Eli Lilly 2008 Annual Report Download - page 96

PROXY STATEMENT
9494
• Target grant values. For 2008, the committee increased aggregate grant values for most named executives based
on internal relativity, performance, and peer group data suggesting that the 2007 grant values were below the
broad middle range. In addition, Dr. Lechleiter’s and Mr. Carmine’s targets were increased to
refl ect their new roles. Consistent with the company’s compensation objectives, individuals at
higher levels received a greater proportion of total pay in the form of equity. The committee
determined that a 50/50 split for executives between performance awards and shareholder value
awards appropriately balances the company fi nancial performance and shareholder equity return
incentives of the two programs. Target values for 2008 equity grants for the named executives
were as follows:
Name Performance Awards Shareholder Value Awards
Mr. Taurel $4,000,000 $4,000,000
Dr. Lechleiter $3,250,000 $3,250,000
Dr. Paul $1,500,000 $1,500,000
Mr. Carmine $1,500,000 $1,500,000
Mr. Rice $1,200,000 $1,200,000
Mr. Armitage $855,000 $855,000
Equity Incentives—Performance Awards
Performance awards provide employees with shares of Lilly stock if certain company performance goals are
achieved, aligning employees with shareholder interests and providing an ownership stake in the company. The
awards are structured as a schedule of shares of Lilly stock based on the company’s achievement of specifi c
adjusted earnings per share (adjusted EPS) levels over specifi ed time periods of one or more years. In 2009, the
company will grant both a one-year and a two-year award, as a transition to a two-year performance period for
all performance awards granted beginning in 2010. Possible payouts range from zero to 200 percent of the target
amount, depending on adjusted EPS growth over the period. No dividends are paid on the
awards during the performance period. At the end of the performance period, the commit-
tee has discretion to adjust an award payout downward, but not upward, from the amount
yielded by the formula. For the 2008 grants, the committee considered the following:
• Target grant values. As described above, the committee increased equity awards for most
named executives and maintained a 50/50 split between performance awards and SVAs.
• Company performance measure. The committee established the performance measure
as adjusted EPS growth (reported EPS adjusted as described below under “Adjustments
for Certain Items”) over a one-year period, with a one-year holding period, thus creating
a two-year award. The committee believes adjusted EPS growth is an effective motivator
because it is closely linked to shareholder value, is broadly communicated to the public, and
is easily understood by employees. The target growth percentage of eight percent was slightly
above the median expected adjusted earnings performance of companies in our peer group
over a one-year period, based on published investment analyst estimates. Accordingly, consistent with our
compensation objectives, Lilly performance exceeding the expected peer-group median would result in above-
target payouts, while Lilly performance lagging the expected peer-group median would result in below-target
payouts. Payouts were determined according to this schedule:
Adjusted 2008 EPS Growth Less than 3.00% 3.00-4.99% 5.00-6.99% 7.00-8.99% 9.00-10.99% 11.00-12.99% 13.00-15.99% 16.00% +
Percent of Target 0 50% 75% 100% 125% 150% 175% 200%
Pro forma adjusted EPS growth of 13.6 percent ($4.02 per share) resulted in a 2008 performance award pay-
out at 175 percent of target. See page 96 for a reconciliation of 2008 reported and pro forma adjusted EPS.
Equity Incentives—Shareholder Value Awards
Beginning in 2007, the company implemented a new equity program, the shareholder value award (SVA), which
replaced our stock option program. The SVA pays out shares of Lilly stock based on the performance of the com-
pany’s stock over a three-year period. No dividends are paid on the awards during the performance period. Pay-
outs range from zero to 140 percent of the target amount, depending on stock price performance over the period.
The SVA program delivers equity compensation that is strongly linked to long-term shareholder returns. It is more
Equity Compensation:
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