard University. He became an assistant
professor at Harvard in 1967, an associate professor in 1968, and a
professor in 1969. From 1982 through 1984, he served
as chairman of the Council of Economic Advisers and President Ronald Reagans chief economic
adviser. He is a member of the American
7
Philosophical Society, a corresponding fellow of the
British Academy, a fellow of the Econometric Society, and a fellow of the National Association for
Business Economics. Dr. Feldstein is a member of the executive committee of the Trilateral
Commission and a director of American International Group, Inc.; the Council on Foreign Relations;
and Economic Studies, Inc. He is a member of the American Academy of Arts and Sciences and past
president of the American Economic Association.
J. Erik Fyrwald
Age 48
Director since 2005
Group Vice
President, DuPont Agriculture & Nutrition
Mr. Fyrwald has been group vice president of DuPont Agriculture & Nutrition since 2003. He was
previously vice president and general manager of DuPonts nutrition and health businesses, which
included The Solae Company, DuPont Qualicon, and Liqui-Box. Mr. Fyrwald joined DuPont in 1981 as a
production engineer, and held a variety of sales and management positions in a number of areas. In
1990, he became the leader of the DuPont Engineering Polymers and DuPont Butacite businesses for
the Asia Pacific region, a position he held until 1994. He was named leader of the DuPont Nylon
Plastics business for the Americas until 1996, when he became head of global sales and marketing
for Engineering Polymers. In 1998, he was appointed vice president of Corporate Plans and Business
Development. Mr. Fyrwald serves on the boards of CropLife
International Presidents Advisory Group; the Des Moines Art
Center; and United Way of Iowa.
Ellen R. Marram
Age 61
Director since 2002
President,
The Barnegat Group LLC
Ms. Marram is president of The Barnegat Group LLC, a firm that provides business advisory services.
She was a managing director at North Castle Partners, LLC from 2000 to 2005 and is currently an
advisor to the firm. Prior to joining North Castle, she served as the chief executive officer of a
start-up B2B exchange for the food and beverage industry. From 1993 through 1998, Ms. Marram was
president and chief executive officer of Tropicana and the Tropicana Beverage Group. From 1988 to
1993, she was president and chief executive officer of the Nabisco Biscuit Company, the largest
operating unit of Nabisco, Inc.; from 1987 to 1988, she was president of Nabiscos Grocery
Division; and from 1970 to 1986, she held a series of marketing positions at Nabisco/Standard
Brands, Johnson & Johnson, and Lever Brothers. Ms. Marram is a member of the board of directors of
Ford Motor Company, The New York Times Company, and Cadbury Schweppes plc as well as several
private companies. She serves on the boards of The New York-Presbyterian Hospital, Lincoln Center
Theater, Families and Work Institute, and Citymeals-on-Wheels.
Sidney Taurel
Age 59
Director since 1991
Chairman
of the Board and Chief Executive Officer
Mr. Taurel has been the companys chief executive officer since July 1998, and will retire
effective March 31, 2008. He has served as chairman of the board since January 1999, and will
retire as chairman and member of the board effective December 31, 2008. He served as president and
chief operating officer from February 1996 through September 2005. He joined the company in 1971
and has held management positions in the companys international operations based in São Paulo,
Vienna, Paris, and London. Mr. Taurel served as president of Eli Lilly International Corporation
from 1986 to 1991, executive vice president of the pharmaceutical division from 1991 to 1993, and
executive vice president of the company from 1993 to 1996. He is a member of the boards of IBM
Corporation and The McGraw-Hill Companies, Inc. He is also a member of the executive committee of
the board of directors of Pharmaceutical Research and Manufacturers of America (PhRMA), a member of
the board of overseers of the Columbia Business School, a trustee at the Indianapolis Museum of
Art, a director of the Indianapolis Tennis Championships, and a member of The Business Council and The
Business Roundtable. In 2007, he was appointed to the
Presidents Advisory Committee for Trade Policy and Negotiations. He is an officer of the French Legion of Honor.
Class of 2010
The following four directors will continue in office until 2010.
Sir Winfried Bischoff
Age 66
Director since 2000
Chairman,
Citigroup Inc.
Sir Winfried Bischoff is chairman of Citigroup Inc. He served as chairman of Citi Europe from 2000
to 2007 and as interim chief executive officer of Citigroup for a portion of 2007. From 1995 to
2000, he was chairman of Schroders plc. He joined the Schroder Group in 1966 and held a number of
positions there, including chairman of J. Henry Schroder & Co. and group chief executive of
Schroders plc. He is a nonexecutive director of The McGraw-Hill Companies, Inc., Land
Securities plc, and Prudential plc.
J. Michael Cook
Age 65
Director since 2005
Retired Chairman and
Chief Executive Officer, Deloitte & Touche LLP
Mr. Cook served as chairman and chief executive officer of Deloitte & Touche LLP from 1989 until
his retirement in 1999. He joined Deloitte, Haskins & Sells in 1964 and served as chairman and
chief executive from 1986 through 1989. Mr. Cook is a member of the Advisory Council of the Public
Company Accounting Oversight Board and is a trustee of The Scripps Research Institute. He serves on
the boards of Comcast Corporation and International Flavors & Fragrances Inc. He is chairman of the
Accountability Advisory Council to the Comptroller General of the United States. He was a member of
the National Association of Corporate Directors Blue Ribbon Panel on Corporate Governance and was
named the 62nd member of the Accounting Hall of Fame in 1999. He is past president of the Institute
of Outstanding Directors.
8
Franklyn G. Prendergast, M.D., Ph.D.
Age 62
Director since 1995
Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of
Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; Director, Mayo Clinic
Center for Individualized Medicine; and Director Emeritus, Mayo
Clinic Cancer Center
Dr. Prendergast is the Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology
and Professor of Molecular Pharmacology and Experimental Therapeutics at Mayo Medical School and
the director of the Center for Individualized Medicine. He has held several other teaching
positions at the Mayo Medical School since 1975. Dr. Prendergast serves on the board of trustees of
the Mayo Foundation and the Mayo Clinic Board of Governors.
Kathi P. Seifert
Age 58
Director since 1995
Retired Executive Vice
President, Kimberly-Clark Corporation
Ms. Seifert served as executive vice president for Kimberly-Clark Corporation until June 2004. She
joined Kimberly-Clark in 1978 and served in several capacities in connection with both the domestic
and international consumer products businesses. Prior to joining Kimberly-Clark, Ms. Seifert held
management positions at Procter & Gamble, Beatrice Foods, and Fort Howard Paper Company. She is
chairman of Pinnacle Perspectives, LLC. Ms. Seifert serves on the boards of Supervalu Inc.; Revlon
Consumer Products Corporation; Lexmark International, Inc.; Appleton Papers Inc.; the U.S. Fund for
UNICEF; ThedaCare; and the Fox Cities Performing Arts Center.
9
Highlights of the Companys Corporate Governance Guidelines
The board of directors has established guidelines that it follows in matters of corporate
governance. The following summary provides highlights of those guidelines. A complete copy of the
guidelines is available online at http://investor.lilly.com/guidelines.cfm or in paper form upon
request to the companys corporate secretary.
I. Role of the Board
The directors are elected by the shareholders to oversee the actions and results of the companys
management. Their responsibilities include:
|
|
|
providing general oversight of the business |
|
|
|
|
approving corporate strategy |
|
|
|
|
approving major management initiatives |
|
|
|
|
providing oversight of legal and ethical conduct |
|
|
|
|
overseeing the companys management of significant business risks |
|
|
|
|
selecting, compensating, and evaluating directors |
|
|
|
|
evaluating board processes and performance |
|
|
|
|
selecting, compensating, evaluating, and, when necessary, replacing the chief
executive officer, and compensating other executive officers |
|
|
|
|
ensuring that a succession plan is in place for all senior executives. |
II. Composition of the Board
Mix of Independent Directors and Officer-Directors
There should always be a substantial majority (75 percent or more) of independent directors. The
chief executive officer should be a board member. Other officers may, from time to time, be board
members, but no officer other than the chief executive officer should expect to be elected to the
board by virtue of his or her office.
Selection of Director Candidates
The board is responsible for selecting candidates for board membership and for establishing the
criteria to be used in identifying potential candidates. The board delegates the screening process
to the directors and corporate governance committee. For more information on the director
nomination process, including the current selection criteria, see Directors and Corporate
Governance Committee Matters on pages 17-18.
Independence Determinations
The board annually determines the independence of directors based on a review by the directors and
corporate governance committee. No director is considered independent unless the board has
determined that he or she has no material relationship with the company, either directly or as a
partner, shareholder, or officer of an organization that has a material relationship with the
company. Material relationships can include commercial, industrial, banking, consulting, legal,
accounting, charitable, and familial relationships, among others. To evaluate the materiality of
any such relationship, the board has adopted categorical independence standards consistent with the
New York Stock Exchange listing guidelines.
Specifically, a director is not considered independent if (i) the director or an immediate
family member is a current partner of Lillys independent auditor (currently Ernst & Young LLP);
(ii) the director is a current employee of such firm; (iii) the director has an immediate family
member who is a current employee of such firm and who participates in the firms audit, assurance,
or tax compliance (but not tax planning) practice; or (iv) the director or an immediate family
member was within the last three years (but is no longer) a partner or employee of such firm and
personally worked on the listed companys audit within that time.
In addition, a director is not considered independent if any of the following relationships
existed within the previous three years:
|
|
|
a director who is an employee of Lilly, or whose immediate family member is an
executive officer of Lilly. Temporary service by an independent director as interim
chairman or chief executive officer will not disqualify the director from being
independent following completion of that service. |
|
|
|
|
a director who receives any direct compensation from Lilly other than the directors
normal director compensation, or whose immediate family member receives more than
$100,000 per year in direct compensation from Lilly other than for
service as a nonexecutive employee. |
|
|
|
|
a director who is employed (or whose immediate family member is employed as an
executive officer) by another company where any Lilly executive officer serves on the
compensation committee of that companys board. |
|
|
|
|
a director who is employed by, who is a 10 percent shareholder of, or whose immediate
family member is an executive officer of a company that makes payments to or receives
payments from Lilly for property or services that exceed the greater of $1 million or 2
percent of that companys gross revenues in a single fiscal year. |
|
|
|
|
a director who is an executive officer of a nonprofit organization that receives
grants or contributions from Lilly in a single fiscal year exceeding the greater of $1
million or 2 percent of that organizations gross revenues in a single fiscal year. |
Members of the audit, compensation, and directors and corporate governance committees must
meet all applicable independence tests of the
10
New York Stock Exchange, Securities and Exchange
Commission, and Internal Revenue Service.
In February 2008, the directors and corporate governance committee reviewed directors
responses to a questionnaire asking about their relationships with the company (and those of their
immediate family members) and other potential conflicts of interest, as well as material provided
by management related to transactions, relationships, or arrangements between the company and the
directors or parties related to the directors. The committee determined that all 10 nonemployee
directors listed below are independent, and that the members of the audit, compensation, and
directors and corporate governance committees also meet the independence tests referenced above.
The committee recommended this conclusion to the board and explained the basis for its decision,
and this conclusion was adopted by the full board. The committee and the board determined that none
of the 10 directors listed below has had during the last three years (i) any of the relationships
listed above or (ii) any other material relationship with the company that would compromise his or
her independence. The table below includes a description of categories or types of transactions,
relationships, or arrangements considered by the board (in addition to those listed above) in
reaching its determination that the directors are independent. All of these relationships and
transactions were entered into at arms length in the normal course of business and, to the extent they are
commercial relationships, have standard commercial terms. None of these relationships or
transactions exceeded the thresholds described above or otherwise compromise the independence of
the named director.
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Independent |
|
|
Transactions/Relationships/Arrangements |
|
|
Sir
Winfried Bischoff
|
|
|
Yes
|
|
|
|
|
|
Mr. Cook
|
|
|
Yes
|
|
|
|
|
|
Dr. Feldstein
|
|
|
Yes
|
|
|
|
|
|
Mr. Fisher
|
|
|
Yes
|
|
|
|
|
|
Mr. Fyrwald
|
|
|
Yes
|
|
|
|
|
|
Dr. Gilman
|
|
|
Yes
|
|
|
|
|
|
Ms. Horn
|
|
|
Yes
|
|
|
|
|
|
Ms. Marram
|
|
|
Yes
|
|
|
|
|
|
Dr. Prendergast
|
|
|
Yes
|
|
|
|
|
|
Ms. Seifert
|
|
|
Yes
|
|
|
|
|
|
Director Tenure
Subject to the companys charter documents, the governance guidelines establish the following
expectations for director tenure:
|
|
|
A company officer-director, including the chief executive officer, will resign from
the board at the time he or she retires or otherwise ceases to be an active employee of
the company. |
|
|
|
|
Nonemployee directors will retire from the board not later than the annual meeting of
shareholders that follows their seventy-second birthday. |
|
|
|
|
Directors may stand for reelection even though the boards retirement policy would
prevent them from completing a full three-year term. |
|
|
|
|
A nonemployee director who retires or changes principal job responsibilities will
offer to resign from the board. The directors and corporate governance committee will
assess the situation and recommend to the board whether to accept the resignation. |
Voting for Directors
In an uncontested election, any nominee for director who receives a greater number of votes
withheld from his or her election than votes for such election (a majority withheld vote)
shall promptly tender his or her resignation following certification of the shareholder vote. The
directors and corporate governance committee will consider the resignation offer and recommend to
the board whether to accept it. The board will act on the committees recommendation within 90 days
following certification of the shareholder vote. Board action on the matter will require the
approval of a majority of the independent directors.
The company will disclose the boards decision on a Form 8-K furnished to the Securities and
Exchange Commission within four business days after the decision, including a full explanation of
the process by which the decision was reached and, if applicable, the reasons why the board
rejected the directors resignation. If the resignation is accepted, the directors and corporate
governance committee will recommend to the board whether to fill the vacancy or reduce the size of
the board.
11
Any director who tenders his or her resignation under this provision will not participate in
the committee or board deliberations regarding whether to accept the resignation offer. If each
member of the directors and corporate governance committee receives a majority withheld vote at the
same election, then the independent directors who did not receive a majority withheld vote will
appoint a committee amongst themselves to consider the resignation offers and recommend to the
board whether to accept them.
See Item 4 for managements proposal to provide for the election of directors by a true
majority vote.
III. Director Compensation and Equity Ownership
The directors and corporate governance committee annually reviews board compensation. Any
recommendations for changes are made to the full board by the committee.
Directors should hold meaningful equity ownership positions in the company; accordingly, a
significant portion of overall director compensation is in the form of company equity. Directors
are required to hold Lilly stock valued at a minimum of five times their annual cash retainer; new
directors are allowed five years to reach this ownership level.
IV. Key Responsibilities of the Board
Selection of Chairman and Chief Executive Officer; Succession Planning
The board customarily combines the roles of chairman and chief executive officer, believing this
generally provides the most efficient and effective leadership model for the company. The board
anticipates that, in certain circumstances, and particularly during relatively short periods of
leadership transition, these roles may be assigned to two different persons. The presiding director
recommends to the board an appropriate process by which a new chairman and chief executive officer
will be selected.
The independent directors are responsible for overseeing succession and management development
programs for senior leadership. The chief executive officer develops and maintains a process for
advising the board on succession planning for the chief executive officer and other key leadership
positions. He or she reviews this plan with the independent directors at least annually.
Evaluation of Chief Executive Officer
The presiding director leads the independent directors annually in assessing the performance of the
chief executive officer. The results of this review are discussed with the chief executive officer
and considered by the compensation committee in establishing his or her compensation for the next
year.
Corporate Strategy
Once each year, the board devotes an extended meeting to an update from management regarding the
strategic issues and opportunities facing the company, allowing the board an opportunity to provide
direction for the corporate strategic plan. Throughout the year, significant corporate strategy
decisions are brought to the board for approval.
Code of Ethics
The board approved the companys code of ethics, which complies with the requirements of the New
York Stock Exchange and the Securities and Exchange Commission. This code is set out in:
|
|
|
The Red Book, a comprehensive code of ethical and legal business conduct applicable
to all employees worldwide and to our board of directors |
|
|
|
|
the companys Code of Ethical Conduct for Lilly Financial Management, a supplemental
code for our chief executive officer, chief operating officer, and all members of
financial management that recognizes the unique responsibilities of those individuals in
assuring proper accounting, financial reporting, internal controls, and financial
stewardship. |
Both documents are available online at http://investor.lilly.com/code_business_conduct.cfm or
in paper form upon request to the companys corporate secretary.
The audit committee and public policy and compliance committee assist in the boards oversight
of compliance programs with respect to matters covered in the code of ethics.
V. Functioning of the Board
Executive Session of Directors
The independent directors meet alone in executive session at every regularly scheduled board
meeting. In addition, at least twice a year, the independent directors meet in executive session
with the chief executive officer.
Presiding Director
The board appoints a presiding director from among the independent directors (currently Ms. Horn).
The presiding director:
|
|
|
leads the boards process for selecting and evaluating the chief executive officer; |
|
|
|
|
presides at all meetings of the board at which the chairman is not present, including
executive sessions of the independent directors unless the directors decide that, due to
the subject matter of the session, another independent director should preside; |
|
|
|
|
serves as a liaison between the chairman and the independent directors; |
|
|
|
|
approves meeting agendas and schedules and generally approves information sent to the
board; and |
12
|
|
|
has the authority to call meetings of the independent directors. |
Conflicts of Interest
Occasionally a directors business or personal relationships may give rise to an interest that
conflicts, or appears to conflict, with the interests of the company. Directors must disclose to
the company all relationships that create a conflict or an appearance of a conflict. The board,
after consultation with counsel, takes appropriate steps to ensure that all directors voting on an
issue are disinterested. In appropriate cases, the affected director will be excused from
discussions on the issue.
To avoid any conflict or appearance of a conflict, board decisions on certain matters of
corporate governance are made solely by the independent directors. These include executive
compensation and the selection, evaluation, and removal of the chief executive officer.
Review and Approval of Transactions with Related Persons
The board has adopted a written policy and written procedures for review, approval, and monitoring
of transactions involving the company and related persons (directors and executive officers,
their immediate family members, or shareholders owning five percent or greater of the companys
outstanding stock). The policy covers any related person transaction that meets the minimum
threshold for disclosure in the proxy statement under the relevant SEC rules (generally,
transactions involving amounts exceeding $120,000 in which a related person has a direct or
indirect material interest).
Policy
|
|
|
Related person transactions must be approved by the board or by a committee of the
board consisting solely of independent directors, who will approve the transaction only
if they determine that it is in the best interests of the company. In considering the
transaction, the board or committee will consider all relevant factors, including as
applicable (i) the companys business rationale for entering into the transaction; (ii)
the alternatives to entering into a related person transaction; (iii) whether the
transaction is on terms comparable to those available to third parties, or in the case
of employment relationships, to employees generally; (iv) the potential for the
transaction to lead to an actual or apparent conflict of interest and any safeguards
imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of
the transaction to the company. |
|
|
|
|
The board or relevant committee will periodically monitor the transaction to ensure
that there are no changed circumstances that would render it advisable for the company
to amend or terminate the transaction. |
Procedures
|
|
|
Management or the affected director or executive officer will bring the matter to the
attention of the chairman, the presiding director, the chair of the directors and
corporate governance committee, or the secretary. |
|
|
|
|
The chairman and the presiding director shall jointly determine (or if either is
involved in the transaction, the other shall determine in consultation with the chair of
the directors and corporate governance committee) whether the matter should be
considered by the board or by one of its existing committees consisting only of
independent directors. |
|
|
|
|
If a director is involved in the transaction, he or she will be recused from all
discussions and decisions about the transaction. |
|
|
|
|
The transaction must be approved in advance whenever practicable, and if not
practicable, must be ratified as promptly as practicable. |
|
|
|
|
The board or relevant committee will review the transaction annually to determine
whether it continues to be in the companys best interests. |
Currently the only related person transaction is the time-share arrangement for Mr. Taurels
personal use of the corporate aircraft, as described on pages 39-40. The compensation
committee approved and continues to monitor this arrangement consistent with the above policy.
Orientation and Continuing Education
A comprehensive orientation process is in place for new directors. In addition, directors receive
ongoing continuing education through educational sessions at meetings, the annual strategy retreat,
and periodic mailings between meetings. We hold periodic mandatory training sessions for the audit
committee, to which other directors and executive officers are invited. We also afford directors
the opportunity to attend external director education programs.
Director Access to Management and Independent Advisers
Independent directors have direct access to members of management whenever they deem it necessary.
The independent directors and the committees are also free to retain their own independent
advisers, at company expense, whenever they feel it would be desirable to do so. In accordance with
New York Stock Exchange listing standards, the audit, compensation, and directors and corporate
governance committees have sole authority to retain independent advisers to their respective
committees.
Assessment of Board Processes and Performance
The directors and corporate governance committee annually assesses the performance of the board,
its committees, and board processes based on inputs from all directors. The committee also
considers the contributions of individual directors at least every three years when considering
whether to recommend nominating the director to a new three-year term.
13
VI. Board Committees
Number, Structure, and Independence
The duties and membership of the six board-appointed committees are described below. Only
independent directors may serve on the audit, compensation, directors and corporate governance, and
public policy and compliance committees. Only independent directors may chair any committee.
Committee membership and selection of committee chairs are recommended to the board by the
directors and corporate governance committee after consulting the chairman of the board and after
considering the desires of the board members.
Functioning of Committees
Each committee reviews and approves its own charter annually, and the directors and corporate
governance committee reviews and approves all committee charters annually. The board may form new
committees or disband a current committee (except the audit, compensation, and directors and
corporate governance committees) as it deems appropriate. The chair of each committee determines
the frequency and agenda of committee meetings. In addition, the audit and compensation committees
meet alone in executive session on a regular basis; all other committees meet in executive session
as needed.
