Eli Lilly 2007 Annual Report Download - page 82

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PROXY STATEMENT
8080
Compensation Committee Matters
Scope of Authority
The compensation committee oversees the company’s global compensation philosophy and establishes the com-
pensation of executive offi cers. The committee also acts as the oversight committee with respect to the company’s
deferred compensation plans, management stock plans, and bonus plans covering executives. In overseeing those
plans, the committee may delegate authority to company offi cers for day-to-day plan administration and interpre-
tation, including selecting participants, determining award levels within plan parameters, and approving award
documents. However, the committee may not delegate any authority for matters affecting the executive offi cers.
The Committee’s Processes and Procedures
The committee’s primary processes for establishing and overseeing executive compensation can be found in the
Compensation Discussion and Analysis section under “The Committee’s Processes and Analyses” on pages 81–82.
Additional processes and procedures include:
• Meetings. The committee meets several times each year (six times in 2007). Committee agendas are established
in consultation with the committee chair and the committee’s independent compensation consultant. The
committee meets in executive session after each meeting.
• Role of Independent Consultant. The committee has retained Frederic W. Cook and his fi rm, Frederic W. Cook &
Co., as its independent compensation consultant to assist the committee in evaluating executive compensation
programs and in setting executive offi cers’ compensation. Mr. Cook reports directly to the committee, and
neither he nor his fi rm is permitted to perform any services for management. The consultant’s duties include
the following:
—Review committee agendas and supporting materials in advance of each meeting and raise questions with
the company’s global compensation group and the committee chair as appropriate
—Review the company’s total compensation philosophy, peer group, and target competitive positioning for
reasonableness and appropriateness
—Review the company’s total executive compensation program and advise the committee of plans or practices
that might be changed to better refl ect evolving best practices
—Provide independent analyses and recommendations to the committee on the CEO’s pay
—Review draft Compensation Discussion and Analysis report and related tables for proxy statement
—Proactively advise committee on best practices ideas for board governance of executive compensation
—Undertake special projects at the request of the committee chair.
The consultant interacts directly with members of Lilly management only on matters under the committee’s
oversight and with the knowledge and permission of the committee chairperson.
• Role of Executive Offi cers and Management. With the oversight of the CEO, chief operating offi cer, and the senior
vice president of human resources, the company’s global compensation group formulates recommendations on
matters of compensation philosophy, plan design, and the specifi c compensation recommendations for executive
offi cers (other than the CEO as noted below). The CEO gives the committee a performance assessment and
compensation recommendation for each of the other named executive offi cers. Those recommendations are
then considered by the committee with the assistance of its compensation consultant. The CEO, the senior vice
president of human resources, and, less frequently, the COO attend committee meetings but are not present for
the executive sessions or for any discussion of their own compensation. (Only nonemployee directors and the
committee’s consultant attend executive sessions.)
The CEO does not participate in the formulation or discussion of his pay recommendations and has no
prior knowledge of the recommendations that the consultant makes to the committee.
Compensation Committee Interlocks and Insider Participation
None of the compensation committee members:
• has ever been an offi cer or employee of the company
• is or was a participant in a related-person transaction in 2007 (see page 72 for a description of our policy on
related-person transactions)
• is an executive offi cer of another entity, at which one of our executive offi cers serves on the board of directors.