Eli Lilly 2009 Annual Report Download - page 136

The cost of both employee and post-employment benefits is partially borne by the employee, including each
executive officer.
Perquisites
The company provides very limited perquisites to executive officers. The company aircraft is made available for
the personal use of Dr. Lechleiter, where the committee believes the security and efficiency benefits to the
company clearly outweigh the expense. Dr. Lechleiter did not use the corporate aircraft for personal flights
during 2009. Until March 1, 2009, the company aircraft was made available to other executive officers for the
more limited purpose of travel to outside board meetings. However, the company no longer allows this use.
Depending on seat availability, family members of executive officers may travel on the company aircraft to
accompany executives who are traveling on business. There is no incremental cost to the company for these
trips.
The Lilly Deferred Compensation Plan
Executives may defer receipt of part or all of their cash compensation under The Lilly Deferred Compensation
Plan (the deferred compensation plan). The plan allows executives to save for retirement in a tax-effective way at
minimal cost to the company. Under this unfunded plan, amounts deferred by the executive are credited at an
interest rate of 120 percent of the applicable federal long-term rate, as described in more detail following the
Nonqualified Deferred Compensation in 2009 table on page 48.
Severance Benefits
Except in the case of a change in control of the company, the company is not obligated to pay severance to
named executive officers upon termination of their employment; any such payments are at the discretion of the
committee. See footnote 2 to the Potential Payments Upon Termination of Employment table on page 50 for a
description of a severance arrangement for Dr. Paul.
The company has adopted a change-in-control severance pay plan for nearly all employees of the company,
including the executive officers. The plan is intended to preserve employee morale and productivity and
encourage retention in the face of the disruptive impact of an actual or rumored change in control. In addition,
for executives, the plan is intended to align executive and shareholder interests by enabling executives to
consider corporate transactions that are in the best interests of the shareholders and other constituents of the
company without undue concern over whether the transactions may jeopardize the executives’ own employment.
Although there are some differences in benefit levels depending on the employee’s job level and seniority,
the basic elements of the plan are comparable for all regular employees:
•Double trigger. Unlike “single trigger” plans that pay out immediately upon a change in control, the company
plan generally requires a “double trigger”—a change in control followed by an involuntary loss of
employment within two years thereafter. This is consistent with the purpose of the plan, which is to provide
employees with a guaranteed level of financial protection upon loss of employment. A partial exception is
made for outstanding PAs, a portion of which would be paid out upon a change in control on a pro-rated
basis for time worked based on the forecasted payout level at the time of the change in control. The
committee believes this partial payment is appropriate because of the difficulties in converting the company
EPS targets into an award based on the surviving company’s EPS. Likewise, if Lilly is not the surviving entity,
a portion of outstanding SVAs is paid out on a pro-rated basis for time worked up to the change in control
based on the merger price for company stock.
•Covered terminations. Employees are eligible for payments if, within two years of the change in control, their
employment is terminated (i) without cause by the company or (ii) for good reason by the employee, each as
is defined in the plan. See pages 50-52 for a more detailed discussion, including a discussion of what
constitutes a change in control.
•Two-year protections. Employees who suffer a covered termination receive up to two years of pay and
benefits protection. These provisions assure employees a reasonable period of protection of their income
and core employee benefits upon which they depend for financial security.
—Severance payment. Eligible terminated employees would receive a
severance payment ranging from six months’ to two years’ base salary.
Executives are all eligible for two years’ base salary plus cash bonus,
with bonus established as the higher of the then-current year’s bonus
target or the last bonus paid prior to the change in control. Beginning in
October 2010, the bonus portion of this payment will be established
based on bonus target only.
—Benefit continuation. Basic employee benefits such as health and life
insurance would be continued for up to two years following termination
of employment. All executives, including named executive officers, are
entitled to two years’ benefit continuation. This period will be reduced to
18 months beginning in October 2010.
—Pension supplement. Under the portion of the plan covering executives, a
terminated employee would be entitled to a supplement of two years of
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PROXY STATEMENT
Change in Control
Severance:
All regular employees
covered
Double trigger
Two-year cash pay
protection
18-month benefit
continuation
Amendments effective
October 2010