Eli Lilly 2012 Annual Report Download - page 134

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two-year period. Second, the target adjusted non-GAAP EPS goal in the bonus program is set with reference to our
internal operating plan for the year, while the target adjusted non-GAAP EPS goal in the PA program is set relative
to expected growth rates for our peer group.
Potential payouts for 2012-2013 PAs are illustrated by the chart below:
2012-2013 PA
50% payout
Target
Payout Multiple 0.00 0.50 0.75 1.00 1.25 1.50
Cumulative 2-Year
Adjusted Non-GAAP
EPS $4.41 $8.46 $8.86 $9.26 $9.67 $10.09+
Equity Incentives—Shareholder Value Awards
In 2007, the company replaced its stock option program with the SVA program. SVAs are structured as a schedule of
potential shares of company stock that may be earned based on the company’s share price performance over a
three-year period. No dividends are accrued or paid on the awards during the performance period. Payouts range
from 0 to 140 percent of the target amount, depending on stock performance over the period. At the end of the
performance period, the committee has discretion to adjust an award payout downward (but not upward) from the
amount yielded by the formula. The SVA program delivers equity compensation that is strongly linked to three-year
total shareholder return, which aligns employee interests with those of shareholders.
Shareholder Value Awards:
• Three-year performance
period
• Target is determined by
applying an expected three-
year rate of return for peer
group companies
• Shares earned by executive
officers must be held one
year
Company performance measure. For the 2012 grants, the SVA will pay above
target if company stock outperforms an expected compounded annual rate of
return for peer group companies and below target if company stock
underperforms that rate of return. The expected rate of return is based on the
total return that a reasonable investor would consider appropriate for investing in
a basket of large-cap U.S. companies (based on input from external money
managers). The resulting share price payout schedule was developed using this
expected rate of return (ten percent) , less the company’s dividend yield applied to
the starting share price. Executive officers receive no payout if TSR for the three-
year period is zero or negative.
The starting price for the 2012-2014 SVAs was $38.64 per share, representing the average of the closing prices of
company stock for all trading days in November and December 2011. The future share price that would pay out the
target number of shares was established based on the expected rate of return for large-cap companies, less an
assumed dividend yield of 5.1 percent. The ending price to determine payouts will be the average of the closing
prices of company stock for all trading days in November and December 2014.
The 2012-2014 SVA will be paid out to executive officers according to the grid below in early 2015:
2012-2014 SVA
Ending Stock Price Less than $32.77 $32.77-$37.46 $37.47-$42.14 $42.15-$44.64 $44.65-$47.14 $47.15-$49.64 Greater than $49.64
Compounded Annual
Share Price Growth
Rate (excluding
dividends) Less than (5.3%) (5.3%)-(1.0%) (1.0%)-2.9% 2.9%-4.9% 4.9%-6.9% 6.9% -8.7% Greater than 8.7%
Percent of Target 0% 40% 60% 80% 100% 120% 140%
Restricted Stock Units
No one-time RSUs were awarded to any of the named executive officers in 2012.
Stock Options
The company stopped granting stock options in 2007. The stock options granted in 2002 expired in 2012, and the