All six committee charters are available online at
http://investor.lilly.com/board-committees.cfm or in paper form upon request to the companys
corporate secretary.
Committees
of the Board of Directors
Audit Committee
The duties of the audit committee are described in the audit committee report found on pages
18-19.
Directors and Corporate Governance Committee
The duties of the directors and corporate governance committee are described on pages
17-18.
Compensation Committee
The duties
of the compensation committee are described on pages 21-22, and the
compensation committee report is shown on page 30.
Public Policy and Compliance Committee
|
|
|
oversees the processes by which the company conducts its business so that the company
will do so in a manner that complies with laws and regulations and reflects the highest
standards of integrity |
|
|
|
|
reviews and makes recommendations regarding policies, practices, and procedures of
the company that relate to public policy and social, political, and economic issues that
may affect the company. |
Finance Committee
|
|
|
reviews and makes recommendations regarding capital structure and strategies,
including dividends, stock repurchases, capital expenditures, financings and borrowings,
and significant business development projects. |
Science and Technology Committee
|
|
|
reviews and makes recommendations regarding the companys strategic research goals
and objectives |
|
|
|
|
reviews new developments, technologies, and trends in pharmaceutical research and
development. |
Membership and Meetings of the Board and Its Committees
In 2007, each director attended more than 88 percent of the total number of meetings of the board
and the committees on which he or she serves. In addition, all board members are expected to attend
the annual meeting of shareholders, and all attended in 2007. Current committee membership and the
number of meetings of the full board and each committee in 2007 are shown in the table below.
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and |
|
|
|
|
|
Public Policy and |
|
|
Science and |
|
|
Name |
|
|
Board |
|
|
Audit |
|
|
Compensation |
|
|
Corporate Governance |
|
|
Finance |
|
|
Compliance |
|
|
Technology |
|
|
Sir Winfried Bischoff |
|
|
Member |
|
|
|
|
|
|
|
|
Member |
|
|
Chair |
|
|
|
|
|
|
|
|
Mr. Cook |
|
|
Member |
|
|
Chair |
|
|
|
|
|
|
|
|
Member |
|
|
|
|
|
|
|
|
Dr. Feldstein |
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
Member |
|
|
Chair |
|
|
|
|
|
Mr. Fisher |
|
|
Member |
|
|
|
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Mr. Fyrwald |
|
|
Member |
|
|
|
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Dr. Gilman |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Chair |
|
|
Ms. Horn |
|
|
Member |
|
|
|
|
|
Chair |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Ms. Marram |
|
|
Member |
|
|
|
|
|
Member |
|
|
Chair |
|
|
|
|
|
|
|
|
|
|
|
Dr. Prendergast |
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Member |
|
|
Ms. Seifert |
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
Member |
|
|
Member |
|
|
|
|
|
Mr. Taurel |
|
|
Chair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of 2007 Meetings |
|
|
7 |
|
|
8 |
|
|
6 |
|
|
4 |
|
|
5 |
|
|
5 |
|
|
5 |
|
|
Directors Compensation
Directors who are employees receive no additional compensation for serving on the board or its
committees.
In 2007, we provided the following annual compensation to directors who are not employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
or Paid in Cash |
|
|
|
Stock Awards |
|
|
|
Stock Option Awards |
|
|
|
Compensation |
|
|
|
Total |
|
|
|
Name |
|
|
($) (1) |
|
|
|
($) (2) |
|
|
|
($) (3) |
|
|
|
($) (4) |
|
|
|
($) (5) |
|
|
|
Sir Winfried Bischoff |
|
|
$ |
95,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
3,067 |
|
|
|
$ |
247,141 |
|
|
|
Mr. Cook |
|
|
$ |
120,000 |
|
|
|
$ |
145,000 |
|
|
|
|
0 |
|
|
|
$ |
29,124 |
|
|
|
$ |
294,124 |
|
|
|
Dr. Feldstein |
|
|
$ |
110,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
29,000 |
|
|
|
$ |
288,074 |
|
|
|
Mr. Fisher |
|
|
$ |
93,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
30,610 |
|
|
|
$ |
272,684 |
|
|
|
Mr. Fyrwald |
|
|
$ |
103,000 |
|
|
|
$ |
145,000 |
|
|
|
|
0 |
|
|
|
$ |
1,185 |
|
|
|
$ |
249,185 |
|
|
|
Dr. Gilman |
|
|
$ |
100,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
32,374 |
|
|
|
$ |
281,448 |
|
|
|
Ms. Horn |
|
|
$ |
122,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
4,202 |
|
|
|
$ |
275,276 |
|
|
|
Ms. Marram |
|
|
$ |
95,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
34,878 |
|
|
|
$ |
278,952 |
|
|
|
Dr. Prendergast |
|
|
$ |
98,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
555 |
|
|
|
$ |
247,629 |
|
|
|
Ms. Seifert |
|
|
$ |
100,000 |
|
|
|
$ |
145,000 |
|
|
|
$ |
4,074 |
|
|
|
$ |
75,000 |
|
|
|
$ |
324,074 |
|
|
|
|
|
|
(1) |
|
The following directors deferred 2007 cash compensation into their deferred share
account under the Lilly Directors Deferral Plan (further described below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
2007 Cash Deferred |
|
|
|
Shares |
|
|
|
Mr. Fisher |
|
|
$ |
46,500 |
|
|
|
|
839 |
|
|
|
Mr. Fyrwald |
|
|
$ |
103,000 |
|
|
|
|
1,854 |
|
|
|
|
|
|
(2) |
|
Each nonemployee director received an award of stock with a grant date fair value of
$145,000 (2,840 shares). This stock award and all prior stock awards are fully vested in that
they are not subject to forfeiture; however, the shares are not issued until the director ends
his or her service on the board, as further described below under Lilly Directors Deferral
Plan. The table shows the expense recognized by the company for each directors stock award. |
|
(3) |
|
No stock options were granted in 2007, as the stock option program for directors was
discontinued in 2005. The amounts in this column reflect the expenses related to options
granted in 2004 recognized in our 2007 financial statements. A discussion of the assumption
used in calculating these values may be found in Note 7 to our 2007 audited financial
statements on pages XX XX of our annual report. Aggregate total numbers of stock option
awards outstanding are shown below in the Directors Outstanding Stock Options table. All
outstanding options were vested as of February 17, 2007. Stock option grants were established
using the same procedure for timing and price as is used for employees. |
15
|
|
|
(4) |
|
This column also includes amounts donated by the Eli Lilly and Company Foundation,
Inc. under its matching gift program, which is generally available to U.S. employees as well
as the outside directors. Under this program, the foundation matches 100 percent of charitable
donations over $25 made to eligible charities, up to a maximum of $90,000 per year for each
individual. For all directors, the amounts in this column also include tax reimbursements for
income imputed to him or her for use of the corporate aircraft, or for commercial flights, by
his or her spouse to attend board functions that included spouse participation. For Mr.
Fyrwald, this amount includes tax reimbursement for income imputed to him for child care
during a board function that included spouse participation.
The foundation matched the following donations of more than $10,000 for outside directors in
2007 via payments made directly to the recipient charity: |
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Amount of Matching Donation |
|
|
|
Mr. Cook |
|
|
$ |
27,000 |
|
|
|
Dr. Feldstein |
|
|
$ |
29,000 |
|
|
|
Mr. Fisher |
|
|
$ |
30,000 |
|
|
|
Dr. Gilman |
|
|
$ |
31,500 |
|
|
|
Ms. Marram |
|
|
$ |
34,500 |
|
|
|
Ms. Seifert |
|
|
$ |
75,000 |
|
|
|
|
|
|
(5) |
|
Directors do not participate in a Lilly pension plan or non-equity incentive plan. |
Directors Outstanding Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
Name |
|
|
Grant Date |
|
|
|
Expiration Date |
|
|
|
Exercise Price |
|
|
|
(Exercisable) |
|
|
|
Sir Winfried Bischoff |
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
Mr. Cook |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
Dr. Feldstein |
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
Mr. Fisher |
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
Mr. Fyrwald |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
Dr. Gilman |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
Ms. Horn |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
Ms. Marram |
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
Name |
|
|
Grant Date |
|
|
|
Expiration Date |
|
|
|
Exercise Price |
|
|
|
(Exercisable) |
|
|
|
Dr. Prendergast |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
Ms. Seifert |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
Cash Compensation
The company provides directors the following cash compensation:
|
|
|
retainer of $80,000 per year (payable monthly) |
|
|
|
|
$1,000 for each committee meeting attended |
|
|
|
|
$2,000 to the committee chairpersons for each committee meeting conducted as
compensation for the chairpersons preparation time |
|
|
|
|
retainer of $20,000 per year to the presiding director |
|
|
|
|
reimbursement for customary and usual travel expenses. |
Stock Compensation
Stock compensation for directors consists of:
|
|
|
Shares of Lilly stock equaling $145,000, deposited annually in a deferred stock
account in the Lilly Directors Deferral Plan (as described below), payable after
service on the board has ended. |
Lilly Directors Deferral Plan
This plan allows directors to defer receipt of all or part of their retainer and meeting fees until
after their service on the board has ended. Each director can choose to invest the funds in either
of two accounts:
|
|
|
Deferred Share Account. This account allows the director, in effect, to invest his or
her deferred cash compensation in Lilly stock. In addition, the annual award of shares
to each director noted above (2,840 shares in 2007) is credited to this account on a
pre-set annual date. Funds in this account are credited as hypothetical shares of Lilly
stock based on the market price of the stock at the time the compensation would
otherwise have been earned. Hypothetical dividends are reinvested in additional shares
based on the market price of the stock on the date dividends are paid. All shares in the
deferred share accounts are hypothetical and are not issued or transferred until the
director ends his or her service on the board. |
|
|
|
|
Deferred Compensation Account. Funds in this account earn interest each year at a
rate of 120 percent of the applicable federal long-term rate, compounded monthly, as
established the preceding December by the U.S. Treasury Department under Section 1274(d)
of the Internal Revenue Code. The rate for 2008 is 5.5 percent. The aggregate amount of
interest that accrued in 2007 for the participating directors was $188,706, at a rate of
5.7 percent. |
Both accounts may be paid in a lump sum or in annual installments for up to 10 years. Amounts
in the deferred share account are paid in shares of Lilly stock.
Directors and Corporate Governance Committee Matters
Overview
The directors and corporate governance committee recommends candidates for membership on the board
and board committees. The committee also oversees matters of corporate governance, director
independence, director compensation, and board performance. The committees charter is available
online at
http://investor.lilly.com/board-committees.cfm or in paper form upon request to the companys
corporate secretary.
All committee members are independent as defined in the New York Stock Exchange listing
requirements.
Director Nomination Process
The board seeks independent directors who represent a mix of backgrounds and experiences that will
enhance the quality of the boards deliberations and decisions. Candidates shall have substantial
experience with one or more publicly traded national or multinational companies or shall have
achieved a high level of distinction in their chosen fields.
Board membership should reflect diversity in its broadest sense, including persons diverse in
geography, gender, and ethnicity. The board is particularly interested in maintaining a mix that
includes the following backgrounds:
17
|
|
|
active or retired chief executive officers and senior executives, particularly those
with experience in operations, finance or banking, and marketing or sales |
|
|
|
|
international business |
|
|
|
|
medicine and science |
|
|
|
|
government and public policy |
|
|
|
|
health care environment |
|
|
|
|
information technology. |
The board delegates the screening process to the directors and corporate governance committee,
which receives direct input from other board members. Potential candidates are identified by
recommendations from several sources, including:
|
|
|
incumbent directors |
|
|
|
|
management |
|
|
|
|
shareholders |
|
|
|
|
an independent executive search firm retained by the committee to assist in locating
candidates meeting the boards selection criteria. |
The committee employs the same process for evaluating all candidates, including those
submitted by shareholders. The committee initially evaluates the candidate based on publicly
available information and any additional information supplied by the party recommending the
candidate. If the candidate appears to satisfy the selection criteria and the committees initial
evaluation is favorable, the committee, assisted by management, gathers additional data on the
candidates qualifications, availability, probable level of interest, and any potential conflicts
of interest. If the committees subsequent evaluation continues to be favorable, the candidate is
contacted by the chairman of the board and one or more of the independent directors for direct
discussions to determine the mutual levels of interest in pursuing the candidacy. If these
discussions are favorable, the committee makes a final recommendation to the board to nominate the
candidate for election by the shareholders (or to select the candidate to fill a vacancy, as
applicable).
Process for Submitting Recommendations and Nominations
A shareholder who wishes to recommend a director candidate for evaluation by the committee pursuant
to this process should forward the candidates name and information about the candidates
qualifications to the chairman of the directors and corporate governance committee, in care of the
corporate secretary, at Lilly Corporate Center, Indianapolis, Indiana 46285. The candidate must
meet the selection criteria described above and must be willing and expressly interested in serving
on the board.
Under Section 1.9 of the companys bylaws, a shareholder who wishes to directly nominate a
director candidate at the 2009 annual meeting (i.e., to propose a candidate for election who is not
otherwise nominated by the board through the recommendation process described above) must give the
company written notice by November 10, 2008. The notice should be addressed to the corporate
secretary at Lilly Corporate Center, Indianapolis, Indiana 46285. The notice must contain
prescribed information about the candidate and about the shareholder proposing the candidate as
described in more detail in Section 1.9 of the bylaws. A copy of the bylaws is available online at
http://investor.lilly.com/bylaws.cfm. The bylaws will also be provided by mail without charge upon
request to the corporate secretary.
Audit Committee Matters
Audit
Committee Membership
All members of the audit committee are independent as defined in the New York Stock Exchange
listing standards applicable to audit committee members. The board of directors has determined that
Mr. J. Michael Cook is an audit committee financial expert as defined in the rules of the
Securities and Exchange Commission.
Audit Committee Report
The audit committee (we or the committee) reviews the companys financial reporting process on
behalf of the board. Management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls and disclosure controls. In this
context, we have met and held discussions with management and the independent auditors. Management
represented to us that the companys consolidated financial statements were prepared in accordance
with generally accepted accounting principles, and we have reviewed and discussed the audited
financial statements and related disclosures with management
and the independent auditors, including a review of the significant management judgments underlying
the financial statements and disclosures.
The independent auditors report to us. We have sole authority to appoint (subject to
shareholder ratification) and to terminate the engagement of the independent auditors.
We have discussed with the independent auditors matters required to be discussed by Statement
on Auditing Standards No. 61 (Communication with Audit Committees), including the quality, not just
the acceptability, of the accounting principles, the reasonableness of significant judgments, and
the clarity of the disclosures in the financial statements. In addition, we have received the
written disclosures and the letter from the independent auditors required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and have discussed
with the independent auditors the auditors independence from the company and its management. In
concluding that the auditors are independent, we determined, among other things, that the nonaudit
services provided by Ernst & Young LLP (as described below) were
18
compatible with their
independence. Consistent with the requirements of the Sarbanes-Oxley Act of 2002, we have adopted
policies to avoid compromising the independence of the independent auditors, such as prior
committee approval of nonaudit services and required audit partner rotation.
We discussed with the companys internal and independent auditors the overall scope and plans
for their respective audits including internal control testing under Section 404 of the
Sarbanes-Oxley Act. We periodically meet with the internal and independent auditors, with and
without management present, and in private sessions with members of senior management (such as the
chief financial officer, the chief accounting officer, and the general auditor) to discuss the
results of their examinations, their evaluations of the companys internal controls, and the
overall quality of the companys financial reporting. We also periodically meet
in executive session.
In reliance on the reviews and discussions referred to above, we recommended to the board (and
the board subsequently approved the recommendation) that the audited financial statements be
included in the companys annual report on Form 10-K for the year ended December 31, 2007, for
filing with the Securities and Exchange Commission. We have also appointed the companys
independent auditors, subject to shareholder ratification, for 2008.
Audit Committee
J. Michael Cook, Chair
Martin S. Feldstein, Ph.D.
Franklyn G. Prendergast, M.D., Ph.D.
Kathi P. Seifert
Services Performed by the Independent Auditor
The audit committee preapproves all services performed by the independent auditor, in part to
assess whether the provision of such services might impair the auditors independence. The
committees policy and procedures are as follows:
|
|
|
The committee approves the annual audit services engagement and, if necessary, any
changes in terms, conditions, and fees resulting from changes in audit scope, company
structure, or other matters. The committee may also preapprove other audit services,
which are those services that only the independent auditor reasonably can provide. Since
2004, audit services have included internal controls attestation work under Section 404
of the Sarbanes-Oxley Act. |
|
|
|
|
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit, and that are traditionally performed by the
independent auditor. The committee believes that the provision of these services does not
impair the independence of the auditor. |
|
|
|
|
Tax services. The committee believes that, in appropriate cases, the independent
auditor can provide tax compliance services, tax planning, and tax advice without
impairing the auditors independence. |
|
|
|
|
The committee may approve other services to be provided by the independent auditor
if (i) the services are permissible under SEC and Public Company Accounting Oversight
Board rules, (ii) the committee believes the provision of the services would not impair
the independence of the auditor, and (iii) management believes that the auditor is the
best choice to provide the services. |
|
|
|
|
Process. At the beginning of each audit year, management requests prior committee
approval of the annual audit, statutory audits, and quarterly reviews for the upcoming
audit year as well as any other engagements known at that time. Management will also
present at that time an estimate of all fees for the upcoming audit year. As specific
engagements are identified thereafter, they are brought forward to the committee for
approval. To the extent approvals are required between regularly scheduled committee
meetings, preapproval authority is delegated to the committee chair. |
For each engagement, management provides the committee with information about the services and
fees sufficiently detailed to allow the committee to make an informed judgment about the nature and
scope of the services and the potential for the services to impair the independence of the auditor.
After the end of the audit year, management provides the committee with a summary of the
actual fees incurred for the completed audit year.
19
Independent Auditor Fees
The following table shows the fees incurred for services rendered on a worldwide basis by Ernst &
Young LLP, the companys independent auditor, in 2007 and 2006. All such services were preapproved
by the committee in accordance with the preapproval policy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 (millions) |
|
|
2006 (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees |
|
|
|
|
|
|
|
|
|
|
|
Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation |
|
|
|
|
|
|
|
|
|
|
|
Reviews of quarterly financial statements |
|
|
|
|
|
|
|
|
|
|
|
Other services normally provided by the auditor in connection with statutory and regulatory filings |
|
|
$7.0 |
|
|
|
|
$ |
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit-Related Fees |
|
|
|
|
|
|
|
|
|
|
|
Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements |
|
|
|
|
|
|
|
|
|
|
|
2007
and 2006: primarily related to employee benefit plan and other
ancillary audits, and due diligence consulting on a possible
acquisition in 2007. |
|
|
$0.4 |
|
|
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Fees |
|
|
|
|
|
|
|
|
|
|
|
2007
and 2006: primarily related to compliance services outside the U.S. |
|
|
$1.4 |
|
|
|
|
$ |
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
2007
and 2006: primarily related to compliance services outside the U.S. |
|
|
$0.1 |
|
|
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$8.9 |
|
|
|
|
$ |
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Committee Matters
Scope of Authority
The compensation committee oversees the companys global compensation philosophy and establishes
the compensation of executive officers. The committee also acts as the oversight committee with
respect to the companys deferred compensation plans, management stock plans, and bonus plans
covering executives. In overseeing those plans, the committee may delegate authority to company
officers for day-to-day plan administration and interpretation, including selecting participants,
determining award levels within plan parameters, and approving award documents. However, the
committee may not delegate any authority for matters affecting the executive officers.
The Committees Processes and Procedures
The committees primary processes for establishing and overseeing executive compensation can be
found in the Compensation Discussion and Analysis section under
The Committees Processes on pages
21-22. Additional processes and procedures include:
|
|
|
Meetings. The committee meets several times each year (6 times in 2007). Committee
agendas are established in consultation with the committee chair and the committees
independent compensation consultant. The committee meets in executive session after each
meeting. |
|
|
|
|
Role of Independent Consultant. The committee has retained Frederic W. Cook and his
firm, Frederic W. Cook & Co., as its independent compensation consultant to assist the
committee in evaluating executive compensation programs and in setting executive officers
compensation. Mr. Cook reports directly to the committee, and neither he nor his firm is
permitted to perform any services for management. The consultants duties include the
following: |
|
|
|
Review committee agendas and supporting materials in advance of each
meeting and raise questions with the companys global compensation group and the
committee chair as appropriate |
|
|
|
|
Review the companys total compensation philosophy, peer group, and
target competitive positioning for reasonableness and appropriateness |
|
|
|
|
Review the companys total executive compensation program and advise
the committee of plans or practices that might be changed to better reflect
evolving best practices |
|
|
|
|
Provide independent analyses and recommendations to the committee on the CEOs pay |
|
|
|
|
Review draft Compensation Discussion and Analysis report and related tables for proxy statement |
|
|
|
|
Proactively advise committee on best practices ideas for board governance of executive compensation |
|
|
|
|
Undertake special projects at the request of the committee chair |
The consultant interacts directly with members of Lilly management only on matters under the
committees oversight and with the knowledge and permission of the committee chairperson.
|
|
|
Role of Executive Officers and Management. With the oversight of the CEO, chief
operating officer, and the senior vice president of human resources, the companys global
compensation group formulates recommendations on matters of compensation philosophy, plan
design, and the specific compensation recommendations for executive officers (other than the
CEO as noted below). The CEO gives the committee a performance assessment and compensation
recommendation for each of the other named executive officers. Those recommendations are
then considered by the committee with the assistance of its compensation consultant. The
CEO, the senior vice president of human resources, and, less frequently, the COO attend
committee meetings but are not present for the executive sessions or for any discussion of
their own compensation. (Only nonemployee directors and the committees consultant attend
executive sessions.) |
The CEO does not participate in the formulation or discussion of his pay recommendations
and has no prior knowledge of the recommendations that the consultant makes to the committee.
