Eli Lilly 2008 Annual Report Download - page 91

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PROXY STATEMENT
8989
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 and the senior vice president
of human resources 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 2008 (see page 80 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.
Executive Compensation
Compensation Discussion and Analysis
2008 Summary
Executive compensation for 2008 aligned well with the objectives of our compensation philosophy and with our
performance, driven by these factors:
• Strong operating results yield strong incentive compensation payouts. In 2008, Lilly performed in the top tier of its
peer group in expected sales and adjusted earnings-per-share growth; this strong top- and bottom-line growth
led to cash and equity incentive compensation payouts substantially above target.
• Cost-effective equity design maintained for 2008. We lowered the overall cost of our equity
program in 2007—while maintaining its competitiveness and motivational impact—by
eliminating stock options in favor of shareholder value awards and by lowering total equity
grant values for most positions. We maintained this program in 2008 with some increases
in equity value.
• A balanced program fosters employee achievement, retention, and engagement. We delivered
a balance of salary, performance-based cash and equity incentives, and a strong employee
benefi t program. Together, these elements reinforced pay-for-performance incentives and encouraged
employee retention and engagement.
Mr. Taurel retired as CEO effective March 31, 2008, but remained as chairman of the board and a director through
December 31, 2008. His salary and cash bonus were reduced by half for the period of April through December
2008. Dr. Lechleiter was elected CEO effective April 1, 2008, and received increases to his salary and target cash
bonus at that time to refl ect his increased responsibilities.
Executive Compensation Philosophy
Our success depends on our ability to discover, develop, and market a stream of innovative medicines that
address important medical needs. In addition, we must continually improve productivity in all that we do. To
achieve these goals, we need to attract, engage, and retain highly talented individuals who are committed to the
company’s core values of excellence, integrity, and respect for people. Our compensation and benefi t programs
are based on these objectives:
• Compensation should refl ect individual and company performance. We link all employees’ pay
to individual and company performance.
—As employees assume greater responsibilities, more of their pay is linked to company
performance and shareholder returns.
—We seek to deliver top-tier compensation given top-tier individual and company
performance, but lower-tier compensation where individual performance falls short of
expectations and/or company performance lags the industry.
—We design our programs to be simple and clear, so that employees can easily
understand how their efforts affect their pay.
Highlights:
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Executive Compensation
Philosophy:
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