Eli Lilly 2008 Annual Report Download - page 95

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PROXY STATEMENT
9393
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 2008 target growth rates, the committee considered the expected 2008 performance
of our peer group, based on published investment analyst estimates. The target growth rates of four percent
for sales and eight percent for adjusted EPS were slightly above the median expected
growth rates for our peer group. These targets are consistent with our compensation
objectives because they produce 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 bonus target X base salary earnings = payout
2008 sales and adjusted EPS multiples are illustrated by these charts:
2008 pro forma sales growth of 8.7 percent resulted in a sales multiple of 1.475.
2008 pro forma adjusted EPS growth of 13.6 percent resulted in an adjusted EPS multiple of 1.556.
Together, the sales multiple and the adjusted EPS multiple yielded a bonus multiple of 1.54.
(0.25 x 1.475) + (0.75 x 1.556) = 1.54 bonus multiple
See page 96 for a reconciliation of 2008 reported and pro forma sales and adjusted EPS.
Equity Incentives—Total Equity Program
In 2008, 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 share-
holder value.
Bonus Weighting:
25% sales growth
75% adjusted EPS growth
Targets:
4% sales growth
8% adjusted EPS growth
-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
2.5
2.0
1.5
1.0
0.5
0
2008 Adjusted EPS Multiple
Adjusted EPS Multiple
Adjusted EPS Growth
0.6
0.8
1.0
1.2
1.4 1.6
1.8
2
0.4
0.2
-2% 0% 2% 4% 6% 8% 10% 12% 14%
2.5
2.0
1.5
1.0
0.5
0
2008 Sales Multiple
Sales Multiple
Sales Growth
0.6
0.8
1.0
1.2
1.4 1.6
1.8
2