20
Compensation Committee Interlocks and Insider Participation
None of the compensation committee members:
|
|
|
has ever been an officer or employee of the company |
|
|
|
|
is or was a participant in a related person
transaction in 2007 (see page 13 for a
description of our policy on related person transactions) |
|
|
|
|
is an executive officer of another entity, at which one of our executive officers
serves on the board of directors. |
Executive Compensation
Compensation Discussion and Analysis
2007 Summary
Executive compensation for 2007 aligned well with the objectives of our compensation philosophy and
with our performance, driven by these factors:
|
|
|
Strong operating results yield strong incentive compensation payouts. In 2007, Lilly
performed in the top tier of its peer group in sales growth and adjusted earnings per share
growth; this strong top- and bottom-line growth led to cash and equity incentive
compensation payouts substantially above target. |
|
|
|
|
Equity design changes improve cost-effectiveness. We lowered the overall cost of our
equity program in 2007 while maintaining its competitiveness and motivational impact
by eliminating stock options in favor of shareholder value awards and by lowering total
equity grant values for most positions. |
|
|
|
|
Balanced program fosters employee achievement, retention, and engagement. We delivered
a balance of salary, performance-based cash and equity incentives, and a strong employee
benefit program. Together, these elements reinforced pay-for-performance incentives and
encouraged employee retention and engagement. |
For more detail, please see the remainder of this Compensation Discussion and Analysis and the
compensation tables.
Executive Compensation Philosophy
Our success depends on our ability to discover, develop, and market a stream of innovative
medicines that address important medical needs. In addition, we must continually improve
productivity in all that we do. To achieve these goals, we seek to attract, engage, and retain
highly talented individuals who are committed to the companys core values of excellence,
integrity, and respect for people. Our compensation and benefit programs are based on these
objectives:
|
|
|
Compensation should reflect individual and company performance. We link all employees pay
to individual and company performance. |
|
|
|
As employees assume greater responsibilities, more of their pay is linked to
company performance and shareholder returns. |
|
|
|
|
We seek to deliver top-tier compensation given top-tier individual and company
performance, but lower-tier compensation where individual performance falls short of
expectations and/or company performance lags the industry. |
|
|
|
|
We design our programs to be simple and clear, so that employees can easily
understand how their efforts affect their pay. |
|
|
|
|
We balance the objectives of pay-for-performance and employee retention. Even
during downturns in company performance, the programs should continue to motivate and
engage successful, high-achieving employees. |
|
|
|
Compensation should foster a long-term focus. A long-term focus is critical to success in
our industry. As employees progress to higher levels of the organization, a greater portion
of compensation is tied to our longer-term performance. |
|
|
|
|
Compensation should be based on the level of job responsibility. We seek internal pay
relativity, meaning that pay differences among jobs should be commensurate with differences
in the levels of responsibility and impact of the jobs. |
|
|
|
|
Compensation should reflect the marketplace for talent. We aim to remain competitive with
the pay of other premier employers with whom we compete for talent. |
|
|
|
|
Compensation and benefit programs should attract employees who are interested in a career
at Lilly. Our employee benefit programs provide a competitive advantage by helping us attract
and retain highly talented employees who are looking for the opportunity to build careers. |
|
|
|
|
Compensation should be efficient. To deliver superior long-term shareholder returns, we
must deliver value to employees in a cost-effective manner. |
|
|
|
|
Compensation and benefit programs should be egalitarian. While compensation will always
reflect differences in job responsibilities, geographies, and marketplace considerations, the
overall structure of compensation and benefit programs should be broadly similar across the
organization. |
The Committees Processes and Analyses
The compensation committee uses several tools to help it structure compensation programs that meet
company objectives. Among those are:
|
|
|
Assessment of Company Performance. The committee uses company performance measures
in two ways: |
|
|
|
In establishing total compensation ranges, the committee compares the
performance of Lilly and its peer group with respect to sales, earnings per share,
return on assets, return on equity, and total shareholder return. The committee
uses this data as a reference point rather than applying a formula. |
|
|
|
|
The committee establishes specific company performance measures that
determine payouts under the companys cash and equity formula-based incentive
programs. |
21
|
|
|
Assessment of Individual Performance. Individual performance has a strong impact on
compensation. The independent directors, under the direction of the presiding director,
meet with the CEO in executive session at the beginning of the year to agree upon the
CEOs performance objectives for the year. At the end of the year, the independent
directors again meet in executive session to review the performance of the CEO based on
his or her achievement of the agreed-upon objectives, contribution to the companys
performance, and other leadership accomplishments. This evaluation is shared with the CEO
by the presiding director and is provided to the compensation committee for its
consideration in setting the CEOs compensation. |
For the other named executive officers, the committee receives a performance
assessment and compensation recommendation from the CEO and also exercises its judgment
based on the boards interactions with the executive officer. As with the CEO, the
executives performance evaluation is based on the executives achievement of objectives
established between the executive and his or her supervisor, the executives contribution
to the companys performance, and other leadership accomplishments.
|
|
|
Peer Group Analysis. The committee compares the companys programs with a peer
group of global pharmaceutical companies. Pharmaceutical companies needs for scientific
and sales/marketing talent are unique to the industry and as such, Lilly must compete
with these companies for talent: Abbott Laboratories; Amgen; Bristol-Myers Squibb
Company; GlaxoSmithKline; Johnson & Johnson; Merck & Co.; Pfizer, Inc.; Schering-Plough
Corporation; and Wyeth Laboratories. The committee uses the peer group data two ways: |
|
|
|
Overall competitiveness. The committee uses aggregated data as a
reference point to ensure that the executive compensation program as a whole is
competitive, meaning within the broad middle range of comparative pay of the peer
group companies when the company achieves the targeted performance levels. The
committee does not target a specific position within the range. |
|
|
|
|
Individual competitiveness. The committee compares the overall pay of
individual executives, if the jobs are sufficiently similar to make the comparison
meaningful. The individuals pay is driven primarily by individual and company
performance and internal relativity rather than the peer group data; the peer
group data is used as a market check to ensure that individual pay remains
within the broad middle range of peer group pay. Again, the committee does not
target a specific position within the range. |
|
|
|
CEO Compensation. To provide further assurance of independence, the compensation
recommendation for the CEO is developed by the independent consultant without the input
or knowledge of the CEO and with limited support from company staff. The Cook firm
prepares analyses showing the median CEO compensation among the peer group in terms of
base salary, target annual incentive award, most recent equity grant value, and resulting
total direct compensation. Mr. Cook develops a range of recommendations for any change
in the CEOs base salary, annual incentive target, and equity grant value and mix. Mr.
Cooks recommendations for target CEO pay take into account the peer competitive pay
analysis and, importantly, the position of the CEO in relation to other senior company
executives and proposed pay actions for all key employees of the company. The range
allows for the committee to exercise its discretion based on the CEOs individual
performance. The CEO has no prior knowledge of the recommendations and takes no part in
the recommendations, committee discussions, or decisions. |
Executive Compensation for 2007
Overview Establishment of Overall Pay
In making its pay decisions for 2007, the committee reviewed 2006 company performance data and peer
group data as discussed above, and also considered expected competitive trends in executive pay.
That review showed:
|
|
|
Company performance. In 2006, Lilly performed in the upper tier of the peer group in
adjusted earnings per share growth, return on assets, and return on equity; in the middle
tier in sales growth; and in the lower tier in total shareholder return. |
|
|
|
|
Pay relative to peer group. For the one- and three-year periods ended 2006, Lillys
total pay to executive officers was in the broad middle range. |
The committee determined as follows:
|
|
|
Program elements. The 2007 program consisted of base salary, a cash incentive bonus
award, and two forms of performance-based equity grants performance awards and
shareholder value awards (SVAs). Executives also received the company employee benefit
package. This program balances the mix of cash and equity compensation, the mix of current
and longer-term compensation, and the security of foundational benefits in a way that
furthers the compensation objectives
discussed above. |
|
|
|
|
Pay ranges and mix of pay elements. To manage the overall costs of the program while
remaining competitive with expected peer group compensation, 2007 target pay ranges were
reduced in the aggregate across the management and executive ranks and the mix of pay was
shifted. This was accomplished by: |
|
|
|
eliminating stock options in favor of SVAs, which provide greater
retention and motivation value to employees at a lower cost to the shareholders |
|
|
|
|
reducing the target values for equity awards for most positions by up to 15 percent |
|
|
|
|
increasing base salaries modestly, consistent with the corporate merit budget |
|
|
|
|
maintaining cash bonus targets at 2006 levels. |
22
The committee believes that these changes resulted in a more cost-effective program that:
|
|
|
reduces overall costs to the company |
|
|
|
|
strengthens the incentives for retention and employee engagement by
delivering a competitive cash component and the new SVA program |
|
|
|
|
maintains a strong link to company performance and shareholder returns
through a balanced equity incentive program |
|
|
|
|
maintains appropriate internal pay relativity |
|
|
|
|
provides opportunity for total pay within the broad middle range of
expected peer group pay given company performance comparable to that of our peers. |
Base Salary
In setting base salaries for 2007, the committee considered the following:
|
|
|
The corporate merit budget, the companys overall budget for base salary increases.
The corporate merit budget was established based on company performance for 2006, planned
performance for 2007, and a reference to general merit trends. The objective of the merit
budget is to allow salary increases to retain, motivate, and reward successful performers
while maintaining affordability within the companys business plan. Individual pay
increases can be more or less than the budget amount depending on individual performance
but aggregate increases must stay within the budget. The aggregate increases for all
executive officers were within the corporate merit budget. |
|
|
|
|
Individual performance. As described above under The Committees Processes and
Analyses, base salary increases were driven largely by individual performance assessments. |
|
|
|
The independent directors assessed Mr. Taurels 2006 performance. They
considered the companys and Mr. Taurels accomplishment of objectives that had been
established at the beginning of the year and its own subjective assessment of his
performance. They noted that under Mr. Taurels leadership, in 2006 the company
exceeded its earnings targets through sales growth and productivity improvements,
drove progress in refining and implementing the long-term strategy, met aggressive
Six Sigma goals, strengthened its diversity programs, and enhanced its brand image
and reputation. In recognition of his continued strong leadership in 2006, the
committee increased Mr. Taurels annual salary by 4 percent, which was within the
range recommended by the committees consultant. |
|
|
|
|
The committee reviewed similar considerations for each of the other named
executives. In addition, with regard to Dr. Lechleiters performance, the committee
considered his leadership in increasing employee productivity and implementation of
strategic initiatives. The committee increased Dr. Lechleiters annual salary by 4
percent. |
|
|
|
|
With regard to Dr. Paul, the committee gave particular weight to his
leadership of the companys research and development efforts, noting that Lilly
Research Laboratories improved productivity in several phases of discovery and
development, increased the percentage of pipeline molecules currently
in clinical trials, and forged stronger links between research and the sales and marketing
organizations. The committee increased Dr. Pauls annual salary by 5 percent. |
|
|
|
|
In establishing Mr. Armitages annual salary (a 5 percent increase), the
committee noted his leadership in implementing successful litigation strategies,
leading the companys efforts to influence the legal and regulatory environment to
support innovation, and improving productivity within the law division. |
|
|
|
|
Mr. Rices annual salary was increased 6 percent in recognition of strong
internal controls and an improved financial planning process, as well as his strong
leadership of, and development of talent within, the financial
component and his outstanding contributions to the management of the
company. |
|
|
|
Internal relativity, meaning the relative pay differences for different job levels. |
|
|
|
|
Peer group data specific to certain positions where the jobs were viewed as comparable
in content and importance to the company. We used the peer group data not to target a
specific position in range, but instead as a market check for reasonableness and
competitiveness. The salaries as determined by the other factors were within the broad
middle range of expected competitive pay and, therefore, no further adjustments were
necessary for competitiveness. |
Cash Incentive Bonuses
The companys annual cash bonus programs align employees goals with the companys sales and
earnings growth objectives for the
current year. Cash incentive bonuses for all management employees worldwide, as well as most
nonmanagement employees in the U.S., are determined under the Eli Lilly and Company Bonus Plan.
Under the plan, the company sets target bonus amounts (a percentage of base salary) for all
participants at the beginning of each year. Bonus payouts range from zero to 200 percent of target
depending on the companys financial results relative to predetermined performance measures. At
the end of the performance period, the committee has discretion to adjust an award payout downward,
but not upward, from the amount yielded by the formula.
The committee considered the following when establishing the 2007 awards:
|
|
|
Target Bonus Sizes. Bonus targets (expressed as a percentage of base salary) were based
on job responsibilities, internal relativity, and peer group data. Consistent with our
compensation objectives, as executives assume greater responsibilities, more of their pay
is linked to company performance. For 2007, the committee maintained the same bonus
targets as 2006. The committee determined that these targets appropriately reflected
internal relativity. In addition, the peer group data suggested that the 2006 targets
would maintain cash compensation within the broad middle range of expected competitive pay
given median peer performance, so no adjustments were necessary. The 2007 targets were: |
23
|
|
|
Mr. Taurel 125 percent |
|
|
|
|
Dr. Lechleiter 100 percent |
|
|
|
|
Dr. Paul 85 percent |
|
|
|
|
Messrs. Rice and Armitage 75 percent. |
|
|
|
Company performance measures. The committee established 2007 company performance
measures with a 25 percent weighting on sales growth and a 75 percent weighting on growth
in adjusted EPS (reported earnings per share adjusted as described below under Adjustments
for Certain Items). This mix of performance measures focuses employees appropriately on
improving both top-line sales and bottom-line earnings, with special emphasis on earnings
in order to tie rewards directly to productivity improvements. The measures are also
effective motivators because they are easy for employees to track and understand. |
In establishing the 2007 target growth rates, the committee considered the expected 2007
performance of our peer group, based on published investment analyst estimates. The target
growth rates of 5 percent for sales and 8 percent for adjusted EPS represented approximately
the median expected growth rates for our peer group. These targets are consistent with our
compensation objectives because they result in above-target payouts if Lilly outperforms the
peer group and below-target payouts if Lilly performance lags the peer group. Payouts were
determined by this formula:
(0.25 x
sales multiple) + (0.75 x adjusted EPS multiple) = bonus multiple
Bonus multiple X target bonus X base salary earnings = payout
2007 sales and adjusted EPS multiples are illustrated by these charts:
|
|
|
|
|
2007 pro forma sales growth of
13.6 percent resulted in a sales multiple of 1.861. |
|
|
|
|
|
2007 pro forma adjusted EPS growth of 16.8 percent resulted in
an adjusted EPS multiple of 1.883.
|
Together the sales multiple and the adjusted EPS multiple yielded a bonus multiple of 1.88:
(0.25
x 1.861) + (0.75 x 1.883) = 1.88 bonus multiple
See
page 27 for a reconciliation of 2007 reported and pro forma sales and reported and pro
forma adjusted EPS.
Equity IncentivesTotal Equity Program
In 2007, we employed two forms of equity incentives granted under the 2002 Lilly Stock Plan:
performance awards and shareholder value awards. These incentives ensure that our leaders are
properly focused on long-term shareholder value.
24
|
|
|
Target Grant Values. For 2007, the committee reduced aggregate grant values for
management and executives overall in order to manage overall compensation costs. The
committee did not make up for the equity reductions by significantly increasing other
elements of compensation. The specific reductions at different job levels were
determined by internal relativity. Consistent with the companys compensation
objectives, individuals at higher levels received a greater proportion of total pay in
the form of equity. The committee determined that a 50/50 split for executives between
performance awards and shareholder value awards appropriately balances the shorter- and
longer-term incentives of the two programs. This is consistent with the 2006 grants,
which were split 50/50 between performance awards and stock options. |
|
|
|
|
The target values for 2007 equity grants for the named executives were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance |
|
|
|
Shareholder |
|
|
|
Name |
|
|
Awards |
|
|
|
Value Awards |
|
|
|
Mr. Taurel |
|
|
$ |
3,060,000 |
|
|
|
$ |
3,060,000 |
|
|
|
Dr. Lechleiter |
|
|
$ |
1,989,000 |
|
|
|
$ |
1,989,000 |
|
|
|
Dr. Paul |
|
|
$ |
1,200,000 |
|
|
|
$ |
1,200,000 |
|
|
|
Mr. Armitage |
|
|
$ |
855,000 |
|
|
|
$ |
855,000 |
|
|
|
Mr. Rice |
|
|
$ |
855,000 |
|
|
|
$ |
855,000 |
|
|
|
Two named executive officers did not receive reductions in their target equity values. Dr.
Pauls 2007 value remained the same as 2006 to preserve competitiveness within peer company
pay and to recognize the strategic importance of the chief scientific officer role. Mr.
Rices 2007 value increased due to his promotion in May 2006.
Equity IncentivesPerformance Awards
Performance awards provide employees with shares of Lilly stock if certain company performance
goals are achieved, aligning employees with shareholder interests and providing an ownership stake
in the company. The awards are structured as a schedule of shares of Lilly stock based on the
companys achievement of specific adjusted earnings-per-share (adjusted EPS) levels over specified
time periods of one or more years. Possible payouts range from zero to 200 percent of the target
amount, depending on adjusted EPS growth over the period. No dividends are paid on the awards
during the performance period. At the end of the performance period, the committee has discretion
to adjust an award payout downward, but not upward, from the amount yielded by the formula. For
the 2007 grants, the committee took into consideration the following:
|
|
|
Target grant values. As described above, the committee reduced target grant values
for most job levels and established a 50/50 split for executives between performance
awards and SVAs. |
|
|
|
|
Company performance measure. The committee established the performance measure as
adjusted EPS growth (reported EPS adjusted as described below under Adjustments for Certain Items) over a one-year
period, with a one-year holding period, thus creating a two-year award. The committee
believes adjusted EPS growth is an effective motivator because it is closely linked to
shareholder value, is broadly communicated to the public, and is easily understood by
employees. In setting the target growth percentage of 8 percent, the committee considered
the expected earnings performance of companies in our peer group over a one-year period,
based on published investment analyst estimates. Eight percent represented approximately
the median expected growth for our peer group; accordingly, consistent with our
compensation objectives, Lilly performance exceeding the peer group median would result in
above-target payouts and Lilly performance lagging the peer group median would result in
below-target payouts. Payouts were determined according to this schedule: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted 2007 EPS
Growth
|
|
|
Up to 2.99%
|
|
|
3.00 4.99%
|
|
|
5.00 6.99%
|
|
|
7.00 8.99%
|
|
|
9.00 10.99%
|
|
|
11.00 12.99%
|
|
|
13.00 15.99%
|
|
|
16.00% + |
|
|
Percent of Target
|
|
|
-0-
|
|
|
50%
|
|
|
75%
|
|
|
100%
|
|
|
125%
|
|
|
150%
|
|
|
175%
|
|
|
200% |
|
|
Pro forma adjusted EPS growth of 16.8 percent resulted in a 2007 performance award payout
at 200 percent of target. See page 27 for a reconciliation of 2007 reported and pro forma
adjusted EPS.
Equity IncentivesShareholder Value Awards
Beginning in 2007, the company implemented a new equity program, the shareholder value award (SVA),
which replaced our stock option program. The SVA pays out shares of Lilly stock based on the
performance of the companys stock over a three-year period. No dividends are paid on the awards
during the performance period. Payouts range from zero to 140 percent of the target amount,
depending on stock price performance over the period. The SVA program delivers equity compensation
that is strongly linked to longer-term shareholder returns. It is more cost-effective than the
stock option program it replaces, because the SVA program delivers,
at a lower cost to the company, an equity incentive that is equally
or more effective in aligning employee interests with long-term
shareholder return. For the 2007 grants, the committee considered the following:
25
|
|
|
Target grant size. As described above, the committee reduced target grant sizes
for most job levels and established a 50/50 split between performance awards and SVAs. |
|
|
|
|
Company performance measure. The SVA is designed to pay above target if Lillys
stock price outperforms an expected compounded annual rate of return for large-cap
companies and below target if Lilly stock underperforms that rate of return. The
expected rate of return used in this calculation was determined
considering the total return that a reasonable investor would
consider appropriate for investing in the stock of a large-cap U.S. company, based on input from external money managers, less Lillys current dividend yield.
Executive officers receive no payout if the stock price (less 3 years of dividends at the
current rate) does not grow over the three-year performance period in other words, if
total shareholder return for the three-year period is zero or negative. |
The starting price for the 2007 SVAs was $54.01 per share, representing the average of
the closing prices of Lilly stock for all trading days in November and December 2006. The
ending price to determine payouts will be the average of the closing prices of Lilly stock
for all trading days in November and December 2009.
Payouts will be determined by this grid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Stock Price
|
|
|
Up to $48.72
|
|
|
$48.72 $53.85
|
|
|
$53.86 $58.99
|
|
|
$59.00 - $62.99
|
|
|
$63.00 $66.99
|
|
|
$67.00 - $70.99
|
|
|
$71.00 + |
|
|
Percent of Target
|
|
|
-0-
|
|
|
40%
|
|
|
60%
|
|
|
80%
|
|
|
100%
|
|
|
120%
|
|
|
140% |
|
|
Adjustments for Certain Items
Consistent with past practice, the committee adjusted the results on which 2007 bonuses and
performance awards were determined to eliminate the effect of certain unusual income or expense
items. The adjustments are intended to:
|
|
|
align award payments with the underlying growth of the core business |
|
|
|
|
avoid volatile, artificial inflation or deflation of awards due to the unusual
items either in the award year or the previous (comparator) year |
|
|
|
|
eliminate certain counterproductive short-term incentives for example,
incentives to refrain from acquiring new technologies or to defer disposing of
underutilized assets or settling legacy litigation in order to protect current bonus
payments. |
To assure the integrity of the adjustments, the committee establishes adjustment guidelines at the
beginning of the year. These guidelines are consistent with the company guidelines for reporting
adjusted earnings to the investment community, which are reviewed by the audit committee of the
board. The adjustments apply equally to income and expense items and must exceed a materiality
threshold. The committee reviews all adjustments and retains downward discretion i.e.,
discretion to reduce
compensation below the amounts that are yielded by the adjustment guidelines.
