Eli Lilly 2012 Annual Report Download - page 153

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create long-term shareholder value by achieving top-tier corporate performance while embracing the company’s
values of integrity, excellence, and respect for people. Our programs seek to:
• closely link compensation with company performance and individual performance
• foster a long-term focus
• provide compensation consistent with the level of job responsibility and the market for pharmaceutical talent
• be efficient and egalitarian
• appropriately mitigate risk
• consider shareholder input.
The compensation committee and the board of directors believe that our executive compensation aligns well with
our philosophy and with corporate performance. We urge shareholders to read the “Compensation Discussion and
Analysis” section of this proxy statement for a more detailed discussion of our executive compensation programs
and how they reflect our philosophy and are linked to company performance.
Executive compensation is an important matter for our shareholders. We have a strong record of engagement with
shareholders on compensation matters and have made a number of changes to our programs and disclosures in
response to shareholder input, including several enhancements discussed in the “Compensation Discussion and
Analysis.”
We request shareholder approval, on an advisory basis, of the compensation of the company’s named executive
officers as disclosed in this proxy statement in the “Compensation Discussion and Analysis,” the compensation
tables, and related narratives. As an advisory vote, this proposal is not binding on the company. However, the
compensation committee values input from shareholders and will consider the outcome of the vote when making
future executive compensation decisions.
The board recommends that you vote FOR the approval, on an advisory basis, of the compensation paid to the
named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation
Discussion and Analysis, the compensation tables, and related narratives in this proxy statement.
Item 4. Reapproval of Material Terms of Performance Goals for the 2002 Lilly Stock Plan
Section 162(m) of the Internal Revenue Code limits the amount of compensation expense that the company can
deduct for income tax purposes. In general, a public corporation cannot deduct compensation in excess of
$1 million paid to any of the named executive officers in the proxy statement. However, compensation that qualifies
as “performance-based” is not subject to this deduction limitation.
The 2002 Lilly Stock Plan allows the grant of PAs and SVAs that qualify as performance-based compensation under
Section 162(m). One of the conditions to qualify as performance-based is that the material terms of the
performance goals must be approved by the shareholders at least every five years. The last such approval for the
2002 Lilly Stock Plan occurred in 2008. To preserve our ability to fully deduct the compensation expense related to
the awards, we are now asking the shareholders to reapprove the performance goals. We are not amending or
altering the 2002 Plan. If this proposal is not adopted, the compensation committee will continue to grant PAs and
SVAs under the 2002 Plan but certain awards to executive officers would no longer be fully tax deductible by the
company.
Shares Subject to Plan
The maximum number of shares of Lilly stock that may be issued or transferred for grants under the 2002 Lilly
Stock Plan is the sum of:
• 119,000,000 shares;
• 5,243,448 shares that were available under the previous shareholder-approved plan (the 1998 Lilly Stock Plan)
at the time that plan terminated in April 2002;
• any shares subject to grants under the 2002 Lilly Stock Plan or prior shareholder approved stock plans (the
1989, 1994, and 1998 Lilly Stock Plans) that are not issued or transferred due to termination, lapse, or forfeiture
of the grant; and
• any shares exchanged by grantees as payment to the company of the exercise price of stock options granted
under the 2002 Lilly Stock Plan or prior shareholder approved stock plans.
The maximum number is subject to adjustment for stock splits, stock dividends, spin-offs, reclassifications or other
relevant changes affecting Lilly stock.