Eli Lilly 2007 Annual Report Download - page 85

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PROXY STATEMENT
8383
The committee determined the following:
• Program elements. The 2007 program consisted of base salary, a cash incentive bonus award, and two forms
of performance-based equity grants—performance awards and shareholder value awards (SVAs). Executives
also received the company employee benefi t package. This program balances the mix of cash and equity
compensation, the mix of current and longer-term compensation, and the security of foundational benefi ts in a
way that furthers the compensation objectives discussed above.
• Pay ranges and mix of pay elements. To manage the overall costs of the program while remaining competitive
with expected peer group compensation, 2007 target pay ranges were reduced in the aggregate across the
management and executive ranks, and the mix of pay was shifted. This was accomplished by:
—eliminating stock options in favor of SVAs, which provide greater retention and motivation value to employees
at a lower cost to shareholders
—reducing the target values for equity awards for most positions by up to 15 percent
—increasing base salaries modestly, consistent with the corporate merit budget
—maintaining cash bonus targets at 2006 levels.
The committee believes that these changes resulted in a more cost-effective program that:
—reduces overall costs to the company
—strengthens the incentives for retention and employee engagement by delivering a competitive cash
component and the new SVA program
—maintains a strong link to company performance and shareholder returns through a balanced equity
incentive program
—maintains appropriate internal pay relativity
—provides opportunity for total pay within the broad middle range of expected peer group pay given company
performance comparable to that of our peers.
Base Salary
In setting base salaries for 2007, the committee considered the following:
• The corporate “merit budget,” the company’s overall budget for base salary increases. The corporate merit
budget was established based on company performance for 2006, planned performance for 2007, and a
reference to general external merit trends. The objective of the merit budget is to allow salary increases
to retain, motivate, and reward successful performers while maintaining affordability within the company’s
business plan. Individual pay increases can be more or less than the budget amount depending on individual
performance, but aggregate increases must stay within the budget. The aggregate increases for all executive
offi cers were within the corporate merit budget.
• Individual performance. As described above under “The Committee’s Processes and Analyses,” base salary
increases were driven largely by individual performance assessments.
—The independent directors assessed Mr. Taurel’s 2006 performance. They considered the company’s and
Mr. Taurel’s accomplishment of objectives that had been established at the beginning of the year and its
own subjective assessment of his performance. They noted that under Mr. Taurel’s leadership, in 2006 the
company exceeded its earnings targets through sales growth and productivity improvements, drove progress
in refi ning and implementing the long-term strategy, met aggressive Six Sigma goals, strengthened its
diversity programs, and enhanced its brand image and reputation. In recognition of his continued strong
leadership in 2006, the committee increased Mr. Taurel’s annual salary by 4 percent, which was within the
range recommended by the committee’s consultant.
—The committee reviewed similar considerations for each of the other named executives. In addition, with
regard to Dr. Lechleiter’s performance, the committee considered his leadership in increasing employee
productivity and implementation of strategic initiatives. The committee increased Dr. Lechleiter’s annual
salary by 4 percent.
—With regard to Dr. Paul, the committee gave particular weight to his leadership of the company’s research
and development efforts, noting that Lilly Research Laboratories improved productivity in several phases of
discovery and development, increased the percentage of pipeline molecules currently in clinical trials, and
forged stronger links between research and the sales and marketing organizations. The committee increased
Dr. Paul’s annual salary by 5 percent.
—In establishing Mr. Armitage’s annual salary (a 5 percent increase), the committee noted his leadership
in implementing successful litigation strategies, leading the company’s efforts to infl uence the legal and
regulatory environment to support innovation, and improving productivity within the law division.
—Mr. Rice’s annual salary was increased 6 percent in recognition of strong internal controls and an improved