For the 2007 awards calculation, the committee adjusted EPS to eliminate the effect in 2007 of
accounting charges for the acquisition of in-process research and development (IPR&D), and in both
2006 and 2007 of major product liability charges, major asset impairments, restructuring, and other
special charges. In addition, to eliminate the distorting effect of the acquisition of ICOS
Corporation (which was completed in January 2007) on year-over-year growth rates, the committee
adjusted sales and EPS for both 2006 and 2007 on a pro forma basis as if the acquisition had been
completed at the beginning of 2006.
The adjustments were intended to align award payments more closely to underlying business
growth trends and eliminate volatile swings (up or down) caused by the unusual items. This is
demonstrated by the 2006 and 2007 adjustments:
26
Reconciliations of the adjustments to our reported sales and earnings per share are below. The
shaded numbers were used for calculating growth percentages for the compensation programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Growth |
|
|
|
|
|
|
|
% Growth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. |
|
|
|
|
|
|
|
2006 vs. |
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
Sales as Reported ($ millions) |
|
|
$ |
18,633.5 |
|
|
|
$ |
15,691.0 |
|
|
|
|
19 |
% |
|
|
$ |
14,645.3 |
|
|
|
|
7 |
% |
|
|
Pro Forma ICOS Adjustment |
|
|
$ |
72.7 |
|
|
|
$ |
755.2 |
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Pro Forma Adjusted |
|
|
$ |
18,706.2 |
|
|
|
$ |
16,446.2 |
|
|
|
|
14 |
% |
|
|
|
N/A |
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS as Reported |
|
|
$ |
2.71 |
|
|
|
$ |
2.45 |
|
|
|
|
11 |
% |
|
|
$ |
1.81 |
|
|
|
|
35 |
% |
|
|
Eliminate IPR&D charges
for acquisitions and
in-licensing transactions |
|
|
$ |
.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate asset
impairments, restructuring
and other special charges
(including product
liability charges) |
|
|
$ |
.21 |
|
|
|
$ |
.73 |
|
|
|
|
|
|
|
|
$ |
1.04 |
|
|
|
|
|
|
|
|
Eliminate cumulative
effect of change in
accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
EPS Adjusted |
|
|
$ |
3.55 |
|
|
|
$ |
3.18 |
|
|
|
|
|
|
|
|
$ |
2.87 |
|
|
|
|
11 |
% |
|
|
Pro Forma ICOS Adjustment |
|
|
$ |
(.01 |
) |
|
|
$ |
(.15 |
) |
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
EPS Pro Forma Adjusted |
|
|
$ |
3.54 |
|
|
|
$ |
3.03 |
|
|
|
|
17 |
% |
|
|
|
N/A |
|
|
|
|
N/A |
|
|
|
Equity Incentive Grant Mechanics and Timing
The committee approves target grant values for equity incentives prior to the grant date. On the
grant date those values are converted to shares based on:
|
|
|
the closing price of Lilly stock on the grant date |
|
|
|
|
the same valuation methodology the company uses to determine the accounting expense of the grants under Statement of
Financial Accounting Standards (SFAS) 123R. |
The committees procedure for timing of equity grants assures that grant timing is not being
manipulated for employee gain. The annual equity grant date for all eligible employees is in
mid-February. This date is established by the committee well in advance typically at the
committees October meeting. The mid-February grant date timing is driven by these considerations:
|
|
|
It coincides with the companys calendar-year-based performance management cycle,
allowing supervisors to deliver the equity awards close in time to performance
appraisals, which increases the impact of the awards by strengthening the link between
pay and performance. |
|
|
|
|
It follows the annual earnings release by approximately two weeks, so that the
stock price at that time can reasonably be expected to fairly represent the markets
collective view of our then-current results and prospects. |
|
|
Grants to new hires and other off-cycle grants are effective on the first trading day of the
following month. |
Employee and Post-Employment Benefits
The company offers core employee benefits coverage in order to:
|
|
|
provide our global workforce with a reasonable level of financial support in the event of illness or injury, and |
|
|
|
|
enhance productivity and job satisfaction through programs that focus on work/life balance. |
The benefits available are the same for all U.S. employees and include medical and dental
coverage, disability insurance, and life insurance.
In addition, the Lilly 401(k) Plan and the Lilly Retirement Plan provide a reasonable level of
retirement income reflecting employees careers with the company. All U.S. employees participate
in these plans. To the extent that any employees retirement benefit exceeds IRS limits for amounts
that can be paid through a qualified plan, Lilly also offers a nonqualified retirement plan and a
nonqualified savings plan. These plans provide only the difference between the calculated benefits
and the IRS limits, and the formula is the same for all U.S. employees.
The cost of both employee and post-employment benefits is partially borne by the employee,
including each executive officer.
27
Perquisites
The company does not provide significant perquisites to executive officers, except that the company
aircraft is made available for the personal use of Mr. Taurel and Dr. Lechleiter, where the
committee believes the security and efficiency benefits to the company clearly outweigh the
expense. The company aircraft is also made available to other executive officers for travel to
outside board meetings. In addition, depending on seat availability, family members of executive
officers may travel on the company aircraft to accompany executives who are traveling on business.
There is no incremental cost to the company for these trips.
Mr. Taurels primary use of the corporate aircraft for personal flights in 2007 was to attend
outside board meetings for the two public companies at which he serves as an independent director.
The committee believes that Mr. Taurels service on these boards, and his ability to conduct Lilly
business while traveling to board meetings, provides clear benefits to the company. As described
on pages 39-40, Mr. Taurel has entered into a time share arrangement for the corporate aircraft under
which he pays the company a lease fee for personal use, other than for attending outside board
meetings. This amount offsets part of the companys incremental cost of providing the aircraft.
Dr. Lechleiter did not use the corporate aircraft for personal flights during 2007.
Deferred Compensation Program
Executives may defer receipt of part or all of their cash compensation under the companys deferred
compensation program. The program allows executives to save for retirement in a tax-effective way
at minimal cost to the company. Under this unfunded program, amounts deferred by the executive are
credited at an interest rate of 120 percent of the applicable federal long-term rate, as described
in more detail following the Nonqualified Deferred Compensation in
2007 table on pages 36-37.
Severance Benefits
Except in the case of a change in control of the company, the company is not obligated to pay
severance to named executive officers upon termination of their employment.
The company has adopted a change-in-control severance pay program for nearly all employees of
the company, including the executive officers. The program is intended to preserve employee morale
and productivity and encourage retention in the face of the disruptive impact of an actual or
rumored change in control of the company. In addition, for executives, the program is intended to
align executive and shareholder interests by enabling executives to consider corporate transactions
that are in the best interests of the shareholders and other constituents of the company without
undue concern over whether the transactions may jeopardize the executives own employment. Because
this program is guided by different objectives than the regular compensation program, decisions
made under this program do not affect the regular compensation program.
Although there are some differences in benefit levels depending on the employees job level
and seniority, the basic elements of the program are comparable for all employees:
|
|
|
Double trigger. Unlike single trigger plans that pay out immediately upon a
change in control, the Lilly program generally requires a double trigger" a change in
control followed by an involuntary loss of employment within two years thereafter. This
is consistent with the purpose of the program, which is to provide employees with a
guaranteed level of financial protection upon loss of employment. A partial exception is
made for performance awards, a portion of which would be paid out upon a change in
control, based on time worked up to the change in control and the target or forecasted
payout level at the time of the change in control. The committee believes this partial
payment is appropriate because of the difficulties in converting the Lilly EPS targets
into an award based on the surviving companys EPS. Likewise, if Lilly is not the
surviving entity, a portion of the shareholder value awards are paid out, based on time
worked up to the change in control and the merger price for Lilly stock. |
|
|
|
|
Covered terminations. Employees are eligible for payments if, within two years of
the change in control, their employment is terminated (i) without cause by the company or
(ii) for good reason by the employee, each as is defined in the
program. See pages 37-39 for
a more detailed discussion, including a discussion of what constitutes a change in
control. |
|
|
|
|
Two-year protections. Employees who suffer a covered termination receive up to two
years of pay and benefit protection. The purpose of these provisions is to assure
employees a reasonable period of protection of their income and core employee benefits
upon which they depend for financial security. |
|
|
|
Severance payment. Eligible terminated employees would receive a
severance payment ranging from six months to two years base salary. Executives
are all eligible for two years base salary plus cash bonus (with bonus
established as the higher of the then-current years target bonus or the last
bonus paid prior to the change in control). |
|
|
|
|
Benefit continuation. Basic employee benefits such as health and life
insurance would be continued for up to two years following termination of
employment. All executives, including named executive officers are entitled to two
years benefit continuation. |
|
|
|
|
Pension supplement. Under the portion of the program covering
executives, a terminated employee would be entitled to a supplement of two years
of age credit and two years of service credit for purposes of calculating
eligibility and benefit levels under the companys defined benefit pension plan. |
|
|
|
Accelerated vesting of equity awards. Any unvested equity awards at the time of
termination of employment would become vested. |
|
|
|
|
Excise tax. In some circumstances, the payments or other benefits received by the
employee in connection with a change in control may exceed certain limits established
under Section 280G of the Internal Revenue Code. The employee would then be subject to
an excise tax on top of normal federal income tax. Because of the way the excise tax is
calculated, it can impose a large burden on some employees while similarly compensated
employees will not be subject to the tax. The costs of this excise tax but not the
regular income tax would be borne by the company. To avoid triggering the excise tax,
payments that would otherwise be due under the program that are up to 3 percent over the
IRS limit will be cut back to the IRS limit. |
28
Share Ownership and Retention Guidelines; Hedging Prohibition
Share ownership and retention guidelines help to foster a focus on long-term growth. The committee
has adopted a guideline requiring the CEO to own Lilly stock valued at least 5 times his or her
annual base salary, and other executive officers to own at least 3 times annual base salary. A
phase-in of up to 5 years is provided for newly hired or promoted executive officers. Lilly
executives have a long history of maintaining extensive holdings in Lilly stock, and all executive
officers already meet or exceed the guideline, or in the case of new executive officers, are on
track to meet or exceed the guideline within the phase-in period. Currently Mr. Taurel and Dr.
Lechleiter hold shares valued at 35 and 10 times their respective annual salaries.
Executive officers are required to retain all shares received from the company equity
programs, net of acquisition costs and taxes, for at least one year. In addition, any executive
officer who does not meet the stock ownership guideline must retain all net shares until the
requisite ownership level is achieved.
Employees are not permitted to hedge their economic exposures to the Lilly stock that they own
through short sales or derivative transactions.
Tax Deductibility Cap on Executive Compensation
U.S. federal income tax law prohibits the company from taking a tax deduction for certain
compensation paid in excess of $1,000,000 to certain executive officers. However,
performance-based compensation is fully deductible if the programs are approved by shareholders and
meet other requirements. Our policy is to qualify our incentive compensation programs for full
corporate deductibility to the extent feasible and consistent with our overall compensation
objectives.
We have taken steps to qualify cash bonus compensation, performance awards, and SVAs for full
deductibility as performance-based compensation. The committee may make payments that are not
fully deductible if, in its judgment, such payments are necessary to achieve the companys
compensation objectives and to protect shareholder interests. For 2007, the non-
deductible compensation under this law was essentially equal to the portion of Mr. Taurels
and Dr. Lechleiters base salary that exceeded $1,000,000 as shown in the Summary Compensation
Table.
Executive Compensation Recovery Policy
Any incentive awards, including SVAs, are subject to forfeiture prior to payment for termination of
employment or disciplinary reasons. In addition, the committee has adopted an executive
compensation recovery policy applicable to executive officers. Under this policy, the company may
recover incentive compensation (cash or equity) that was based on achievement of financial results
that were subsequently the subject of a restatement if an executive officer engaged in intentional
misconduct that caused or partially caused the need for the restatement and the effect of the
wrongdoing was to increase the amount of bonus or incentive compensation. This policy covers
income related to cash bonuses and performance awards. SVAs are not covered due to the difficulty
in attributing stock price movements to specific causes.
2008 Compensation Decisions CEO Transition
Mr. Taurel will retire as CEO effective March 31, 2008 and as Chairman of the Board effective
December 31, 2008. Dr. Lechleiter has been elected CEO effective April 1, 2008. The committee has
approved revised cash compensation for Mr. Taurel and Dr. Lechleiter in their new roles.
|
|
|
Mr. Taurel. As chairman, Mr. Taurel will remain an employee of the company until his
retirement on December 31, 2008. Effective April 1, 2008, his base salary will be reduced
by half. Under the terms of the Eli Lilly and Company Bonus Plan, his non-equity incentive
award opportunity is calculated as a percentage of base salary earnings, and therefore his
incentive award for the period of April through December 2008 will also be reduced by half.
Thus, effective April 1, 2008, Mr. Taurel will receive the following annualized base
salary and target non-equity incentive plan compensation (both figures are shown as if they
were paid for a full year, but will actually be paid for only the nine months from April
through December 2008): |
|
|
|
Annualized Base Salary $864,250 |
|
|
|
|
Annualized Target Non-equity Incentive Plan Compensation $1,209,950* |
|
|
Dr. Lechleiter. Effective April 1, 2008, Dr. Lechleiter will receive the following
annualized base salary and target non-equity incentive plan compensation (both figures are
shown as if they were paid for a full year, but will actually be paid for only the nine
months from April through December 2008): |
|
|
|
Annualized Base Salary $ |
|
|
|
|
Annualized Target Non-equity Incentive Plan Compensation $ * |
|
* |
|
These amounts represent the target bonus under the Eli Lilly and Company Bonus
Plan, assuming the annualized base salary was paid for the entire calendar year. Actual
bonuses paid for a given calendar year will be calculated on actual base salary earnings
for the year, and may vary from target depending on company performance in 2008. See
pages 23-24 for a description of the Bonus Plan. |
29
Compensation Committee Report
The compensation committee (we or the committee) evaluates and establishes compensation for
executive officers and oversees the deferred compensation plan, the companys management stock
plans, and other management incentive, benefit, and perquisite programs. Management has
the primary
responsibility for the companys financial statements and reporting process, including the
disclosure of executive compensation. With this in mind, we have reviewed and discussed with
management the Compensation Discussion and Analysis found on pages
21-29 of this report. The
committee is satisfied that the Compensation Discussion and Analysis fairly and completely
represents the philosophy, intent, and actions of the committee with regard to executive
compensation. We recommended to the board of directors that the Compensation Discussion and
Analysis be included in this proxy statement for filing with the Securities and Exchange
Commission.
Karen N. Horn, Ph.D., Chair
George M.C. Fisher
J. Erik Fyrwald
Ellen R. Marram
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
Compensation
Table
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
Change in |
|
|
All Other |
|
|
Total |
|
|
Name and |
|
|
|
|
|
|
|
Salary |
|
|
Stock Awards |
|
|
Option Awards |
|
|
Compensation |
|
|
Pension Value |
|
|
Compensation |
|
|
Compensation |
|
|
Principal Position |
|
|
Year |
|
|
($) |
|
|
(2)($) |
|
|
(2)($) |
|
|
(3)($) |
|
|
(4)($) |
|
|
(5)($) |
|
|
($) |
|
|
Sidney
Taurel
Chairman of the Board and
|
|
|
|
2007 |
|
|
|
$ |
1,717,417 |
|
|
|
$ |
6,443,000 |
|
|
|
$ |
600,000 |
|
|
|
$ |
4,035,929 |
|
|
|
|
0 |
|
|
|
$ |
215,044 |
|
|
|
$ |
13,011,390 |
|
|
|
Chief Executive Officer |
|
|
|
2006 |
|
|
|
$ |
1,650,333 |
|
|
|
$ |
5,400,000 |
|
|
|
$ |
3,805,333 |
|
|
|
$ |
2,764,308 |
|
|
|
$ |
1,417,434 |
|
|
|
$ |
192,409 |
|
|
|
$ |
15,229,817 |
|
|
|
John C. Lechleiter, Ph.D.
President and
|
|
|
|
2007 |
|
|
|
$ |
1,149,083 |
|
|
|
$ |
4,641,000 |
|
|
|
$ |
390,000 |
|
|
|
$ |
2,160,277 |
|
|
|
$ |
921,394 |
|
|
|
$ |
70,761 |
|
|
|
$ |
9,332,515 |
|
|
|
Chief Operating Officer |
|
|
|
2006 |
|
|
|
$ |
1,112,000 |
|
|
|
$ |
3,510,000 |
|
|
|
$ |
3,967,976 |
|
|
|
$ |
1,490,080 |
|
|
|
$ |
1,156,247 |
|
|
|
$ |
68,790 |
|
|
|
$ |
11,305,093 |
|
|
|
Steven M. Paul, M.D.
Executive Vice President,
|
|
|
|
2007 |
|
|
|
$ |
960,333 |
|
|
|
$ |
2,852,671 |
|
|
|
$ |
200,000 |
|
|
|
$ |
1,534,613 |
|
|
|
$ |
396,687 |
|
|
|
$ |
13,500 |
|
|
|
$ |
5,957,804 |
|
|
|
Science and Technology |
|
|
|
2006 |
|
|
|
$ |
916,167 |
|
|
|
$ |
1,864,460 |
|
|
|
$ |
1,240,000 |
|
|
|
$ |
1,043,514 |
|
|
|
$ |
607,463 |
|
|
|
$ |
55,789 |
|
|
|
$ |
5,727,393 |
|
|
|
Robert A. Armitage
Senior Vice President and
|
|
|
|
2007 |
|
|
|
$ |
741,667 |
|
|
|
$ |
1,995,000 |
|
|
|
$ |
716,400 |
|
|
|
$ |
1,045,750 |
|
|
|
$ |
232,697 |
|
|
|
$ |
45,551 |
|
|
|
$ |
4,777,065 |
|
|
|
General Counsel |
|
|
|
2006 |
|
|
|
$ |
701,657 |
|
|
|
$ |
1,394,053 |
|
|
|
$ |
1,339,911 |
|
|
|
$ |
705,165 |
|
|
|
$ |
231,862 |
|
|
|
$ |
42,691 |
|
|
|
$ |
4,415,339 |
|
|
|
Derica W. Rice
Senior Vice President and
|
|
|
|
2007 |
|
|
|
$ |
747,583 |
|
|
|
$ |
1,995,000 |
|
|
|
$ |
473,675 |
|
|
|
$ |
1,054,093 |
|
|
|
$ |
194,469 |
|
|
|
$ |
78,787 |
|
|
|
$ |
4,543,607 |
|
|
|
Chief Financial Officer |
|
|
|
2006 |
|
|
|
$ |
615,000 |
|
|
|
$ |
675,000 |
|
|
|
$ |
590,928 |
|
|
|
$ |
580,466 |
|
|
|
$ |
168,627 |
|
|
|
$ |
37,722 |
|
|
|
$ |
2,667,743 |
|
|
|
|
(1) |
|
No bonus was paid to a named executive officer except as part of a non-equity
incentive plan. |
|
(2) |
|
No stock options were granted in 2007. A discussion of the assumptions used in
calculating these values may be found in Note 7 to our 2007 audited financial statements on
pages XXXX of our annual report. |
|
(3) |
|
Payment for 2007 performance made in March 2008 under the Lilly Bonus Plan. |
|
(4) |
|
The amounts in this column are the change in pension value for each individual. No
named executive officer received preferential or above-market earnings on deferred
compensation. |
|
(5) |
|
The table below shows the components of this column for 2007, which include the
company match for each individuals savings plan contributions, tax reimbursements, and
perquisites. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
Tax |
|
|
|
|
|
Total All
Other |
Name |
|
Year |
|
Plan Match |
|
Reimbursements |
|
Perquisites |
|
|
Other |
|
Compensation |
Mr. Taurel |
|
|
2007 |
|
|
$ |
103,045 |
|
|
$ |
2,731 |
(a) |
|
$ |
109,268 |
(d) |
|
|
0 |
|
|
$ |
215,044 |
|
|
|
|
2006 |
|
|
$ |
99,020 |
|
|
$ |
1,382 |
(a) |
|
$ |
92,007 |
(d) |
|
|
0 |
|
|
$ |
192,409 |
|
Dr. Lechleiter |
|
|
2007 |
|
|
$ |
68,945 |
|
|
$ |
1,816 |
(b) |
|
|
0 |
|
|
|
0 |
|
|
$ |
70,761 |
|
|
|
|
2006 |
|
|
$ |
66,720 |
|
|
$ |
2,070 |
(b) |
|
|
0 |
|
|
|
0 |
|
|
$ |
68,790 |
|
Dr. Paul |
|
|
2007 |
|
|
$ |
13,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
13,500 |
|
|
|
|
2006 |
|
|
$ |
54,970 |
|
|
$ |
819 |
(b) |
|
|
0 |
|
|
|
0 |
|
|
$ |
55,789 |
|
Mr. Armitage |
|
|
2007 |
|
|
$ |
44,500 |
|
|
$ |
1,051 |
(b) |
|
|
0 |
|
|
|
0 |
|
|
$ |
45,551 |
|
|
|
|
2006 |
|
|
$ |
42,099 |
|
|
$ |
592 |
(b) |
|
|
0 |
|
|
|
0 |
|
|
$ |
42,691 |
|
Mr. Rice |
|
|
2007 |
|
|
$ |
44,855 |
|
|
$ |
15,030 |
(b)(c) |
|
|
0 |
|
|
$ |
18,902 |
(e) |
|
$ |
78,787 |
|
|
|
|
2006 |
|
|
$ |
36,900 |
|
|
$ |
822 |
(b) |
|
|
0 |
|
|
|
0 |
|
|
$ |
37,722 |
|
|
30
|
|
|
(a) |
|
Tax reimbursements on income imputed to Mr. Taurel for his use of the corporate
aircraft to attend outside board meetings and for travel by his wife on the corporate
aircraft to attend certain company functions involving spouse participation. |
|
(b) |
|
Tax reimbursements for travel by the executives spouses on the corporate aircraft to
attend certain company functions involving spouse participation. |
|
(c) |
|
For Mr. Rice, this amount includes $13,051 in tax reimbursements for the payment
described in footnote (e) below. |
|
(d) |
|
These amounts include the incremental cost to the company of use of the corporate
aircraft to attend outside board meetings and one personal trip in 2007, offset by Mr. Taurels reimbursement under the
timeshare agreement. The incremental cost of Mr. Taurels use of the corporate aircraft was
$107,105 in 2007 and $91,069 in 2006. The amounts in this column also include Mrs. Taurels
expenses to attend board functions that included spouse participation. In addition, Mr.
