Eli Lilly 2012 Annual Report Download - page 125

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21
human resources and diversity, the company’s global
compensation group formulates recommendations on
compensation philosophy, plan design, and the specific
compensation recommendations for executive officers
(other than the CEO, as noted below). The CEO gives the
committee a performance assessment and
compensation recommendation for each of the other
executive officers. The committee considers those
recommendations with the assistance of its consultant.
The CEO and the senior vice president of human
resources and diversity attend committee meetings but
are not present for executive sessions or for any
discussion of their own compensation. (Only
nonemployee directors and the committee’s consultant
attend executive sessions.)
The CEO does not participate in the formulation or
discussion of his pay recommendations and has no prior
knowledge of the recommendations that the consultant
makes to the committee.
Risk assessment. With the help of its consultant, in 2012
the committee reviewed the company’s compensation
policies and practices for employees, including
executive officers. The committee concluded that the
company’s compensation programs are not reasonably
likely to have a material adverse effect on the company,
after reviewing the business risks identified in the
annual enterprise risk management assessment
process. The committee noted several design features
of the company’s cash and equity incentive programs
that reduce the likelihood of inappropriate risk-taking:
• independent compensation committee oversight
• compensation committee engages independent
compensation consultant
• compensation committee has downward discretion
to lower compensation plan payouts
• threshold levels below target that provide for
payouts and maximums that cap payouts
• different measures and metrics used across
multiple incentive plans; appropriate balance of
cash/stock, fixed/variable pay, short-term/long-
term incentive
• compensation committee approval process for
adjustments to financial results for compensation
purposes
• programs are self-funded; the cost of incentive
program payouts is included when determining
payout results
• performance objectives are appropriately
challenging yet achievable
• target setting includes multiple inputs
• appropriate levels of leverage exist within the
programs
• limited stock option usage
• continuum of payout multiples for individual
performance
• review of top talent and retention plans
• policy prohibiting hedging of company shares
• negative compensation consequences for serious
compliance violations and compensation recovery
policy in place for executives
• meaningful share ownership requirements for all
members of senior management.
The committee concluded the company’s compensation
programs do not encourage excessive risk among
executive officers and instead encourage behaviors that
support sustainable value creation.
Compensation Committee Interlocks and Insider
Participation
None of the compensation committee members:
• has ever been an officer of the company
• has been an employee of the company since prior to
1980
• is or was a participant in a related-person
transaction in 2012 (see “Review and Approval of
Transactions with Related Persons” for a
description of our policy on related-person
transactions).
None of our board members or compensation
committee members is an executive officer of another
entity at which one of our executive officers serves on
the board of directors.