Eli Lilly 2012 Annual Report Download - page 127

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stock price performance versus expected large-cap returns. Together these elements reinforce pay-for-
performance, provide balance (between short- and long-term performance, internal and external metrics, cash
and stock compensation, fixed and variable pay), and encourage employee retention and engagement.
The Compensation Committee’s Processes and Analyses
Linking Business Strategy and Compensation Program Design
At Lilly, we aim to discover, develop, and acquire innovative new therapies—medicines that make a real difference
for patients and deliver clear value for payers. In order to accomplish this goal, we must continually improve
productivity in all that we do. To achieve these challenging goals, we must attract, engage, and retain highly-
talented individuals who are committed to the company’s core values of integrity, excellence, and respect for people.
Our compensation and benefits programs are based on the following objectives:
Executive Compensation
Philosophy:
• Individual and company
performance
• Long-term focus
• Consideration of both
internal relativity and
competitive pay
• Efficient and egalitarian
• Appropriate risk mitigation
• Reflect individual and company performance. We link employees’ pay to
individual and company performance.
— As employees assume greater responsibilities, a greater portion of their pay
is linked to company performance and shareholder returns through
increased participation in equity programs.
— We seek to deliver above-market compensation given top-tier individual and
company performance, but below-market compensation where individual
performance falls short of expectations or company performance lags the
industry.
— Our 2012 incentive programs used a combination of internal corporate financial goals and a pipeline
metric (annual bonus), relative EPS growth as measured against the expected performance of our peer
companies (PA), and total shareholder return (TSR) (defined to include appreciation plus dividends)
measured against stock price goals (SVA). We design our programs with clear targets, so that employees
can understand how their efforts affect their pay.
— We seek to balance the objectives of pay-for-performance and employee retention. Even during
downturns in company performance, the program should continue to motivate and engage successful,
high-achieving employees.
• Foster a long-term focus. In our industry, long-term focus is critical to success and is consistent with our goal
of retaining highly-talented employees as they build their careers. A competitive benefits program including a
defined benefit pension aids retention. As employees progress to higher levels of the organization, a greater
portion of compensation is tied to long-term performance through our equity programs.
• Provide compensation consistent with the level of job responsibility and the market for pharmaceutical talent.
We seek internal pay relativity, meaning that pay differences among jobs should be commensurate with
differences in job responsibility and impact. In addition, the compensation committee compares the company’s
programs with a peer group of global pharmaceutical and biopharmaceutical companies with whom we
compete for talent.
• Provide efficient and egalitarian compensation. We seek to deliver superior long-term shareholder returns and
to share with employees the value created in a cost-effective manner. While the amount of compensation
reflects differences in job responsibilities, geographies, and marketplace considerations, the overall structure
of compensation and benefits programs is broadly similar across the organization.
• Appropriately mitigate risk. The compensation committee reviews the company’s compensation policies and
practices annually and works with management to ensure that program design does not inadvertently create
inappropriate incentives.
• Consider shareholder input. In establishing 2012 compensation, the committee considered the shareholder
vote in 2011 on the compensation paid to named executive officers—more than 88 percent in favor. The
committee viewed this vote as supportive of the company’s overall approach to executive compensation. The
shareholder vote in 2012 also confirmed this view with an overall approval of greater than 93 percent. We
communicate directly with shareholders on executive compensation matters.
Setting Compensation
The compensation committee considers several factors to set compensation that meets company objectives. Among
those considerations are:
• Assessment of individual performance. Individual performance is a major factor in determining compensation.