Taurels family members have occasionally accompanied him on business trips, at no
incremental cost to the company. We calculate the incremental cost to the company of any
personal use of the corporate aircraft based on the cost of fuel, trip-related maintenance,
crew travel expenses, on-board catering, landing fees, trip-related hangar and parking costs,
and smaller variable costs, offset by any timeshare lease payments by the executive. Since
the company-owned aircraft are used primarily for business travel, we do not include the
fixed costs that do not change based on usage, such as pilots salaries, the purchase costs
of the company-owned aircraft, and the cost of maintenance not related to trips. |
|
(e) |
|
Reimbursement for an over-withholding of taxes by the company in a prior year
when Mr. Rice was on an overseas assignment. |
We have no employment agreements with our named executive officers. See, however, the
description of additional years of service that may be credited to certain named executive officers
on retirement (page 36).
The compensation plans under which the grants in the following table were made are generally
described in the Compensation Discussion and Analysis, beginning on
page 21, and include the Eli
Lilly and Company Bonus Plan, a non-equity incentive plan, and the 2002 Lilly Stock Plan, which
provides for performance awards, shareholder value awards, stock options, restricted stock grants,
and stock units.
Grants
of Plan-Based Awards During 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensa- |
|
|
Estimated Possible Payouts Under Non- |
|
|
Estimated Possible and
Future Payouts Under Equity |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
tion |
|
|
Equity Incentive Plan Awards (1) |
|
|
Incentive Plan Awards (2) |
|
|
Securities |
|
|
Grant Date Fair |
|
|
|
|
|
|
|
|
|
|
Committee |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Underlying |
|
|
Value of Equity |
|
|
Name |
|
|
Grant Date |
|
|
Action Date |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
(# shares) |
|
|
(# shares) |
|
|
(# shares) |
|
|
Options (3) |
|
|
Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
2,146,771 |
|
|
|
$ |
4,293,542 |
|
|
|
|
0 |
|
|
|
|
56,426 |
|
|
|
|
100,000 |
|
|
|
|
0 |
|
|
|
$ |
3,060,000 |
|
|
|
|
|
|
|
2/9/2007 |
(4) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
68,426 |
|
|
|
|
95,796 |
|
|
|
|
|
|
|
|
$ |
3,060,000 |
|
|
|
|
|
|
|
2/9/2007 |
(5) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
1,149,083 |
|
|
|
$ |
2,298,166 |
|
|
|
|
0 |
|
|
|
|
36,677 |
|
|
|
|
73,354 |
|
|
|
|
0 |
|
|
|
$ |
1,989,000 |
|
|
|
|
|
|
|
2/9/2007 |
(4) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
44,477 |
|
|
|
|
62,268 |
|
|
|
|
|
|
|
|
$ |
1,989,000 |
|
|
|
|
|
|
|
2/9/2007 |
(5) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
816,283 |
|
|
|
$ |
1,632,566 |
|
|
|
|
0 |
|
|
|
|
22,128 |
|
|
|
|
44,256 |
|
|
|
|
0 |
|
|
|
$ |
1,200,000 |
|
|
|
|
|
|
|
2/9/2007 |
(4) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
26,834 |
|
|
|
|
37,568 |
|
|
|
|
|
|
|
|
$ |
1,200,000 |
|
|
|
|
|
|
|
2/9/2007 |
(5) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
556,250 |
|
|
|
$ |
1,112,500 |
|
|
|
|
0 |
|
|
|
|
15,766 |
|
|
|
|
31,532 |
|
|
|
|
0 |
|
|
|
$ |
855,000 |
|
|
|
|
|
|
|
2/9/2007 |
(4) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
19,119 |
|
|
|
|
26,767 |
|
|
|
|
|
|
|
|
$ |
855,000 |
|
|
|
|
|
|
|
2/9/2007 |
(5) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
560,688 |
|
|
|
$ |
1,121,376 |
|
|
|
|
0 |
|
|
|
|
15,766 |
|
|
|
|
31,532 |
|
|
|
|
0 |
|
|
|
$ |
855,000 |
|
|
|
|
|
|
|
2/9/2007 |
(4) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
19,119 |
|
|
|
|
26,767 |
|
|
|
|
|
|
|
|
$ |
855,000 |
|
|
|
|
|
|
|
2/9/2007 |
(5) |
|
|
|
12/18/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
(1) |
|
These columns show the range of payouts targeted for 2007 performance under the Eli
Lilly and Company Bonus Plan as described in the section titled Cash Incentive Bonuses in
the Compensation Discussion and Analysis. The 2008 bonus payment for 2007 performance has been
made based on the metrics described, at 188 percent of target, and is shown in the Summary
Compensation Table in the column titled Non-equity Incentive Plan Compensation. |
|
(2) |
|
These columns show the range of payouts targeted for 2007 performance under the 2002
Lilly Stock Plan as described in the sections titled Equity IncentivesPerformance Awards
and Equity Incentives Shareholder Value Awards in the Compensation Discussion and
Analysis. |
|
(3) |
|
No stock options were granted to named executive officers in 2007. |
|
(4) |
|
These rows show performance award grants. The dollar amount recognized by the company
for these performance awards is shown in the Summary Compensation Table in the column titled
Stock Awards and their valuation assumptions are referenced in footnote 2 to that table. The
2007 performance award payout was made in January 2008 and is shown in more detail below. |
|
(5) |
|
These rows show shareholder value award grants. The payout for the 2007 shareholder
value award will be determined in January 2010. |
Our performance awards granted in 2007 paid out in January 2008, and the named executive
officers received the following shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value on |
|
|
Name |
|
|
Performance Awards |
|
|
December 31, 2007 |
|
|
Mr. Taurel |
|
|
|
100,000 |
|
|
|
$ |
5,339,000 |
|
|
|
Dr. Lechleiter |
|
|
|
73,354 |
|
|
|
$ |
3,916,370 |
|
|
|
Dr. Paul |
|
|
|
44,256 |
|
|
|
$ |
2,362,828 |
|
|
|
Mr. Armitage |
|
|
|
31,532 |
|
|
|
$ |
1,683,493 |
|
|
|
Mr. Rice |
|
|
|
31,532 |
|
|
|
$ |
1,683,493 |
|
|
|
For 2007 performance, payouts were 200 percent of target. In order to receive a performance
award payout, a participant must have remained employed with the company through December 31, 2007
(except in the case of death, disability, or retirement). In addition, an executive who was an
executive officer at the time of grant and at the time of payout received payment in shares of
restricted stock. Non-preferential dividends are paid during the one-year restriction period. Each
executive was awarded the shares identified above, and the shares will remain restricted (and
subject to forfeiture if the executive resigns) until February 2009. Mr. Taurels shares will vest
on his retirement from the company on December 31, 2008.
Our shareholder value awards granted in 2007 will pay out at the end of the three-year
performance period according to the grid as shown on page 26 of the Compensation Discussion and
Analysis. At the end of 2007, the award was on track to pay out at 40 percent of target.
32
Outstanding
Equity Awards at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
Market or |
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Payout Value of |
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Market Value |
|
|
Unearned |
|
|
Unearned |
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
|
Shares or Units |
|
|
of Shares or |
|
|
Shares, Units |
|
|
Shares, Units |
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
|
|
|
|
|
|
|
|
|
|
That |
|
|
Units of Stock |
|
|
or Other Rights |
|
|
or Other Rights |
|
|
|
|
|
Options |
|
|
Options |
|
|
Option |
|
|
Option |
|
|
Have Not |
|
|
That Have Not |
|
|
That Have Not |
|
|
That Have |
|
|
|
|
|
(#)(1) |
|
|
(#)(1) |
|
|
Exercise Price |
|
|
Expiration |
|
|
Vested(2) |
|
|
Vested(2) |
|
|
Vested |
|
|
Not Vested |
|
|
Name |
|
|
Exercisable |
|
|
Unexercisable |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,426 |
(3) |
|
|
$ |
3,653,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
(4) |
|
|
$ |
5,339,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,120 |
(5) |
|
|
$ |
5,131,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,867 |
|
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000 |
|
|
|
|
255,621 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
(6) |
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61.22 |
|
|
|
|
5/30/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,477 |
(3) |
|
|
$ |
2,374,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,354 |
(4) |
|
|
$ |
3,916,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,478 |
(5) |
|
|
$ |
3,335,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,964 |
|
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
127,811 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
(7) |
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,834 |
(3) |
|
|
$ |
1,432,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,256 |
(4) |
|
|
$ |
2,362,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
(8) |
|
|
$ |
266,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,040 |
(5) |
|
|
$ |
1,710,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,289 |
|
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,207 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,000 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,900 |
|
|
|
|
|
|
|
|
|
73.98 |
|
|
|
|
2/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
(9) |
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
(9) |
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
(9) |
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
Market or |
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Payout Value of |
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Market Value |
|
|
Unearned |
|
|
Unearned |
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
|
Shares or Units |
|
|
of Shares or |
|
|
Shares, Units |
|
|
Shares, Units |
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
|
|
|
|
|
|
|
|
|
|
That |
|
|
Units of Stock |
|
|
or Other Rights |
|
|
or Other Rights |
|
|
|
|
|
Options |
|
|
Options |
|
|
Option |
|
|
Option |
|
|
Have Not |
|
|
That Have Not |
|
|
That Have Not |
|
|
That Have |
|
|
|
|
|
(#)(1) |
|
|
(#)(1) |
|
|
Exercise Price |
|
|
Expiration |
|
|
Vested(2) |
|
|
Vested(2) |
|
|
Vested |
|
|
Not Vested |
|
|
Name |
|
|
Exercisable |
|
|
Unexercisable |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,119 |
(3) |
|
|
$ |
1,020,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,532 |
(4) |
|
|
$ |
1,683,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,030 |
(5) |
|
|
$ |
1,282,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,217 |
|
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,254 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,800 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,100 |
|
|
|
|
|
|
|
|
|
73.98 |
|
|
|
|
2/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,119 |
(3) |
|
|
$ |
1,020,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,53 |
(4) |
|
|
$ |
1,683.493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
$ |
52.54 |
|
|
|
|
4/29/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,108 |
|
|
|
|
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
23,077 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,200 |
|
|
|
|
|
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
73.98 |
|
|
|
|
2/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,700 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
` |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The vesting date of each option is listed in the table below by expiration date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration |
|
|
Vesting |
|
|
Expiration |
|
|
Vesting |
|
|
Date |
|
|
Date |
|
|
Date |
|
|
Date |
|
|
04/29/2016 |
|
|
05/01/2009 |
|
|
10/04/2011 |
|
|
10/03/2003 |
|
|
02/09/2016 |
|
|
02/10/2009 |
|
|
02/18/2011 |
|
|
02/20/2004 |
|
|
02/10/2015 |
|
|
02/11/2008 |
|
|
12/17/2010 |
|
|
12/18/2003 |
|
|
02/14/2014 |
|
|
02/19/2007 |
|
|
10/16/2009 |
|
|
10/18/2002 |
|
|
02/15/2013 |
|
|
02/17/2006 |
|
|
10/17/2008 |
|
|
10/19/2001 |
|
|
02/17/2012 |
|
|
02/18/2005 |
|
|
05/30/2008 |
|
|
06/04/2001 |
|
|
|
|
|
|
|
(2) |
|
These two columns show performance award shares paid in restricted shares with a
holding period of one year. The restricted stock shares pay dividends during the restriction
period, but the dividends are not preferential. |
|
(3) |
|
Shares granted under the companys Shareholder Value Award plan that will vest December
31, 2009. The number of shares reported in the table reflects the target payout amount, which will
be made if the average stock price in November and December 2009 is between $63.00 and $66.99.
Actual pay outs may vary from zero to 140 percent of target. Had the performance period ended at
year end, the payout would have been 40 percent of target. |
|
(4) |
|
Shares paid out in January 2008 for 2007 performance. These shares vest in February
2009. |
|
(5) |
|
Shares paid out in January 2007 for 2006 performance. These shares vested in February
2008. |
|
(6) |
|
Mr. Taurel transferred 348,683 shares of this option to a trust for the benefit of his
children, and these shares vested on April 30, 2002. 149,172 shares of this option are held in
trust for the benefit of Mr. Taurels children, and the remainder have been transferred back
to Mr. Taurel. |
|
(7) |
|
Dr. Lechleiter transferred 118,683 shares of his option to a trust for the benefit of
his children, and these shares vested on April 30, 2002. 50,734 shares of this option are
held in trust for the benefit of Dr. Lechleiters children, and the remainder have been
transferred back to Dr. Lechleiter. |
|
(8) |
|
These shares will vest December 20, 2010. |
|
(9) |
|
These options were granted outside of the normal annual cycle and vest in three
installments, as follows: 25 percent on December 19, 2005; 25 percent on December 18, 2008;
and 50 percent on November 2, 2009. |
34
Options
Exercised and Stock Vested in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards(2) |
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
|
|
Acquired on |
|
|
Value Realized on |
|
|
Acquired on |
|
|
Value Realized on |
|
|
Name |
|
|
Exercise (#) |
|
|
Exercise ($)(1) |
|
|
Vesting (#) |
|
|
Vesting ($) |
|
|
Mr. Taurel |
|
|
|
0 |
|
|
|
$ |
0 |
|
|
|
|
64,690 |
|
|
|
$ |
3,501,023 |
|
|
|
Dr. Lechleiter |
|
|
|
0 |
|
|
|
$ |
0 |
|
|
|
|
32,345 |
|
|
|
$ |
1,750,511 |
|
|
|
Dr. Paul |
|
|
|
100,000 |
|
|
|
$ |
480,020 |
|
|
|
|
24,564 |
|
|
|
$ |
1,342,904 |
|
|
|
Mr. Armitage |
|
|
|
0 |
|
|
|
$ |
0 |
|
|
|
|
13,478 |
|
|
|
$ |
729,429 |
|
|
|
Mr. Rice |
|
|
|
0 |
|
|
|
$ |
0 |
|
|
|
|
0 |
|
|
|
$ |
0 |
|
|
|
|
|
|
(1) |
|
Amounts reflect the difference between the exercise price of the option and the market
price at the time of exercise. |
|
(2) |
|
Amounts reflect the market value of the stock on the day the stock vested. These
shares represent performance awards issued in January 2006 for company performance in 2005,
which were subject to forfeiture for one year following issuance. For Dr. Paul, these columns
include 3,000 shares of restricted stock, which vested on June 1, 2007. |
Retirement
Benefits
We maintain two programs to provide retirement income to all eligible U.S. employees, including
executive officers:
|
|
|
The Lilly Employee 401(k) Plan, a defined contribution plan qualified under
sections 401(a) and 401(k) of the Internal Revenue Code. Eligible employees may elect to
contribute a portion of their salary to the plan, and the company provides matching
contributions on the employees contributions up to 6 percent of base salary. The
matching contributions are in the form of Lilly stock. The employee contributions,
company contributions, and earnings thereon are paid out in accordance with elections
made by the participant. See the Summary Compensation Table on
page 30 for
information about company contributions to the named executive officers. |
|
|
|
|
The Lilly Retirement Plan (the retirement plan), a tax-qualified defined benefit
plan that provides monthly retirement benefits to eligible employees. See the Summary
Compensation Table on page 30 for additional information about the value of
these pension benefits. |
Section 415 of the Internal Revenue Code generally places a limit on the amount of annual
pension that can be paid from a tax-qualified plan ($180,000 in 2007) as well as on the amount of
annual earnings that can be used to calculate a pension benefit
($225,000). However, since 1975 the company has maintained a non-tax-qualified retirement plan
that pays eligible employees the difference between the amount payable under the tax-qualified plan
and the amount they would have received without the qualified plans limit. The nonqualified
retirement plan is unfunded and subject to forfeiture in the event of bankruptcy.
The following table shows benefits that named executive officers are entitled to under the
retirement plan.
Pension Benefits in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Plan Name |
|
|
Number of
Years of
Credited
Service |
|
|
Present Value of
Accumulated Benefit
($)(1) |
|
|
|
Payments
During Last
Fiscal year ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel(2) |
|
|
tax-qualified plan |
|
|
|
35 |
|
|
|
$ |
1,169,470 |
|
|
|
|
|
|
|
|
|
|
|
nonqualified plan |
|
|
|
35 |
|
|
|
$ |
29,237,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
$ |
30,406,909 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter(3) |
|
|
tax-qualified plan |
|
|
|
28 |
|
|
|
$ |
733,909 |
|
|
|
|
|
|
|
|
|
|
|
nonqualified plan |
|
|
|
28 |
|
|
|
$ |
6,563,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
$ |
7,297,645 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul(4) |
|
|
tax-qualified plan |
|
|
|
15 |
|
|
|
$ |
252,137 |
|
|
|
|
|
|
|
|
|
|
|
nonqualified plan |
|
|
|
15(5) |
|
|
|
$ |
3,037,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
$ |
3,289,662 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
tax-qualified plan |
|
|
|
9 |
|
|
|
$ |
184,031 |
|
|
|
|
|
|
|
|
|
|
|
nonqualified plan |
|
|
|
9(5) |
|
|
|
$ |
795,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
$ |
979,487 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
tax-qualified plan |
|
|
|
18 |
|
|
|
$ |
231,424 |
|
|
|
|
|
|
|
|
|
|
|
nonqualified plan |
|
|
|
18 |
|
|
|
$ |
571,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
$ |
803,385 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The calculation of present value of accumulated benefit assumes a discount rate of
6.75 percent, mortality RP 2000CH (post-retirement decrement only), and joint and survivor
benefit of 25 percent. |
|
(2) |
|
Mr. Taurel is currently eligible for full retirement benefits. |
|
(3) |
|
Dr. Lechleiter is currently eligible for early retirement. He qualifies for
approximately 11 percent less than his full retirement benefit. Early retirement benefits are
further described below. |
|
(4) |
|
Dr. Paul is currently eligible for early retirement because he is over 55 years old
and has more than 10 years of service. He qualifies for approximately 27 percent less than his
full retirement benefit. Early retirement benefits are further described below. |
35
|
|
|
(5) |
|
Dr. Paul will be eligible for an additional 10 years of service, if he is employed by
the company past age 60. This potential additional service credit increased the present value
of his nonqualified pension benefit shown above by $1,174,879. |
|
(6) |
|
Mr. Armitage will be credited with approximately one year of service when he reaches
age 60, making him eligible to receive a reduced retirement benefit under the companys
retirement program. Since this arrangement only applies towards his eligibility for a benefit,
it does not change the present value of his nonqualified pension benefit. |
The retirement plan benefits shown in the table are net present values. The benefits are not
payable as a lump sum; they are generally paid as a monthly annuity for the life of the retiree.
The annual benefit under the plan is calculated using the average of the annual earnings for the
highest five out of the last 10 years of service (average annual earnings). Annual earnings covered
by the retirement plan consist of salary and bonus (amounts disclosed in the companys proxy
statements for the relevant years) calculated for the amount of bonus paid (rather than credited)
and for the year in which earnings are paid (rather than earned or credited). In addition, for
years prior to 2003, the calculation includes performance award payouts. The amount of the benefit
also depends on the retirees age and years of service at the time of retirement. Benefit
calculations are based on points, with an employees points equaling the sum of his or her age
plus years of service. Employees who retire (i) at age 65 with at least five years of service, (ii)
at age 62 with at least 80 points, or (iii) with 90 or more points receive an unreduced benefit.
Employees may elect early retirement with reduced benefits under either of the following two
options:
|
|
Employees with between 80 and 90 points may retire with a benefit that is reduced
by three percent for each year that the employee has left to reach 90 points or age 62. |
|
|
Employees who have less than 80 points, but who have reached age 55 and have at
least 10 years of service, may retire with a benefit that is reduced as described above
and is further reduced by six percent for each year that the employee has left to reach
80 points or age 65. |
All U.S. retirees are entitled to medical insurance under the companys plans. Retirees with
spouses or unmarried dependents may elect that, upon the retirees death, the plan will pay
survivor annuity benefits at either 25 or 50 percent of the retirees annuity
benefit. Election of the higher survivor benefit will result in a lower annuity payment during
the retirees life.
Dr. Paul joined the company in 1993. Dr. Paul will receive 10 years additional service
credit if he remains employed by the company past age 60, or is involuntarily terminated before he
turns 60. When Mr. Armitage joined the company in 1999, the company agreed to provide him with a
retirement benefit based on his actual years of service and earnings at age 60. When Mr. Armitage
reaches age 60 with 9.75 years of service, he will be treated as though he has, for eligibility
purposes only, 20 years of service. The additional service credits will make him eligible to begin
reduced benefits nine months earlier, but will not change the timing or amount of his unreduced
benefits (shown in the Pension Benefits in 2007 Table above). A grant of additional years of
service credit to any employee must be approved by the compensation committee of the board of
directors.
