Eli Lilly 2007 Annual Report Download - page 83

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PROXY STATEMENT
8181
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.
• A balanced program fosters employee achievement, retention, and engagement. We delivered a balance of salary,
performance-based cash and equity incentives, and a strong employee benefi t 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 section and the com-
pensation tables.
Executive Compensation Philosophy
Our success depends on our ability to discover, develop, and market a stream of innovative medicines that ad-
dress 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 com-
pany’s core values of excellence, integrity, and respect for people. Our compensation and benefi t programs are
based on these objectives:
• Compensation should refl ect 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 refl ect the marketplace for talent. We aim to remain competitive with the pay of other
premier employers with which we compete for talent.
• Compensation and benefi t programs should attract employees who are interested in a career at Lilly. Our employee
benefi t 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 effi cient. To deliver superior long-term shareholder returns, we must deliver value to
employees in a cost-effective manner.
• Compensation and benefi t programs should be egalitarian. While compensation will always refl ect differences in
job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and
benefi t programs should be broadly similar across the organization.
The Committee’s Processes and Analyses
The compensation committee uses several tools to help it structure compensation programs that meet company