Eli Lilly 2013 Annual Report Download - page 132

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executive officers upon termination of their employment; any such payments are at the discretion of the
Compensation Committee.
The company has adopted change-in-control severance pay plans for nearly all employees, including the
executive officers. The plans are 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, the plans are
intended to align executive and shareholder interests by enabling executives to evaluate corporate transactions
that may be 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.
Highlights of our change-in-control severance plans
All regular employees are covered Up to two-year pay protection
Double trigger generally required 18-month benefit continuation
No tax gross-ups
Although benefit levels may differ depending on the employee’s job level and seniority, the basic elements of the
plans are comparable for all eligible employees:
• Double trigger. Unlike “single trigger” plans that pay out immediately upon a change in control, the plans
generally require a “double trigger”—a change in control followed by an involuntary loss of employment
within two years thereafter. This is consistent with the plan's intent to provide employees with 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. 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 would be 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 “Potential Payments Upon Termination or Change in Control” for a more
detailed discussion, including a discussion of what constitutes a change in control.
• Employees who suffer a covered termination receive up to two years of pay and 18 months of
benefits protection. These provisions assure employees a reasonable period of protection of their income
and core employee benefits.
• 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
two times the then-current year’s target bonus.
• Benefit continuation. Basic employee benefits such as health and life insurance would be continued
for 18 months following termination of employment, unless the individual becomes eligible for
coverage with a new employer. All employees would receive an additional two years of both age and
years-of-service credit for purposes of determining eligibility for retiree medical and dental benefits.
• Accelerated vesting of equity awards. Any unvested equity awards vest at the time of termination of
employment.
• Excise tax. In some circumstances, the payments or other benefits received by the employee in connection
with a change in control could exceed limits established under Section 280G of the Internal Revenue Code.
The employee would then be subject to an excise tax on top of normal federal income tax. The company
does not reimburse employees for these taxes. However, the amount of change in control-related benefits
will be reduced to the 280G limit if the effect would be to deliver a greater after-tax benefit than the employee
would receive with an unreduced benefit.