Nonqualified
Deferred Compensation in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
|
Registrant |
|
|
|
Aggregate |
|
|
|
Aggregate |
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
Contributions |
|
|
|
Contributions |
|
|
|
Earnings in |
|
|
|
Distributions |
|
|
|
Balance at Last |
|
|
|
|
|
|
|
|
|
in Last Fiscal |
|
|
|
in Last Fiscal |
|
|
|
Last Fiscal |
|
|
|
in Last Fiscal |
|
|
|
Fiscal Year End |
|
|
|
Named Executive |
|
|
Plan |
|
|
Year ($)(1) |
|
|
|
Year ($)(2) |
|
|
|
Year ($) |
|
|
|
Year ($) |
|
|
|
($)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel |
|
|
nonqualified savings |
|
|
$ |
89,545 |
|
|
|
$ |
89,545 |
|
|
|
$ |
149,079 |
|
|
|
|
|
|
|
|
$ |
2,924,791 |
|
|
|
|
|
|
deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
464,186 |
|
|
|
|
|
|
|
|
$ |
8,551,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
$ |
89,545 |
|
|
|
$ |
89,545 |
|
|
|
$ |
613,265 |
|
|
|
|
0 |
|
|
|
$ |
11,475,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
nonqualified savings |
|
|
$ |
55,445 |
|
|
|
$ |
55,445 |
|
|
|
$ |
42,801 |
|
|
|
|
|
|
|
|
$ |
866,467 |
|
|
|
|
|
|
deferred compensation |
|
|
$ |
372,520 |
|
|
|
|
|
|
|
|
$ |
154,615 |
|
|
|
|
|
|
|
|
$ |
2,917,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
$ |
427,965 |
|
|
|
$ |
55,445 |
|
|
|
$ |
197,416 |
|
|
|
|
0 |
|
|
|
$ |
3,783,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul |
|
|
nonqualified savings |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,821 |
|
|
|
|
|
|
|
|
$ |
689,318 |
|
|
|
|
|
|
deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
$ |
38,821 |
|
|
|
|
0 |
|
|
|
$ |
689,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
nonqualified savings |
|
|
$ |
31,000 |
|
|
|
$ |
31,000 |
|
|
|
$ |
18,646 |
|
|
|
|
|
|
|
|
$ |
370,254 |
|
|
|
|
|
|
deferred compensation |
|
|
$ |
690,703 |
|
|
|
|
|
|
|
|
$ |
123,219 |
|
|
|
|
|
|
|
|
$ |
2,397,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
$ |
721,703 |
|
|
|
$ |
31,000 |
|
|
|
$ |
141,865 |
|
|
|
|
0 |
|
|
|
$ |
2,767,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
nonqualified savings |
|
|
$ |
31,355 |
|
|
|
$ |
31,355 |
|
|
|
$ |
7,670 |
|
|
|
|
|
|
|
|
$ |
185,495 |
|
|
|
|
|
|
deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
$ |
31,355 |
|
|
|
$ |
31,355 |
|
|
|
$ |
7,670 |
|
|
|
|
0 |
|
|
|
$ |
185,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts in this column are also included in the Summary
Compensation Table on page 30, in the salary column (nonqualified savings) or the non-equity incentive plan
compensation column (deferred compensation). |
36
|
|
|
(2) |
|
The amounts in this column are also included in the Summary
Compensation Table on page 30, in the all other compensation column as a portion of the 401(k) match. |
|
(3) |
|
Of the totals in this column, the following amounts have previously been reported in
the Summary Compensation Table for this year and for previous years: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
2007 ($) |
|
|
Previous Years ($) |
|
|
|
Total ($) |
|
|
|
Mr. Taurel
|
|
|
$ |
179,090 |
|
|
|
$ |
3,341,875 |
|
|
|
$ |
3,520,965 |
|
|
|
Dr. Lechleiter |
|
|
$ |
483,410 |
|
|
|
$ |
2,182,887 |
|
|
|
$ |
2,666,297 |
|
|
|
Dr. Paul
|
|
|
|
0 |
|
|
|
$ |
218,711 |
|
|
|
$ |
218,711 |
|
|
|
Mr. Armitage
|
|
|
$ |
752,703 |
|
|
|
$ |
1,867,372 |
|
|
|
$ |
2,620,075 |
|
|
|
Mr. Rice
|
|
|
$ |
62,710 |
|
|
|
$ |
47,400 |
|
|
|
$ |
110,110 |
|
|
|
The Nonqualified Deferred Compensation in 2007 table above shows information about two company
programs: a nonqualified savings plan and a deferred compensation plan. The nonqualified savings
plan is designed to allow each executive to contribute up to 6 percent of his or her base salary,
and receive a company match, beyond the contribution limits prescribed by the IRS with regard to
401(k) plans. This plan is administered in the same manner as the company 401(k) Plan, with the
same participation and investment elections, and all employees are eligible to participate.
Executive officers and other executives may also defer receipt of all or part of their cash
compensation under the companys deferred compensation plan. Amounts deferred by executives under
this program are credited with interest at 120 percent of the applicable federal long-term rate as
established for the preceding December by the U.S. Treasury Department under Section 1274(d) of the
Internal Revenue Code with monthly compounding, which was 5.7 percent for 2007 and is 5.5 percent
for 2008. Participants may elect to receive the funds in a lump sum or in up to 10 annual
installments
following retirement, but may not make withdrawals during their employment, except in the
event of hardship as approved by the compensation committee. All deferral elections and associated
distribution schedules are irrevocable. Both plans are unfunded and subject to forfeiture in the
event of bankruptcy.
Potential Payments Upon Termination or Change in Control
The following table describes the potential payments and benefits under the companys compensation
and benefit plans and arrangements to which the named executive officers would be entitled upon
termination of employment. Except for (i) certain terminations following a change in control of the
company, as described below, and (ii) certain pension arrangements as shown below and described
under Retirement Benefits above, there are no agreements, arrangements, or plans that entitle
named executive officers to severance, perquisites, or other enhanced benefits upon termination of
their employment. Any agreement to provide such payments or benefits to a terminating executive
officer (other than following a change in control) would be in the discretion of the compensation
committee.
Potential Payments Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuation |
|
|
Continuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Medical / |
|
|
Equity Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
Incremental |
|
|
Welfare |
|
|
(unamortized |
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Pension Benefit |
|
|
Benefits |
|
|
expense as of |
|
|
Excise Tax |
|
|
Total Termination |
|
|
|
|
|
Payment |
|
|
(present value) |
|
|
(present value) |
|
|
12/31/07) |
|
|
Gross-up |
|
|
Benefits |
|
|
Mr. Taurel |
|
|
Voluntary retirement |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary or good
reason termination after
change in
control (CIC) |
|
|
$ |
11,580,950 |
|
|
|
|
0 |
(1) |
|
|
$ |
24,000 |
(2) |
|
|
$ |
487,102 |
|
|
|
|
0 |
|
|
|
$ |
12,092,052 |
|
|
|
Dr. Lechleiter |
|
|
Voluntary retirement |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary or good
reason
termination after
CIC |
|
|
$ |
6,661,440 |
|
|
|
$ |
1,347,065 |
|
|
|
$ |
24,000 |
|
|
|
$ |
316,617 |
|
|
|
$ |
3,301,506 |
|
|
|
$ |
11,650,628 |
|
|
|
Dr. Paul |
|
|
Voluntary retirement |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
$ |
3,141,258 |
(3) |
|
|
$ |
89,577 |
(3) |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
$ |
3,230,835 |
|
|
|
Involuntary or good
reason
termination after
CIC |
|
|
$ |
5,029,728 |
|
|
|
$ |
4,108,206 |
(3) |
|
|
$ |
113,577 |
(3) |
|
|
$ |
457,972 |
|
|
|
$ |
3,888,845 |
|
|
|
$ |
13,598,328 |
|
|
|
Mr. Armitage |
|
|
Voluntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary or good
reason
termination after
CIC |
|
|
$ |
3,603,432 |
|
|
|
$ |
720,138 |
|
|
|
$ |
242,082 |
|
|
|
$ |
3,102,557 |
|
|
|
$ |
2,171,275 |
|
|
|
$ |
9,839,484 |
|
|
|
Mr. Rice |
|
|
Voluntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Involuntary or good
reason
termination after
CIC |
|
|
$ |
3,637,654 |
|
|
|
$ |
104,298 |
|
|
|
$ |
24,000 |
|
|
|
$ |
1,845,095 |
|
|
|
$ |
1,697,147 |
|
|
|
$ |
7,308,194 |
|
|
|
37
|
|
|
(1) |
|
See Change-in-Control Severance Pay ProgramIncremental Pension Benefit below. |
|
(2) |
|
See Accrued Pay and Regular Retirement Benefits and Change-in-Control Severance Pay
ProgramContinuation of Medical and
Welfare Benefits below. |
|
(3) |
|
These amounts reflect an additional 10 years of service credit that would be credited
to Dr. Paul upon an involuntary termination, other than for cause, should it occur before he
reaches age 60 (see pages 35-36 for more information about Dr. Pauls retirement benefits). |
Accrued
Pay and Regular Retirement Benefits. The amounts shown in the table above do not include
payments and benefits to the extent they are provided on a non-discriminatory basis to salaried
employees generally upon termination of employment. These include:
|
|
|
Accrued salary and vacation pay. |
|
|
|
|
Regular pension benefits under the Lilly Retirement Plan and the nonqualified
retirement plan. See Retirement Benefits on
pages 35-36. The amounts shown in the
table above as Incremental Pension Benefits are explained below. |
|
|
|
|
Welfare benefits provided to all U.S. retirees, including retiree medical and
dental insurance. The amounts shown in the table above as Continuation of Medical /
Welfare Benefits are explained below. |
|
|
|
|
Distributions of plan balances under the Lilly 401(k) Plan and the nonqualified
savings plan. See the narrative following the Nonqualified Deferred Compensation in 2007
Table for information about the 401(k) plan and Nonqualified Deferred Compensation on
pages 36-37 for information about the nonqualified savings plan. |
|
|
|
|
The value of accelerated vesting of certain unvested equity grants upon retirement.
Under the companys stock plans, employees who terminate employment while
retirement-eligible receive accelerated vesting of unvested stock options (except for
options granted in the 12 months before retirement, which are forfeited), outstanding
performance awards and shareholder value awards (which are paid on a reduced basis for
time worked during the award period), and restricted stock awarded in payment of previous
performance awards. |
|
|
|
|
The value of option continuation upon retirement. When an employee terminates prior
to retirement, his or her stock options are terminated 30 days thereafter. However, when
a retirement-eligible employee terminates, his or her options remain in force until the
earlier of five years after retirement or the options normal expiration date. |
Deferred
Compensation. The amounts shown in the table do not include distributions of plan balances
under the Lilly deferred compensation plan. Those amounts are shown in the Nonqualified Deferred
Compensation in 2007 Table on pages 36-37.
Death
and Disability. A termination of employment due to death or disability does not entitle the
named executive officers to any payments or benefits that are not available to salaried employees
generally.
Change-in-Control
Severance Pay Program. As described in the Compensation Discussion and Analysis
under Severance Pay on page 28, the company maintains a change-in-control
severance pay program for nearly all employees, including the named executive officers (the CIC
Program). The CIC Program defines a change in control very specifically, but generally the term
includes the occurrence of, or entry into an agreement to do one of the following: a) acquisition
of 15 percent or more of the companys stock; b) replacement by the shareholders of one third or
more of the board of directors; c) consummation of a merger, share exchange, or consolidation of
the company; or d) liquidation of the company or sale or disposition of all or substantially all of
its assets. The amounts shown in the table for involuntary or good reason termination following a
change in control are based on the following assumptions and plan provisions:
|
|
|
Covered terminations. The table assumes a termination of employment that is eligible
for severance under the terms of the current plan, based on the named executives
compensation, benefits, age, and service credit at December 31, 2007. Eligible terminations
include an involuntary termination for reasons other than cause, or a voluntary termination
by the executive for good reason, within two years following the change in control. |
|
|
o |
|
A termination of an executive officer by the company is for cause if it
is for any of the following reasons: (i) the employees willful and continued
refusal to perform, without legal cause, his or her material duties, resulting in
demonstrable economic harm to the company; (ii) any act of fraud, dishonesty, or
gross misconduct resulting in significant economic harm or other significant harm
to |
38
|
|
|
|
the business reputation of the company; or (iii) conviction of or the entering
of a plea of guilty or nolo contendere to a felony. |
|
|
|
o |
|
A termination by the executive officer is for good reason if it results
from (i) a material diminution in the nature or status of the executives position,
title, reporting relationship, duties, responsibilities or authority, or the
assignment to him or her of additional responsibilities that materially increase
his or her workload; (ii) any reduction in the executives then-current base
salary; (iii) a material reduction in the executives opportunities to earn
incentive bonuses below those in effect for the year prior to the change in
control; (iv) a material reduction in the executives employee benefits from the
benefit levels in effect immediately prior to the change in control; (v) the
failure to grant to the executive stock options, stock units, performance shares,
or similar incentive rights during each twelve (12) month period following the
change in control on the basis of a number of shares or units and all other
material terms at least as favorable to the executive as those rights granted to
him or her on an annualized average basis for the three (3) year period immediately
prior to the change in control; or (vi) relocation of the executive by more than
fifty (50) miles. |
|
|
|
Cash severance payment. Represents the CIC Program benefit of two times the 2007 annual
base salary plus two times cash bonus for 2007 under the Eli Lilly and Company Bonus Plan. |
|
|
|
|
Incremental pension benefit. Represents the present value of an incremental
nonqualified pension benefit of two years of age credit and two years of service credit
that is provided under the CIC Program. The following standard actuarial assumptions were
used to calculate each individuals incremental pension benefit: |
|
|
|
|
|
|
|
|
|
Discount rate:
|
|
6.75 percent |
|
|
Mortality (post-retirement only):
|
|
RP 2000CH |
|
|
Joint & survivor benefit:
|
|
25% of pension |
|
|
Because Mr. Taurel already qualifies for a full pension benefit, the additional age credit and
service credit do not increase his benefit. For Dr. Paul, the amounts in the table above reflect
the 10 years of additional service credit described on
page 36 above.
|
|
|
Continuation of medical and welfare benefits. Represents the present value of the
CIC Plans guarantee for two years following a covered termination of continued coverage
equivalent to the companys current active employee medical, dental, life, and long-term
disability insurance. For two of the three retirement-eligible employees, Mr. Taurel and
Dr. Lechleiter, there is limited incremental benefit under the CIC Plan because they
would be entitled to equivalent medical and dental coverage in the ordinary course as
retirees regardless of the reason for termination. For Dr. Paul, the amounts in the
table above reflect the 10 years of additional service credit
described on page 36 above. The same actuarial assumptions were used to calculate continuation of medical and
welfare benefits as were used to calculate incremental pension benefits, with the
addition of an assumed COBRA rate of $12,000 per year. |
|
|
|
|
Acceleration and continuation of equity awards. Under the CIC Plan, upon a covered
termination, any unvested stock options, restricted stock, or other equity awards would
vest, and options would be exercisable for up to three years following termination.
Payment of the Shareholder Value Award is accelerated in the case of a change in control
in which Lilly is not the surviving entity. For the three retirement-eligible employees,
Mr. Taurel and Drs. Lechleiter and Paul, the only other equity award receiving
accelerated vesting and term extension because of the CIC Plan would be 5,000 shares of
restricted stock held by Dr. Paul; all other unvested equity awards (with the exception
of the SVA) automatically vest upon retirement regardless of reason. The amounts in this
column represent the previously unamortized expense that would be recognized in
connection with the acceleration of unvested equity grants. In addition, the two named
executive officers who are not retirement-eligible, Messrs. Armitage and Rice, would
receive the benefit under the CIC Plan of continuation of their outstanding stock options
for up to three years following termination of employment. There would be no incremental
expense to the company for this continuation because the option would already have been
fully expensed. |
|
|
|
|
Excise tax gross-up. Upon a change in control, employees may be subject to certain
excise taxes under Section 280G of the Internal Revenue Code. The company has agreed to
reimburse the affected employees for those excise taxes as well as any income and excise
taxes payable by the executive as a result of the reimbursement. The amounts in the table
are based on a 280G excise tax rate of 20 percent and a 40 percent federal, state, and
local income tax rate. |
Payments
Upon Change in Control Alone. The CIC Program is a double trigger program, meaning
payments are made only if the employee suffers a covered termination of employment within two years
following the change in control. Employees do not receive payments upon a change in control alone,
except that upon consummation of a change in control a partial payment of outstanding performance
awards would be made, reduced to reflect only the portion of the year worked prior to the change in
control. For example, if a change in control occurred on June 30, the employee would receive
one-half of the value of the performance award, calculated based on the companys then-current
financial forecast for the year. Likewise, in the case of a change in control in which Lilly is
not the surviving entity, the SVA will pay out based on the change-in-control stock price and
prorated for the portion of the three-year performance period elapsed.
Related Person Transaction
As noted above, under board policy, for security reasons the company aircraft is made available to
Mr. Taurel for all travel. The company has entered into a time-share arrangement with Mr. Taurel in
connection with his personal use of company aircraft. Under the time-share agreement, Mr.
39
Taurel
leases the company aircraft, including crew and flight services, for personal flights. He pays a
time-share fee based on the companys cost of the flight but capped at the greater of (i) an amount
equivalent to first-class airfare for the relevant flight (if commercially available) and (ii) the
Standard Industry Fare Levels as established by the Internal Revenue Service for purposes of
determining taxable fringe benefits.
Ownership of Company Stock
Common Stock Ownership by Directors and Executive Officers
The following table sets forth the number of shares of company common stock beneficially owned by
the directors, the named executive officers, and all directors and executive officers as a group,
as of February 4, 2008.
The table shows shares held by named executives in the Lilly Employee 401(k) Plan, shares credited
to the accounts of outside directors in the Directors Deferral Plan, and total shares beneficially
owned by each individual, including the shares in the respective plans. In addition, the table
shows shares that may be purchased pursuant to stock options that are exercisable within 60 days of
February 4, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
Directors Deferral |
|
|
Total Shares Owned |
|
|
Exercisable Within |
|
|
Name of Individual or Identity of Group |
|
|
401(k)
Plan Shares |
|
|
Plan Shares (1) |
|
|
Beneficially (2) |
|
|
60 Days |
|
|
Robert A. Armitage |
|
|
|
1,383 |
|
|
|
|
|
|
|
|
|
73,317 |
|
|
|
|
281,154 |
|
|
|
Sir Winfried Bischoff |
|
|
|
|
|
|
|
|
11,232 |
|
|
|
|
13,232 |
|
|
|
|
11,200 |
|
|
|
J. Michael Cook |
|
|
|
|
|
|
|
|
10,702 |
|
|
|
|
12,502 |
|
|
|
|
|
|
|
|
Martin S. Feldstein, Ph.D. |
|
|
|
|
|
|
|
|
9,596 |
|
|
|
|
10,596 |
|
|
|
|
8,400 |
|
|
|
George M.C. Fisher |
|
|
|
|
|
|
|
|
18,536 |
|
|
|
|
28,536 |
|
|
|
|
11,200 |
|
|
|
J. Erik Fyrwald |
|
|
|
|
|
|
|
|
9,268 |
|
|
|
|
9,368 |
|
|
|
|
|
|
|
|
Alfred G. Gilman, M.D., Ph.D. |
|
|
|
|
|
|
|
|
17,159 |
|
|
|
|
17,159 |
|
|
|
|
14,000 |
|
|
|
Karen N. Horn, Ph.D. |
|
|
|
|
|
|
|
|
29,944 |
|
|
|
|
29,944 |
|
|
|
|
14,000 |
|
|
|
John C. Lechleiter, Ph.D. |
|
|
|
13,040 |
|
|
|
|
|
|
|
|
|
236,445 |
(3) |
|
|
|
867,811 |
|
|
|
Ellen R. Marram |
|
|
|
|
|
|
|
|
9,596 |
|
|
|
|
10,596 |
|
|
|
|
5,600 |
|
|
|
Steven M. Paul, M.D. |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
58,435 |
|
|
|
|
496,107 |
|
|
|
Franklyn G. Prendergast, M.D., Ph.D. |
|
|
|
|
|
|
|
|
22,804 |
|
|
|
|
22,804 |
|
|
|
|
14,000 |
|
|
|
Kathi P. Seifert |
|
|
|
|
|
|
|
|
18,837 |
|
|
|
|
22,370 |
|
|
|
|
14,000 |
|
|
|
Derica W. Rice |
|
|
|
4,850 |
|
|
|
|
|
|
|
|
|
69,207 |
|
|
|
|
101,977 |
|
|
|
Sidney Taurel |
|
|
|
16,981 |
|
|
|
|
|
|
|
|
|
1,108,586 |
(4) |
|
|
|
2,520,621 |
|
|
|
All directors and executive officers as a group (21 people): |
2,074,960 |
|
|
|
|
|
|
(1) |
|
See description of the Directors Deferral Plan, page 17. |
|
(2) |
|
Unless otherwise indicated in a footnote, each person listed in the table possesses
sole voting and sole investment power with respect to the shares shown in the table to be
owned by that person. No person listed in the table owns more than percent of
the outstanding common stock of the company. All directors and executive officers as a group
own ___ percent of the outstanding common stock of the
company. 1,800 of Mr. Cooks shares were on deposit in a
margin account as of February 4, 2008. |
|
(3) |
|
The shares shown for Dr. Lechleiter include
13,470 shares that are
owned by a family foundation for which he is a director. Dr. Lechleiter has shared voting
power and shared investment power over the shares held by the foundation. |
|
(4) |
|
The shares shown for Mr. Taurel include
18,545 shares that are owned by
a family foundation for which he is a director. Mr. Taurel has shared voting power and shared
investment power over the shares held by the foundation. |
40
Principal Holders of Stock
To the best of the companys knowledge, the only beneficial owners of more than 5 percent of the
outstanding shares of the companys common stock are the shareholders listed below:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Percent of |
Name and Address |
|
Beneficially Owned |
|
|
Class |
|
Lilly Endowment, Inc. (the Endowment) |
|
137,505,804 |
|
|
|
12.1 |
% |
2801 North Meridian Street |
|
(as of 2/4/08) |
|
|
|
|
Indianapolis, Indiana 46208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Research and Management Company |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
333 South Hope Street |
|
(as of __/__/__) |
|
|
|
|
Los Angeles, California 90071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
75 State Street |
|
(as of __/__/__) |
|
|
|
|
Boston, Massachusetts 02109 |
|
|
|
|
|
|
|
|
The Endowment has sole voting and sole investment power with respect to its shares. The board of
directors of the Endowment is composed of Mr. Thomas M. Lofton, chairman; Mr. N. Clay Robbins,
president; Mrs. Mary K. Lisher; Drs. Otis R. Bowen and William G. Enright; and Messrs. Daniel P.
