Eli Lilly 2004 Annual Report Download - page 68

PROXY STATEMENT
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Directors’ Compensation
Directors who are employees receive no additional compensation for serving on the board or its committees.
In 2004, we provided the following annual compensation to directors who are not employees:
Cash compensation
• retainer of $3,750 per month
• $1,600 for each board meeting attended (or $1,600 per day for multi-day meetings)
• $1,600 for each committee or other meeting attended if not held on the same day as a board meeting
• $2,000 to the committee chairpersons for each committee meeting attended as compensation for the
chairperson’s preparation time
• reimbursement for customary and usual travel expenses.
Stock Compensation
• 700 shares of Lilly stock in a deferred stock account in the Lilly Directors’ Deferral Plan (as described below),
payable after service on the board has ended.
• Stock options under the 2002 Lilly Stock Plan for 2,800 shares of Lilly stock. The option price is the fair market
value at the time of grant. The options are exercisable after 3 years and expire after 10 years.
In 2005, the cash compensation is unchanged. However, we have discontinued stock option grants and instead
will increase the deferred stock shares from 700 to 1,500.
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 Compensation Account. Funds in this account earn interest each year at an annual rate of 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. The rate for
2005 is 5.5 percent. The aggregate amount of interest that accrued in 2004 for the participating directors was
$193,735.11 at a rate of 5.99 percent.
• 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 (700 shares in
2004; 1,500 shares in 2005) is credited to this account. 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 or dies.
Both accounts may be paid in a lump sum or in annual installments for up to 10 years. The deferred compen-
sation account may also be paid in monthly installments for up to 10 years. Amounts in the deferred share account
are paid in the form of 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, direc-
tor compensation, and board performance. The committee’s charter is available online at http://investor.lilly.
com/board-committees.cfm or in paper form upon request to the company’s secretary.
All committee members are independent as defi ned 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 board’s deliberations and decisions. Candidates shall have substantial experience with one or more