Eli Lilly 2004 Annual Report Download - page 74

PROXY STATEMENT
7272
accomplishment of objectives that had been established at the beginning of the year and our own subjective as-
sessment of his performance. We noted that under Mr. Taurel’s leadership the company achieved strong 14 percent
sales growth and met external earnings expectations despite signifi cant investments in research and develop-
ment, sales and marketing, and manufacturing. In addition, during the year the company successfully launched
three major products (Strattera, Forteo, and Cialis) and made substantial progress in its comprehensive manu-
facturing improvement plan, clearing the way for several product approvals in 2004. Mr. Taurel also led important
initiatives to improve the company’s productivity and reduce its cost structure to enable it to continue to compete in
an increasingly challenging business environment.
In recognition of his continued strong leadership in 2003, we increased Mr. Taurel’s annual salary by 5 percent
to $1.52 million effective April 2004. Mr. Taurel’s 2004 target bonus remained at 110 percent of his base salary. As
previously discussed under “Cash bonuses,” the actual payout of $1.45 million was below target.
Our review of peer group data available in late 2003 suggested that Mr. Taurel’s total equity compensation in
2003 was signifi cantly below the median. Based on his individual performance and our review of the peer group
data, we increased his stock option grant from 350,000 shares to 400,000 shares. The option shares vest after
three years and expire after 10 years. We granted Mr. Taurel a performance award to be earned based on 2004 EPS
growth, with a target payout of 28,000 shares, the same size as the previous year. As discussed under “Perfor-
mance awards” above, the performance award paid out at 100 percent of target and, for executive offi cers, includ-
ing Mr. Taurel, was paid in the form of restricted stock.
Effective February 11, 2005 consistent with our annual practice, we granted Mr. Taurel and other members
of management equity awards under the long-term incentive program previously described . Mr. Taurel’s award
consisted of a stock option grant of 255,621 shares and a performance award with a target payout of 51,752 shares,
which, if earned, will be paid out in restricted stock. The combined value of these awards at the time of grant was
$7.2 million using the company’s trinomial lattice method of 30.37 percent of the option price and a stock price of
$55.65 to value the award.
In determining the size of the stock option and performance award grants for both years, we took into consid-
eration Mr. Taurel’s individual performance, internal relativity, peer group data, and the size of grants previously
made to Mr. Taurel. As noted above, in 2005 we adjusted the mix of awards to increase emphasis on performance
awards and decrease emphasis on stock options.
Conclusion
The committee and the board believe that the caliber and motivation of all our employees, and especially our
executive leadership, are essential to the company’s performance. We believe our management compensation pro-
grams contribute to our ability to differentiate our performance from others in the marketplace. We will continue
to evolve and administer our compensation program in a manner that we believe will be in shareholders’ interests
and worthy of shareholder support.
Compensation Committee
Steven C. Beering, M.D., Chair
J. Michael Cook (from February 1, 2005)
George M.C. Fisher
Karen N. Horn, Ph.D.
Ellen R. Marram