Carmichael, Eli Lilly II, and Eugene F. Ratliff (Emeritus Director). Each of the directors is,
either directly or indirectly, a shareholder of the company.
Capital Research and Management Company acts as investment advisor to various investment
companies. It has sole voting power with respect to
shares (approximately
percent of shares outstanding) and sole investment power with respect to all of its
shares.
Wellington Management Company, LLP acts as investment advisor to various clients. It has
shared voting power with respect to shares (approximately
percent of shares outstanding) and shared investment power with respect to all of its shares.
Items of Business to Be Acted Upon at the Meeting
Item 1. Election of Directors
Under the companys articles of incorporation, the board is divided into three classes with
approximately one-third of the directors standing for election each year. The term for directors
elected this year will expire at the annual meeting of shareholders held in 2011. Each of the
nominees listed below has agreed to serve that term. If any director is unable to stand for
election, the board may, by resolution, provide for a lesser number of directors or designate a
substitute. In the latter event, shares represented by proxies may be voted for a substitute
director.
The board recommends that you vote FOR each of the following nominees:
|
|
|
George M.C. Fisher |
|
|
|
|
Alfred G. Gilman, M.D., Ph.D. |
|
|
|
|
Karen N. Horn, Ph.D. |
|
|
|
|
John C. Lechleiter, Ph.D. |
Biographical information about these nominees may be found on page 7 of this proxy statement.
Item 2. Proposal to Ratify the Appointment of Principal Independent Auditors
The audit committee has appointed the firm of Ernst & Young LLP as principal independent auditors
for the company for the year 2008. In accordance with the bylaws, this appointment is being
submitted to the shareholders for ratification. Ernst & Young served as the principal independent
auditors for the company in 2007. Representatives of Ernst & Young are expected to be present at
the annual meeting and will be available to respond to questions. Those representatives will have
the opportunity to make a statement if they wish
to do so.
The board recommends that you vote FOR ratifying the appointment of Ernst & Young LLP as principal
independent auditors for 2008.
41
Item 3. Proposal to Amend the Companys Articles of Incorporation to Provide for Annual Election of Directors
The companys Amended Articles of Incorporation currently provide that the board of directors is
divided into three classes, with each class elected every three years. In December 2006, on the
recommendation of the directors and corporate governance committee, the board unanimously adopted
resolutions approving, and recommending to the shareholders for approval, amendments to provide for
the annual election of directors. This proposal was brought before shareholders at the companys
annual meeting of shareholders in April 2007, and received the vote of over 75 percent of the
outstanding shares; however, the proposal required the vote of 80 percent of the outstanding shares
to pass. In December 2007, the board again unanimously adopted resolutions recommending these
amendments to shareholders for approval.
If approved, this proposal will become effective upon the filing of Amended and Restated
Articles of Incorporation containing these amendments with the Secretary of State of Indiana, which
the company intends to do promptly after shareholder approval is obtained. Directors elected prior
to the effectiveness of the amendments will stand for election for one-year terms once their
then-current terms expire. This means that directors whose terms expire at the 2009 and 2010 annual
meetings of shareholders would be elected for one-year terms, and beginning with the 2011 annual
meeting, all directors would be elected for one-year terms at each annual meeting. In addition, in
the case of any vacancy on the board occurring after the 2008 annual meeting, including a vacancy
created by an increase in the number of directors, the vacancy would be filled by interim election
of the board, with the new director to serve a term ending at the next annual meeting. At all
times, directors are elected to serve for their respective terms and until their successors have
been elected and qualified. This proposal would not change the present number of directors, and it
would not change the boards authority to change that number and to fill any vacancies or newly
created directorships.
Article 9(b) of the companys Amended Articles of Incorporation contains the provisions that
will be affected if this proposal is adopted. This article, set forth in Appendix A to this proxy
statement, shows the proposed changes with deletions indicated by strike-outs and additions
indicated by underlining. The board has also adopted conforming amendments to the companys bylaws,
to be effective immediately upon the effectiveness of the amendments to the Amended Articles of
Incorporation.
Background of Proposal
The proposal is a result of ongoing review of corporate governance matters by the board. The board,
assisted by the directors and corporate governance committee, considered the advantages and
disadvantages of maintaining the classified board structure. The board considered the view of some
shareholders who believe that classified boards have the effect of reducing the accountability of
directors to shareholders because classified boards limit the ability of shareholders to evaluate
and elect all directors on an annual basis. The election of directors is the primary means for
shareholders to influence corporate governance policies. The board gave considerable weight to the
approval at the 2006 annual meeting of a shareholder proposal requesting that the board take all
necessary steps to elect the directors annually, and to the 75 percent favorable vote for
managements proposal in 2007.
The board also considered benefits of retaining the classified board structure, which has a
long history in corporate law. Proponents of a classified structure believe it provides continuity
and stability in the management of the business and affairs of a company because a majority of
directors always have prior experience as directors of the company. Proponents also assert that
classified boards may enhance shareholder value by forcing an entity seeking control of a target
company to initiate arms-length discussions with the board of that company, because the entity
cannot replace the entire board in a single election. While the board recognizes those potential
benefits, it also notes that even without a classified board, the company has other means to compel
a takeover bidder to negotiate with the board, including a shareholder rights plan, certain
supermajority vote requirements in its Amended Articles of Incorporation (as described in the
companys response to Item 8 at page 50), other provisions of its articles and bylaws, and
certain provisions of Indiana law.
The directors and corporate governance committee and the board heard advice from outside
governance and legal experts on the annual election of directors. On the recommendation of the
committee, the board approved the amendments, and determined to recommend that shareholders approve
the amendments to the companys Amended Articles of Incorporation to provide for the annual
election of directors. Although this proposal did not pass in 2007, the board continues to support
this change and believes that by taking this action, it can provide shareholders further assurance
that the directors are accountable to shareholders while maintaining appropriate defenses to
respond to inadequate takeover bids.
Vote Required
The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this
proposal.
The board recommends that you vote FOR amending the companys articles of incorporation to provide
for annual election of
directors.
Item 4. Proposal to Amend the Companys Articles of Incorporation to Provide for Election of Directors by Majority Vote
On the recommendation of the directors and corporate governance committee, the board has
unanimously adopted resolutions approving, and recommending to the shareholders for approval,
amendments to the Amended Articles of Incorporation to change the standard of election in
uncontested elections of directors to a majority of votes cast. Please see Appendix A to this
proxy statement for the text of the proposed new Article 15.
Background of Proposal
Indiana law provides that, unless otherwise specified by the Articles of Incorporation, directors
are elected by a plurality of votes cast. Lillys Amended Articles of Incorporation do not specify
otherwise; therefore, directors are elected by a plurality. Under this standard, director nominees
42
with the most votes cast in their favor are elected to the board, notwithstanding the number of
votes withheld against a director nominee. Thus, a director can be elected even though a majority
of shares voted oppose his or her election.
The plurality standard has been the norm for U.S. corporations for many years. Recently,
however, many shareholders have called for changes in the director election standards to make
director elections more meaningful. In 2005, Lilly and several other leading companies addressed
this concern by adopting a director resignation policy, which calls for any director who fails to
receive a majority of favorable votes to tender his or her resignation, subject to a determination
by the board whether to accept the resignation. The board believes that now is the right time to
take the next step in assuring that shareholders have a clear voice in electing directors by moving
to a majority vote standard for uncontested elections.
Under Indiana law, directors are elected to serve for their respective terms and until their
successors have been elected and qualified. Thus, under a majority vote standard, an incumbent
director who fails to receive a majority of votes cast would not be elected, but would continue to
serve as a holdover director. However, under amendments to the companys Bylaws which the board
has adopted subject to shareholder approval of this Item 4, the unelected director would be
required to offer to resign immediately. The board, with the advice of the directors and corporate
governance committee, would determine the appropriate responsive action and communicate its
decision, and its underlying rationale, to shareholders within 90 days of certification of the
election results. If the resignation is accepted, the board may decide to fill any resulting
vacancy or decrease the number of directors.
The amendments provide that in a contested election an election in which the number of
nominees exceeds the number of directors to be elected the plurality standard will continue to
apply.
Effective Time
If approved, the Amended and Restated Articles of Incorporation will be effective upon filing with
the State of Indiana, which the company intends to do promptly after shareholder approval is
obtained.
Vote Requirement
The amendments will be adopted if the votes cast for the amendment exceed the votes cast against
the amendment.
The board recommends that you vote FOR amending the companys articles of incorporation to provide
for election of directors by majority vote.
Item 5. Amendment of the 2002 Lilly Stock Plan
Stock incentive plans have been an integral part of the companys compensation programs for more
than 50 years. These plans enable the company to attract and retain top talent and focus employees
on creating and sustaining shareholder value through increased employee stock ownership. In 2002,
the board and the shareholders adopted the 2002 Lilly Stock Plan (Plan). The board now
recommends that the shareholders approve certain amendments to the Plan, primarily to extend its
termination date and add additional shares that may be granted under the Plan.
Overview of Plan
Under the Plan all employees of the company are eligible to participate. The Compensation
Committee of the board (the Committee) may make grants to officers and employees in its
discretion. The Plan authorizes the grant of up to 80,000,000 shares plus unused shares under prior
shareholder-approved stock plans.
The Committee may grant stock options, stock appreciation rights, performance awards,
restricted stock grants and stock units to employees. The Board may grant stock options under the
Plan to nonemployee directors. The Plan is designed to maximize the deductibility of stock options
and performance awards under section 162(m) of the Internal Revenue Code of 1986, as amended (the
Code).
Overview of Amendments
The board has approved, and recommends that the shareholders approve, the following changes to the Plan:
|
|
extend the term of the Plan by eight years (from 2012 to 2020) |
|
|
|
increase the number of shares that may be granted during the life of the Plan by 39,000,000 |
|
|
|
clarify the circumstances under which unused shares from expired or terminated
grants may be added back to the Plan for future grants |
|
|
|
eliminate or decrease share limits on certain types of grants that may be made under the Plan in the aggregate |
|
|
|
raise share limits on certain types of grants that may be made to individuals |
|
|
|
eliminate dollar-denominated performance awards |
|
|
|
allow stock units to be paid in cash |
|
|
|
miscellaneous clarifications to plan language. |
All proposed changes to the Plan are shown in Appendix B to this proxy statement, with new
language indicated by underlining and deleted language indicated by strike-outs. In addition, the
most significant changes are described in more detail below.
Shares Subject to Plan
The maximum number of shares of Lilly stock that may be issued or transferred for grants under the Plan is the sum of:
43
|
|
|
80,000,000 shares; |
|
|
|
|
5,243,448 shares that were available under the previous shareholder-approved plan
(the 1998 Lilly Stock Plan) at the time that plan terminated in April 2002; |
|
|
|
|
any shares subject to grants under the Plan or prior shareholder-approved stock
plans (the 1989, 1994, and 1998 Lilly Stock Plans) that are not issued or transferred due
to termination, lapse, or forfeiture of the grant; and |
|
|
|
|
any shares exchanged by grantees as payment to the company of the exercise price of
stock options granted under the Plan or prior shareholder approved stock plans. |
The maximum number is subject to adjustment for stock splits, stock dividends, spin offs,
reclassifications, or other relevant changes affecting Lilly stock. There are currently
approximately 46,577,743 shares available for issue or transfer.
Proposed Amendments:
|
|
|
Increase the maximum number of shares to 119,000,000, an increase of
39,000,000 shares. We anticipate that this will provide sufficient shares for
several years of grants. |
|
|
|
|
Allow the add-back of shares withheld by the company for taxes upon the
exercise of stock options or the vesting of other grants. The number of shares that
would be added back under this provision is not expected to be material. |
Grants Under the Plan
Under the Plan all employees of the company, including officers, and all members of the board are
eligible to participate. Currently approximately 40,500 employees, including all 10 executive
officers, are eligible to participate. The number of eligible employees and grantees will vary
from year to year. There are currently 10 nonemployee directors.
Stock Options and Stock Appreciation Rights. The Committee may grant nonqualified options,
incentive stock options, or other tax favored stock options under the Code. The Committee
establishes the option price, which may not be less than 100 percent of the fair market value of
the stock on the date of grant. Options may not be repriced. The Committee also establishes the
vesting date and the term of the option.
The Committee may also grant stock appreciation rights (SARs)the right to receive an
amount based on appreciation in the fair market value of shares of Lilly stock over a base price.
If granted without a related stock option, the committee establishes the base price of the SARs,
which may not be less than 100 percent of the fair market value of the stock on the date of grant,
and the settlement or exercise date, which may not be more than eleven years after the grant date.
If granted in connection with a stock option, the holder of SARs may, upon exercise, surrender the
related options and receive payment, in the form of Lilly stock, equal to the excess of the the
fair market value of Lilly stock over the exercise price in the date of exercise multiplied by the
number of shares exercised. The price and term of the SARs mirror those of the related stock
option, and the SARs automatically terminate to the extent the related options are exercised.
Effectively, these awards give the holder the benefit of the related stock options (in the form of
shares of Lilly stock) without requiring payment of the exercise price.
A maximum of 60,000,000 shares may be issued under the Plan in the form of incentive stock
options. No grantee may receive options and SARs, considered together, for more than 2,500,000
shares under the Plan in any period of three consecutive calendar years.
Proposed Amendments:
|
|
|
Decrease the incentive stock option limit to 30,000,000 shares |
|
|
|
|
Increase the individual limit to 3,500,000 shares in any period of three consecutive calendar years. |
The incentive stock option limit is being reduced in light of expected grant patterns. The
increase in the individual limit will increase flexibility of plan administration.
Performance Awards. The Committee may grant performance awards under which payment is made in
shares of Lilly stock, cash, or both if the financial performance of the company or a subsidiary,
division, or other business unit of the company selected by the committee meets certain performance
goals during an award period. The Committee establishes the performance goals at the beginning of
the award period based on one or more performance goals specified in the Plan. The material terms
of those performance goals are:
|
|
|
earnings per share |
|
|
|
|
net income |
|
|
|
|
divisional income |
|
|
|
|
corporate or divisional net sales |
|
|
|
|
EVA® (after tax operating profit less the annual total cost of capital) |
|
|
|
|
Market Value Added (the difference between a companys fair market value, as
reflected primarily in its stock price, and the economic book value of capital employed) |
|
|
|
|
any of the foregoing goals before the effect of acquisitions, divestitures,
accounting changes, and restructuring and special charges |
|
|
|
|
total shareholder return |
|
|
|
|
other Lilly stock price goals. |
44
The Committee also establishes the award period (four or more consecutive fiscal quarters),
the threshold, target and maximum performance levels, and the number of shares or dollar amounts
payable at various performance levels from the threshold to the maximum. In order to receive
payment, a grantee must generally remain employed by the company to the end of the award period.
The Committee may impose additional conditions on a grantees entitlement to receive payment under
a performance award.
At any time prior to payment, the Committee can adjust awards for the effect of unforeseen
events that have a substantial effect on the performance goals and would otherwise make application
of the performance goals unfair. However, the Committee may not increase the amount that would
otherwise be payable to individuals who are subject to Section 162(m) of the Code.
A maximum of 18,000,000 shares may be issued under the Plan in the form of performance awards.
Awards may be denominated either in shares of Lilly stock (Stock Performance Awards) or in
dollar amounts (Dollar Performance Awards). The maximum number of shares that may be received by
an individual in payment of Stock Performance Awards in any calendar year is 100,000. As to Dollar
Performance Awards, the maximum payment to an individual in any calendar year is $8,000,000. The
Committee can elect to pay cash in lieu of part or all of the shares of Lilly stock payable under a
Stock Performance Award, and such cash payment is counted as a payment of shares (based on the
market value of Lilly stock on the payment date) for purposes of determining compliance with the
100,000 share limit for Stock Performance Awards.
Proposed Amendments:
|
|
|
Eliminate the 18,000,000 share limit. This limit was adopted at a time
when performance awards created a greater accounting expense to the company than
stock options. With changes in accounting rules, the expense of the different kinds
of grants is comparable, and therefore the limit no longer serves its intended
purpose of minimizing the accounting cost of the Plan. |
|
|
|
|
Raise the individual limit from 100,000 to 600,000 shares annually. This
change is also necessary to allow the grant of both traditional performance awards
and SVAs under the current program design. |
|
|
|
|
Eliminate Dollar Performance Awards. We have not granted Dollar
Performance Awards for many years and do not contemplate granting them in the
future. |
Restricted Stock Grants or Stock Units. The Committee may also issue or transfer shares under
a restricted stock grant. The grant will set forth a restriction period during which the shares may
not be transferred. If the grantees employment terminates during the restriction period, the grant
terminates and the shares are returned to the company. However, the Committee can provide complete
or partial exceptions to that requirement as it deems equitable. If the grantee remains employed
beyond the end of the restriction period, the restrictions lapse and the shares become freely
transferable.
The Committee may grant stock unit awards subject to vesting and transfer restrictions and
conditions of payment determined by the committee. The value of each stock unit equals the fair
market value of Lilly stock and may include the right to receive the equivalent of dividends on the
shares granted. Payment is made in the form of Lilly stock.
A maximum of 3,000,000 shares of Lilly stock may be issued or transferred under the Plan in
the form of restricted stock grants or stock unit awards, considered together.
Proposed Amendments:
|
|
|
Eliminate the 3,000,000 share maximum. This limit was adopted at a time when
stock grants created a greater accounting expense to the company than stock options.
With changes in accounting rules, the expense of the different kinds of grants is
comparable, and therefore the limit no longer serves its intended purpose of minimizing
the accounting cost of the Plan. |
|
|
|
|
Allow stock grants to be paid in cash to facilitate making stock grants in
certain foreign countries. |
Authority of Committee
The Plan is administered and interpreted by the Committee, each member of which must be a
nonemployee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934
and an outside director within the meaning of Section 162(m) of the Code. As to grants to
employees, the Committee selects persons to receive grants from among the eligible employees,
determines the type of grants and number of shares to be awarded, and sets the terms and conditions
of the grants. The Committee may establish rules for administration of the Plan and may delegate
authority to others for plan administration, subject to limitations imposed by SEC and IRS rules
and state law.
Other Information
The Plan remains effective until April 14, 2012, unless earlier terminated by the board. The board
may amend the Plan as it deems advisable, except that shareholder approval is required for any
amendment that would (i) allow the repricing of stock options below the original option price, (ii)
allow the grant of stock options at an option price below fair market value of Lilly stock on the
date of grant, (iii) increase the number of shares authorized for issuance or transfer, or (iv)
increase any of the various maximum limits established for stock options, performance awards, and
restricted stock.
Proposed Amendment: Extend termination date of the Plan to April 20, 2020.
The Committee may provide in the grant agreement, or by subsequent action, that the following
shall occur in the event of a change in control (as defined in Article 12 of the Plan), in order to
preserve all of the grantees rights: (i) any outstanding stock option not already vested shall
become immediately exercisable; (ii) any restriction periods on restricted stock grants shall
immediately lapse; and (iii) outstanding performance awards will
45
be vested and paid out on a
prorated basis, based on the maximum award opportunity and the number of months elapsed compared to
the total number of months in the award period.
The future amounts that will be received by grantees under the Plan are not determinable. For
the 2007 award year, no stock options were granted to employees or directors, and employees
received the following performance awards, shareholder value awards (which were granted under the
plan as a form of performance award), restricted stock grants and restricted stock units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Awards |
|
|
|
Shareholder Value Awards |
|
|
|
Restricted Stock |
|
|
|
Group |
|
|
(Pay out) |
|
|
|
(Target)(1) |
|
|
|
Grants / Units |
|
|
|
Named Executive Officers |
|
|
Note 2 |
|
|
Note 2 |
|
|
None |
|
|
All Executive Officers as a group
(10 employees) |
|
|
391,218
shares |
|
|
243,754
shares |
|
|
None |
|
|
All other employees |
|
|
3,577,896
shares |
|
|
726,194
shares |
|
|
379,176
shares |
|
|
(1) |
|
For 2007-09 award period. Actual number of shares paid may
vary from zero to 140 percent of target for executive officers
and from 40 to 140 percent of target for all other employees. |
|
(2) |
|
See page 32, narrative following Grants of Plan Based Awards table. |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information as of December 31, 2007, regarding our compensation plans
under which shares of Lilly common stock have been authorized for issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Number of securities |
|
|
|
|
|
|
|
|
|
|
|
(b) Weighted-average |
|
|
|
remaining available for |
|
|
|
|
|
|
(a) Number of securities to |
|
|
|
exercise |
|
|
|
future issuance under |
|
|
|
|
|
|
be issued upon exercise of |
|
|
|
price of outstanding |
|
|
|
equity compensation plans |
|
|
|
|
|
|
outstanding options, |
|
|
|
options, |
|
|
|
(excluding securities |
|
|
|
Plan category |
|
|
warrants, and rights |
|
|
|
warrants, and rights |
|
|
|
reflected in column (a)) |
|
|
|
Equity compensation
plans approved by
security holders |
|
|
|
71,953,815 |
|
|
|
$ |
68.78 |
|
|
|
|
46,577,743 |
|
|
|
Equity compensation
plan not approved
by security
holders(1) |
|
|
|
9,195,230 |
|
|
|
$ |
75.77 |
|
|
|
|
320,555 |
|
|
|
Total |
|
|
|
81,149,045 |
|
|
|
$ |
69.57 |
|
|
|
|
46,898,298 |
|
|
|
(1) |
|
Represents shares in the Lilly GlobalShares Stock Plan, which permits the company to
grant stock options to nonmanagement employees worldwide. The plan is administered by the senior
vice president responsible for human resources. The stock options are nonqualified for U.S. tax
purposes. The option price cannot be less than the fair market value at the time of grant. The
options shall not exceed 11 years in duration and shall be subject to vesting schedules established
by the plan administrator. There are provisions for early vesting and early termination of the
options in the event of retirement, disability, and death. In the event of stock splits or other
recapitalizations, the administrator may adjust the number of shares available for grant, the
number of shares subject to outstanding grants, and the exercise price of outstanding grants. |
The board recommends that you vote FOR amendment of the 2002 Lilly Stock Plan.
