Eli Lilly 2007 Annual Report Download - page 86

PROXY STATEMENT
8484
fi nancial planning process, as well as his strong leadership of, and development of talent within, the fi nancial
component and his outstanding contributions to the management of the company.
• Internal relativity, meaning the relative pay differences for different job levels.
• Peer group data specifi c to certain positions in which the jobs were viewed as comparable in content and
importance to the company. We used the peer group data not to target a specifi c position in range, but instead
as a market check for reasonableness and competitiveness. The salaries as determined by the other factors
were within the broad middle range of expected competitive pay and, therefore, no further adjustments were
necessary for competitiveness.
Cash Incentive Bonuses
The company’s annual cash bonus programs align employees’ goals with the company’s sales and earnings growth
objectives for the current year. Cash incentive bonuses for all management employees worldwide, as well as most
nonmanagement employees in the U.S., are determined under the Eli Lilly and Company Bonus Plan. Under the
plan, the company sets target bonus amounts (a percentage of base salary) for all participants at the beginning of
each year. Bonus payouts range from zero to 200 percent of target depending on the company’s fi nancial results
relative to predetermined performance measures. At the end of the performance period, the committee has dis-
cretion to adjust an award payout downward, but not upward, from the amount yielded by the formula.
The committee considered the following when establishing the 2007 awards:
• Target bonus sizes. Bonus targets (expressed as a percentage of base salary) were based on job responsibilities,
internal relativity, and peer group data. Consistent with our compensation objectives, as executives assume
greater responsibilities, more of their pay is linked to company performance. For 2007, the committee
maintained the same bonus targets as in 2006. The committee determined that these targets appropriately
refl ected internal relativity. In addition, the peer group data suggested that the 2006 targets would maintain cash
compensation within the broad middle range of expected competitive pay given median peer performance, so no
adjustments were necessary. The 2007 targets for the named executives were as follows:
—Mr. Taurel – 125 percent
—Dr. Lechleiter – 100 percent
—Dr. Paul – 85 percent
—Mr. Armitage – 75 percent
—Mr. Rice – 75 percent.
• Company performance measures. The committee established 2007 company performance measures with a 25
percent weighting on sales growth and a 75 percent weighting on growth in adjusted EPS (reported earnings per
share adjusted as described below under “Adjustments for Certain Items”). This mix of performance measures
focuses employees appropriately on improving both top-line sales and bottom-line earnings, with special
emphasis on earnings in order to tie rewards directly to productivity improvements. The measures are also
effective motivators because they are easy for employees to track and understand.
In establishing the 2007 target growth rates, the committee considered the expected 2007 performance
of our peer group, based on published investment analyst estimates. The target growth rates of 5 percent
for sales and 8 percent for adjusted EPS represented approximately the median expected growth rates for
our peer group. These targets are consistent with our compensation objectives because they result in above-
target payouts if Lilly outperforms the peer group and below-target payouts if Lilly performance lags the peer
group. Payouts were determined by this formula:
(0.25 x sales multiple) + (0.75 x adjusted EPS multiple) = bonus multiple
Bonus multiple X target bonus X base salary earnings = payout