Eli Lilly 2008 Annual Report Download - page 92

PROXY STATEMENT
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We balance the objectives of pay-for-performance and employee retention. Even during downturns in company
performance, the programs should continue to motivate and engage successful, high-achieving employees.
• Compensation should foster a long-term focus. A long-term focus is critical to success in our industry. As
employees progress to higher levels of the organization, a greater portion of compensation is tied to our longer-
term performance.
• Compensation should be based on the level of job responsibility. We seek internal pay relativity, meaning that pay
differences among jobs should be commensurate with differences in the levels of responsibility and impact of
the jobs.
• Compensation should refl ect the marketplace for talent. We aim to remain competitive with the pay of other
premier employers with which we compete for talent.
• Compensation and benefi t programs should attract employees who are interested in a career at Lilly. Our employee
benefi t programs provide a competitive advantage by helping us attract and retain highly talented employees
who are looking for the opportunity to build careers.
• Compensation should be effi cient. To deliver superior long-term shareholder returns, we must deliver value to
employees in a cost-effective manner.
• Compensation and benefi t programs should be egalitarian. While compensation will always refl ect differences in
job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and
benefi t programs should be broadly similar across the organization.
The Committee’s Processes and Analyses
The compensation committee uses several tools to help it structure compensation programs that meet company
objectives. Among those are:
• Assessment of company performance. The committee uses company performance measures in two ways:
—In establishing total compensation ranges, the committee compares the performance of Lilly and its peer
group with respect to sales, earnings per share, return on assets, return on equity, and total shareholder
return. The committee uses this data as a reference point rather than applying a formula.
—The committee establishes specifi c company performance measures that determine payouts under the
company’s cash and equity formula-based incentive programs.
• Assessment of individual performance. Individual performance has a strong impact on compensation. The
independent directors, under the direction of the presiding director, meet with the CEO in executive session at
the beginning of the year to agree upon the CEO’s performance objectives for the year. At the end of the year, the
independent directors again meet in executive session to review the performance of the CEO based on his or her
achievement of the agreed-upon objectives, contribution to the company’s performance, and other leadership
accomplishments. This evaluation is shared with the CEO by the presiding director and is provided to the
compensation committee for its consideration in setting the CEO’s compensation.
—For the other executive offi cers, the committee receives a performance assessment and compensation
recommendation from the CEO and also exercises its judgment based on the board’s interactions with
the executive offi cer. As with the CEO, the executive’s performance evaluation is based on the executive’s
achievement of objectives established between the executive and his or her supervisor, the executive’s
contribution to the company’s performance, and other leadership attributes and accomplishments.
• Peer group analysis. The committee compares the company’s programs with a peer group of global
pharmaceutical companies: Abbott Laboratories; Amgen Inc.; Bristol-Myers Squibb Company; GlaxoSmithKline
plc; Johnson & Johnson; Merck & Co.; Pfi zer, Inc.; Schering-Plough Corporation; and Wyeth. Pharmaceutical
companies’ needs for scientifi c and sales and marketing talent are unique to the industry and as such, Lilly must
compete with these companies for talent. The committee uses the peer group data in two ways:
—Overall competitiveness. The committee uses aggregated data as a reference point to ensure
that the executive compensation program as a whole is competitive, meaning within the broad
middle range of comparative pay of the peer group companies when the company achieves
the targeted performance levels. The committee does not target a specifi c position within the
range.
—Individual competitiveness. The committee compares the overall pay of individual executives,
if the jobs are suffi ciently similar, to make the comparison meaningful. The individual’s pay is
driven primarily by individual and company performance and internal relativity rather than the
peer group data; the peer group data is used as a “market check” to ensure that individual pay
remains within the broad middle range of peer group pay. The committee does not target a specifi c position
within the range.
Compensation
Committee Tools:
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