Eli Lilly 2008 Annual Report Download - page 101

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PROXY STATEMENT
9999
We have taken steps to qualify cash bonus compensation, performance awards, and SVAs for full deduct-
ibility as “performance-based compensation.” The committee may make payments that are not fully deductible if,
in its judgment, such payments are necessary to achieve the company’s compensation objectives and to protect
shareholder interests. For 2008, the non-deductible compensation under this law for Dr. Lechleiter was essentially
equal to the portion of his base salary that exceeded $1,000,000 as shown in the Summary Compensation Table.
Mr. Taurel’s non-deductible compensation was approximately the amount listed under “All Other Compensation” in
the Summary Compensation Table.
Executive Compensation Recovery Policy
Any incentive awards, including SVAs, are subject to forfeiture prior to payment for termination of employment or
disciplinary reasons. In addition, the committee has adopted an executive compensation recovery policy applicable
to executive offi cers. Under this policy, the company may recover incentive compensation (cash or equity) that was
based on achievement of fi nancial results that were subsequently the subject of a restatement if an executive offi -
cer engaged in intentional misconduct that caused or partially caused the need for the restatement and the effect
of the wrongdoing was to increase the amount of bonus or incentive compensation. The committee and manage-
ment have implemented a three-pronged approach to minimizing the risk of compensation programs encouraging
misconduct or undue risk-taking. First, incentive programs are designed using a diversity of meaningful fi nancial
metrics (growth in total shareholder return, measured over three years, net sales, and EPS, measured over one
and two years), thus providing a balanced approach between short- and long-term performance. The committee
reviews incentive programs each year against the objectives of the programs and makes changes as necessary.
Second, management has implemented effective controls that minimize unintended and willful reporting errors.
Third, if despite these actions an executive offi cer’s fraudulent conduct leads to “ill-gotten gains” due to misstated
fi nancial results, the committee will “claw back” the portion of a bonus or performance award attributed to the
misstatement. The committee does not believe it is practical to apply a specifi c claw-back policy to the shareholder
value award since it is very diffi cult to isolate the amount, if any, by which the stock price benefi ted from misstated
earnings over the three-year performance period. In this case, the committee has the authority to exercise nega-
tive discretion to reduce or withhold payouts.
Compensation Committee Report
The compensation committee (“we” or “the committee”) evaluates and establishes compensation for executive offi -
cers and oversees the deferred compensation plan, the company’s management stock plans, and other manage-
ment incentive, benefi t, and perquisite programs. Management has the primary responsibility for the company’s
fi nancial statements and reporting process, including the disclosure of executive compensation. With this in mind,
we have reviewed and discussed with management the “Compensation Discussion and Analysis” found on pages
89–99 of this proxy statement. The committee is satisfi ed that the “Compensation Discussion and Analysis” fairly
and completely represents the philosophy, intent, and actions of the committee with regard to executive compen-
sation. We recommended to the board of directors that the “Compensation Discussion and Analysis” be included in
this proxy statement for fi ling with the Securities and Exchange Commission.
Compensation Committee
Karen N. Horn, Ph.D., Chair
Michael L. Eskew
J. Erik Fyrwald
Ellen R. Marram