Eli Lilly 2004 Annual Report Download - page 71

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PROXY STATEMENT
6969
believes that the auditor is the best choice to provide the service.
• 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 specifi c engagements are identifi ed 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 suf-
fi ciently 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 in-
curred for the completed audit year.
Independent Auditor Fees
The following table shows the fees incurred for services rendered on a worldwide basis by Ernst & Young LLP, the
company’s independent auditor, in 2004 and 2003. All such services were preapproved by the committee in accor-
dance with the preapproval policy.
2004 (millions) 2003 (millions)
Audit Fees
• Annual audit of consolidated and subsidiary fi nancial statements, including Sarbanes-Oxley
404 attestation in 2004
• Reviews of quarterly fi nancial statements
• Other services normally provided by auditor in connection with statutory and regulatory fi lings
$5.2 $3.9
Audit-Related Fees
• Assurance and related services reasonably related to the performance of the audit or reviews
of the fi nancial statements:
—2004 and 2003: primarily related to internal control reviews, employee benefi t plan audits,
and accoun
ting consultations
$0.5 $0.9
Tax Fees
• 2004 and 2003: primarily related to tax planning and various compliance services $2.4 $2.4
All Other Fees
• 2004: primarily related to upgrading and maintaining on-line training programs $0.4 None
Total $8.5 $7.2
Executive Compensation
Compensation Committee Report
The following is a report of the compensation committee of the board regarding executive compensation. The
committee’s membership and duties are described on page 65.
Executive Compensation Policy
Philosophy. The compensation committee bases its executive compensation policy on the same principles that
guide the company in establishing all its compensation programs. We design programs to attract, retain, and moti-
vate highly talented individuals at all levels of the organization. In particular:
• We base compensation on the level of job responsibility, individual performance, and company performance.
As employees progress to higher levels in the organization, an increasing proportion of their pay is linked to
company performance and shareholder returns.
• We refl ect in our compensation the value of the job in the marketplace. To attract and retain a highly skilled work
force, we must remain competitive with the pay of other premier employers who compete with us for talent.
• We develop and administer our compensation programs to foster the long-term focus required for success in our
industry.
The program consists of both annual and long-term components, which are considered together in assessing
whether the program is attaining its objectives.