Eli Lilly 2006 Annual Report Download - page 76

PROXY STATEMENT
7474
in 2006) is credited to this account on a pre-set annual date. Funds in this account are credited as hypothetical
shares of Lilly stock based on the market price of the stock at the time the compensation would otherwise have
been earned. Hypothetical dividends are “reinvested” in additional shares based on the market price of the stock
on the date dividends are paid. All shares in the deferred share accounts are hypothetical and are not issued or
transferred until the director ends his or her service on the board.
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Deferred Compensation Account. Funds in this account earn interest each year at a rate of 120 percent of the
applicable federal long-term rate, compounded monthly, as established the preceding December by the U.S. Treasury
Department under Section 1274(d) of the Internal Revenue Code. The rate for 2007 is 5.7 percent. The aggregate
amount of interest that accrued in 2006 for the participating directors was $182,102, at a rate of 5.6 percent.
Both accounts may be paid in a lump sum or in annual installments for up to 10 years. Amounts in the deferred
share account are paid in shares of Lilly stock.
Lilly Matching Gift Program
Directors are eligible to participate in the Eli Lilly and Company Foundation, Inc. matching gift program, which is
generally available to U.S. employees. Under this program, the foundation matches 100 percent of charitable dona-
tions over $25 made to eligible charities up to a maximum of $90,000 per year for each individual. These limits apply
to active employees and directors.
Directors and Corporate Governance Committee Matters
Overview
The directors and corporate governance committee recommends candidates for membership on the board and
board committees. The committee also oversees matters of corporate governance, director independence, director
compensation, and board performance. The committee’s charter is available online at http://investor.lilly.com/
board-committees.cfm or in paper form upon request to the company’s corporate secretary.
All committee members are independent as defi ned in the New York Stock Exchange listing requirements.
Director Nomination Process
The board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the
quality of the board’s deliberations and decisions. Candidates shall have substantial experience with one or more pub-
licly traded national or multinational companies or shall have achieved a high level of distinction in their chosen fi elds.
Board membership should refl ect diversity in its broadest sense, including persons diverse in geography, gen-
der, and ethnicity. The board is particularly interested in maintaining a mix that includes the following backgrounds:
• active or retired chief executive offi cers and senior executives, particularly those with experience in operations,
fi nance or banking, and marketing or sales
• international business
• medicine and science
• government and public policy
• information technology.
The board delegates the screening process to the directors and corporate governance committee, which re-
ceives direct input from other board members. Potential candidates are identifi ed by recommendations from several
sources, including:
• incumbent directors
• management
• shareholders
• an independent executive search fi rm retained by the committee to assist in locating candidates meeting the
board’s selection criteria.
The committee employs the same process for evaluating all candidates, including those submitted by share-
holders. The committee initially evaluates the candidate based on publicly available information and any additional
information supplied by the party recommending the candidate. If the candidate appears to satisfy the selection cri-
teria and the committee’s initial evaluation is favorable, the committee, assisted by management, gathers additional
data on the candidate’s qualifi cations, availability, probable level of interest, and any potential confl icts of interest. If