Item 6.
Shareholder Proposal Regarding International Outsourcing of Animal
Research
Meredith Page, 2231 Court Ave., Memphis, TN 38104 on behalf of People for the Ethical Treatment of
Animals (PeTA), 501 Front Street, Norfolk, VA 23510, and beneficial owner of approximately 105
shares, has submitted the following proposal:
Resolved, that the Board report to shareholders on the rationale for increasingly exporting the
Companys animal experimentation to countries which have either nonexistent or substandard animal
welfare regulations and little or no enforcement. Further, the shareholders request that the
report include information on the extent to which the Company requires adherence to U.S. animal
welfare standards at facilities in foreign countries.
Supporting Statement: Eli Lilly has publicly committed to an ethical and scientific obligation to
ensure the responsible treatment of animals used in research, to minimize the number of animals
involved, and to pursue the development of alternative test systems.1
However, the Company is currently relocating animal research and testing to countries known for
having no or poor animal welfare standards and negligible oversight.
|
|
|
1 |
|
Policy statement at
http://www.lilly.com/about/citizenship/key_issues/research/rd_animal.html. |
46
In January 2006, Business Week reported that [i]ncreasingly, Lilly is moving its research and
development, including clinical trials, to China, India, and the former Soviet bloc.2
Then, the August 21, 2007 issue of The Wall Street Journal reported that Eli Lilly had entered into
a partnership with a Shanghai Company known as Chi-Med by which Lilly will hand over preclinical
research and development on several compounds to the Chinese company, and new agreements with
Chi-Meds Hutchison MediPharma were reported in October 2007.3
As previously reported in Forbes magazine, the rationale for outsourcing animal testing to China is
that scientists are cheap, lab animals plentiful and pesky protesters held at bay.4
Our Company now conducts a significant proportion of its research in foreign laboratories, with 20%
of it based in China (its largest non-U.S.-based Research & Development team).5
Purposely re-locating research to regions with lower animal costs, easy animal availability, and
lower welfare standards is in direct conflict with Lillys stated commitment to reducing, refining,
and replacing animal use.
As recent media reports of safety scandals and product recalls have made abundantly clear,
standards for products exported from China to the U.S. are lacking. Shareholders deserve to
understand why animal testing is being moved to foreign countries, such as China. Moreover, our
Company should report on the steps that are being taken to assure shareholders that animal testing
conducted in other countries is held to at least the same animal welfare standards as animal
testing conducted in the U.S.
Accordingly, we urge shareholders to support this socially and ethically responsible resolution.
Statement in Opposition to the International Outsourcing of Animal Research Proposal
The public policy and compliance committee of the board has reviewed the proposal submitted on
PETAs behalf and believes that Lillys current initiatives address the shareholder concerns and
additional reporting is an unnecessary use of company resources. Lillys current report on our use
of animals can be found in our Corporate Citizenship Report on our website at www.lilly.com.
Lilly maintains high standards of animal care and use in all our facilities. While efforts to
minimize the use of animal testing have been underway for some time, the appropriate use of animals
in research is essential to ensure that safe and efficacious medicines become available to
patients. Furthermore, it is a requirement dictated by regulatory agencies around the world. Lilly
fully recognizes the fundamental ethical obligation to treat animals used in research responsibly.
We have both an ethical and a scientific interest in ensuring that standards are in place at
company and third party facilities to ensure both appropriate animal care and valid study results.
Accordingly all of the companys sites are accredited by the Association for the Assessment and
Accreditation of Laboratory Animal Care International (AAALAC). AAALAC accreditation is a voluntary
process that includes a detailed, comprehensive review of research animal programs such as animal
care and use policies and procedures, animal environment, housing and management, veterinary
medical care, and physical plant operations.
In an increasingly competitive and global economy, Lilly regularly evaluates and develops
relationships with entities that can assist in meeting our productivity and core mission
objectives; this includes select laboratory animal research and animal supply companies.
Re-locating research to regions with lower animal costs does not affect Lillys stated commitment
to reducing, refining, and replacing animal use. Regardless of local variations, Lilly seeks to do
business only with those companies that share our commitment to animal welfare. We also require
the companies that we work with to comply with applicable local laws and treat animals in a humane
manner.
Lilly has been adding provisions to our contracts with third parties who do research on our behalf
or supply laboratory animals to our facilities, requiring these parties to comply with the
principles of Lillys Animal Care and Use Policy, and we will periodically assess their adherence
to these expectations. We recently revised our Animal Care and Use policy to reflect this
requirement.
Lilly believes that international research efforts may facilitate the harmonization of global
animal welfare standards. To this end, Lilly actively shares its views on the importance of animal
welfare in the research context with international regulatory bodies and research scientists in
other countries around the world including China. Leading Lilly research scientists seek
opportunities to present data on the care and use of laboratory animals at international scientific
forums and to government officials. Lilly actively encourages animal research and animal supply
companies, both inside and outside the United States, to obtain and maintain AAALAC accreditation.
Through active engagement, Lilly is helping to raise the standards of animal care and use in
countries that have not had such standards or enforced them.
The board
recommends that you vote AGAINST this proposal.
Item 7. Shareholder Proposal Regarding Allowing Shareholders to Amend the Companys Bylaws
California Public Employees Retirement System (CalPERS), P.O. Box 942707, Sacramento, CA
94229-2707, beneficial owner of approximately 4.7 million shares, has submitted the following
proposal:
|
|
|
2 |
|
Lillys Labs Go Global; Business Week (Jan. 30, 2006) |
|
3 |
|
http://www.drugresearcher.com/news/ng.asp?n=80470&m=1DRGO10&c=iubqfdmlvoteibj, |
|
4 |
|
Comparative Advantage; Forbes, p. 76 Vol. 178 No. 10 (Nov. 13, 2006) |
|
5 |
|
See footnote 3. |
47
RESOLVED, that the shareowners of Eli Lilly & Company (Company) urge the Company to take all
steps necessary, in compliance with applicable law, to allow its shareowners to amend the Companys
bylaws by a majority vote. Currently, the Company does not allow shareowners to amend the
Companys bylaws.
Supporting Statement: The most important shareowner power is the power to vote. In most cases, in
addition to having the power to vote to elect directors, shareowners are able to vote to amend a
companys bylaws. Approximately 95% of companies in the S&P 500 and the Russell 1000 allow
shareowners to amend the bylaws. The Company is one of the very few companies in the S&P 500 that
does not give shareowners this power.
Bylaws typically contain corporate governance provisions of the utmost importance to shareowners,
e.g., the ability to call a special meeting, the ability to remove directors, anti-takeover
provisions, director election rules, among other provisions. Without a formal mechanism to impact
a companys governance through bylaw amendments, the shareowners of a company are disenfranchised.
In fact, limiting shareowner ability to amend the bylaws has been found to be one of six
entrenching mechanisms that are negatively correlated with company performance. See What Matters
in Corporate Governance? Lucian Bebchuk, Alma Cohen & Allen Ferrell, Harvard Law School,
Discussion Paper No. 491 (09/2004, revised 03/2005).
This proposal asks for a majority vote standard to amend the bylaws of the Company since a
supermajority vote can be almost impossible to obtain in light of abstentions and broker nonvotes.
For example, a proposal to declassify the board of directors filed at Goodyear Tire & Rubber
Company failed to pass by a majority of shares outstanding even though approximately 90 percent of
votes cast were in favor of the proposal. While it is often stated by corporations that the
purpose of supermajority requirements is to provide corporations the ability to protect minority
shareowners, supermajority requirements are most often used, in CalPERS opinion, to block
initiatives opposed by management and the board of directors but supported by most shareowners. At
the Sara Lee Corporation, approximately 81% of shareowners agreed when it passed a proposal
identical to this proposal.
This is why CalPERS is sponsoring this proposal that, if passed and implemented, would make the
Company more accountable to shareowners by allowing shareowners to amend the bylaws by majority
vote. As a trust fund with more than 1.4 million participants, and as the owner of approximately
4.7 million shares of the Companys common stock, CalPERS believes that corporate governance
procedures and practices, and the level of accountability they impose, are closely related to
financial performance. CalPERS also believes that shareowners are willing to pay a premium for
shares of corporations that have excellent corporate governance. If the Company were to take steps
to implement this proposal, it would be a strong statement that this Company is committed to good
corporate governance and its long-term financial performance.
Please vote FOR this proposal.
Statement in Opposition to the Proposal Regarding Amending the Companys Bylaws
The board of directors believes that this proposal is not in the best long-term interests of the
shareholders and recommends that you vote against it.
The companys bylaws establish a number of fundamental corporate governance operating principles,
including rules for meetings of directors and shareholders, election and duties of directors and
officers, authority to approve transactions, and procedures for stock issuance. Like many other
Indiana corporations, Lilly has adopted the default provision under Indiana law, which states that
unless the articles of incorporation provide otherwise, the bylaws may be amended only by the
directors.
The board of directors has fiduciary obligations to the company and all its shareholders, including
large institutions, small institutions, and individual investors. The board believes that allowing
the bylaws to be amended by a majority shareholder vote would expose the shareholders to the risk
that a few large shareholders who wish to advance their own special interestsand who have no
duties to the other shareholderscould adopt changes in these operating principles that could be
detrimental to minority shareholders. Under the majority vote standard endorsed by the proponent
(requiring only a majority of shares voted at the meeting), shareholders holding significantly less
than half of the outstanding shares could adopt bylaw amendments to further their own special
interests. The board, on the other hand, has fiduciary duties to consider and balance the interests
of all shareholders when considering bylaw provisions, and is better positioned to ensure that any
bylaw amendments are prudent and are designed to protect and maximize long-term value for all
shareholders.
The proponent suggests this proposal is necessary to foster good governance principles at the
company and make the directors more accountable to the shareholders. On the contrary, the board has
been for many years, and intends to remain, a leader in corporate governance. The company has
adopted comprehensive corporate governance principles, consistent with best practices, that ensure
the company remains fully transparent and accountable to shareholders. Further, the board is taking
three major steps to demonstrate its continuing commitment to good corporate governance and
accountability to shareholders:
|
|
|
In this proxy statement, the board is seeking shareholder approval to eliminate
the classified board (see Item 3). |
|
|
|
|
The board is also seeking shareholder approval to adopt a majority voting
standard for uncontested director elections (see Item 4). |
|
|
|
|
The board has determined that it will not renew the companys shareholder rights
plan when it expires in July 2008. |
The proponent also suggests that adopting this proposal will enhance company performance because
companies with good corporate governance
48
are more highly valued. We certainly agree that strong
corporate governance practices benefit shareholders, but we do not believe that this particular
proposal will improve the companys corporate governance or lead to better performance. In fact, a
2004 study by Lawrence D. Brown and Marcus L. Caylor of Georgia State University 6 found
that companies that permit shareholders to amend the bylaws performed no better or worse than those
who reserve that power to the directors. This is consistent with our view that adopting this
proposal would not enhance our already strong corporate governance practices and instead would
expose minority shareholders to actions detrimental to their best interests.
The
board recommends that you vote AGAINST this proposal.
Item 8. Shareholder Proposal Regarding Adopting a Simple Majority Vote Standard
William Steiner, 112 Abbottsford Gate, Piermont, NY 10968, beneficial owner of approximately 1,700
shares, has submitted the following proposal:
8Adopt
Simple Majority Vote
RESOLVED, Shareowners urge our company to take all steps necessary, in compliance with applicable
law, to fully adopt simple majority vote requirements in our Charter and Bylaws. This includes
special solicitations.
This shareholder proposal topic won our 62%-support at our 2007 annual meeting. Simple majority
vote also won an impressive 72% yes-vote average at 24 major companies in 2007. The Council of
Institutional Investors www.cii.org recommends adoption of simple majority vote and the
adoption of shareholder proposals upon receiving their first majority vote.
Hopefully our management is not headed for the same category as FirstEnergy (FE), a serial ignorer
of majority shareholder votes. As a result each FirstEnergy director candidate received 27% to 39%
in opposing votes at the 2007 FirstEnergy annual meeting.
Currently a 1%-minority can frustrate the will of our 79%-shareholder majority under our 80%
supermajority provision. Also our supermajority vote requirements can be almost impossible to
obtain when one considers abstentions and broker nonvotes. For example, a Goodyear (GT) proposal
failed to pass even though 90% of votes cast were yes-votes.
Furthermore, our management said in its 2007 annual proxy that a supermajority provision is by no
means insurmountable. Then our management promptly failed to obtain the 80% supermajority vote
required to pass its own proposal for annual election of each director.
Mr. Fisher, Chairman of our Governance Committee did not authorize a special solicitation filing in
order to make a good effort to obtain the 80% vote. Because of this management failure,
shareholders are now encouraged to submit an annual election shareholder proposal so that it will
be adopted by our company.
The merits of adopting this proposal should also be considered in the context of our companys
overall corporate governance structure and individual director performance. For instance in 2007
the following structure and performance issues were reported (and certain concerns are noted):
|
|
|
The Corporate Library http://www.thecorporatelibrary.com, an independent investment
research firm, rated our company: |
D in governance.
High Governance Risk Assessment.
Very High Concern in Takeover Defenses.
High Concern in Executive Pay.
|
|
|
No shareholder right to: |
1) Cumulative voting.
2) To act by written consent.
3) To call a special meeting.
|
|
|
Five of our directors were potentially conflicted: |
Mr. Bischoff
Mr. Prendergast
Mr. Feldstein
Mr. Fyrwald
Mr. Gilman
Additionally:
|
|
|
Three directors were designated Accelerated Vesting directors by The Corporate Library
due to a directors involvement with a board that accelerated stock option vesting in order to
avoid recognizing the corresponding expense: |
Mr. Cook
|
|
|
6 |
|
Brown, L.D. and M.L. Caylor. 2004. The Correlation
between Corporate Governance and
Company Performance. Institutional Shareholder Services White Paper. |
49
Mr. Feldstein
Ms. Marram
|
|
|
Poison pill with a 15% trigger. |
|
|
|
|
We had no independent Chairman Independent oversight concern. |
|
|
|
|
Plus our lead director, Ms. Horn had 20-year tenure Independence concern. |
The above concerns shows there is room for improvement and reinforces the reason to take one step
forward now to encourage our board to respond positively to our 62%-support for this topic:
Adopt Simple Majority Vote
Yes on 8
Statement in Opposition to the Proposal Regarding Adopting a Simple Majority Vote Standard
This proposal, which does not pertain to the election of directors, calls for the elimination of
provisions in the companys articles of incorporation that require more than a simple majority vote
for certain actions to be approved. The board of directors believes that this would not be in the
best long-term interest of the shareholders and recommends that you vote against it.
Most proposals submitted to a vote of the companys shareholders can already be adopted by a simple
majority vote. However, in
1985 the companys shareholders voted to increase the approval requirement for a few fundamental
corporate actions. These actions, which require the approval of at least 80 percent of the
outstanding shares of stock entitled to vote, relate to:
|
|
|
removal of directors |
|
|
|
|
the amendment of the articles of incorporations provisions relating to the terms of office and removal of directors 7 |
|
|
|
|
merger, consolidation, recapitalization, or certain other business combinations
involving the company that are not approved by the board of directors |
|
|
|
|
the amendment of the articles of incorporations provisions relating to such
mergers and other business combinations. |
The board believes that in adopting these supermajority voting provisions, shareholders intended to
preserve and maximize the value of Lilly stock for all shareholders by protecting against
short-term, self-interested actions by one or a few large shareholders. These provisions help
ensure that important corporate governance rules are not changed without the clear consensus of a
substantial majority of stockholders that such change is prudent and in the best interests of the
company.
The board has a fiduciary duty under the law to act in a manner it believes to be in the best
interests of the company and its shareholders. In the event of an unfriendly or unsolicited bid
from one or a few large shareholders to take over or restructure the company, these supermajority
voting provisions encourage bidders to negotiate with the board on behalf of all shareholders. In
addition, they allow the board time and bargaining leverage to consider alternative proposals that
maximize the value of the company for all shareholders, including large institutional investors as
well as smaller institutions and individual shareholders.
The board believes that these supermajority voting provisions protect all shareholders by making it
more difficult for one or a few large shareholders to replace important corporate governance rules
of the company to further a special interest, or to take control of the company, without
negotiating with the board to assure that the best results are achieved for all shareholders.
The
board recommends that you vote AGAINST this proposal.
Item 9. Shareholder Proposal Regarding Reporting on the Companys Political Contributions
The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), 815 Sixteenth
Street, N.W., Washington, D.C. 20006, beneficial owner of approximately 700 shares, has submitted
the following proposal:
Resolved, that the shareholders of Eli Lilly and Company (the Company) hereby request that the
Company provide a report, updated semi-annually, disclosing the Companys:
|
1. |
|
Policies and procedures for political contributions and expenditures (both direct and
indirect) made with corporate funds. |
|
|
2. |
|
Monetary and non-monetary political contributions and expenditures not deductible under
Section 162 (e)(1)(B) of the Internal Revenue Code, including but not limited to
contributions to or expenditures on behalf of political candidates, political parties,
political committees and other political entities organized and operating under 26 USC Sec.
527 of the Internal Revenue Code and any portion of any dues or similar payments made to
any tax exempt organization that is used for an expenditure or contribution if made
directly by the corporation would not be deductible under Section 162 (e)(1)(B) of the
Internal Revenue Code. The report shall include the following: |
|
a. |
|
An accounting of the Companys funds that are used for political
contributions or expenditures as described above; |
|
|
|
7 |
|
Under Item 3, the board is recommending that the
shareholders approve amendments to these provisions that would establish annual
election of directors. |
50
|
b. |
|
Identification of the person or persons in the Company who participated
in making the decisions to make the political contribution or expenditure; and |
|
|
c. |
|
The internal guidelines or policies, if any, governing the Companys
political contributions and expenditures. |
The report shall be presented to the board of directors audit committee or other relevant
oversight committee and posted on the Companys website to reduce costs to shareholders.
Supporting Statement: As long-term shareholders, we support policies that apply transparency and
accountability to corporate spending on political activities. Absent a system of accountability,
we believe that company assets can be used for political objectives that are not shared by and may
be inimical to the interests of the Company and its shareholders. We are concerned that there is
currently no single source of information that provides all of the information sought by this
resolution.
Data from the Federal Election Commission and the Internal Revenue Service provides an incomplete
picture of our Companys political donations. Although corporate contributions to political
parties are prohibited at the federal level, companies can contribute to independent political
committees, or 527s. In addition, payments can be made to trade associations, and the portion of
those payments used for political activities do not have to be disclosed.
Trade associations engage in political activity that may support or conflict with our Companys
positions on important issues like universal access to healthcare, biomedical research and womens
health choices.
The recently enacted Honest Leadership and Open Government Act requires greater disclosure of trade
association political and lobbying activity including the reporting of all contributions bundled by
a trade associations political action committee and the listing of all companies who contribute
more than $5,000 in any quarterly period in support of a trade associations lobbying activity.
Company disclosure will help assure that trade associations are meeting their legal obligation in
reporting political and lobbying activity and that those activities are consistent with the
interests of our Company as a member of a trade association.
Statement in opposition to the Proposal Regarding Reports on the Companys Political Contributions
and Expenditures
The public policy and compliance committee of the board has reviewed this proposal and recommends a
vote against it as we currently publish most of the information requested by the shareholder. The
additional reporting requirements are unnecessary, as the information requested is publicly
available and this reporting would place an undue administrative burden on the company.
Beginning in the first quarter of 2005, the company has published the following information on our
website (www.lilly.com) for both direct company contributions and employee political action
committee (PAC) contributions to support candidates for political office, political parties,
officials, or committees in the United States:
|
|
|
policies and procedures for company and PAC contributions |
|
|
|
|
contributions to candidates, including information about the candidates office (for
example, state, local, or federal; House or Senate), party affiliation, state, and district |
|
|
|
|
contributions to political organizations and Section 527 organizations reported by
state. |
This information is updated annually. In addition to the information available on our website,
detailed corporate contributions, PAC contribution data, and the companys direct lobbying expenses
are available to the public on the Federal Election Committee website
(http://www.fec.gov/disclosure.shtml) and through individual states agencies.
One way we participate in the political process is to maintain memberships in trade associations
specific to business and pharmaceutical industry interests, such as PhRMA (Pharmaceutical Research
and Manufacturers Association), BIO (Biotechnology Association), Healthcare Leadership Conference,
and Business Roundtable. In our 2007 Report of Political Financial Support, to be published by
April, 2008, we will report the names of the ma