Eli Lilly 2010 Annual Report Download - page 148

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PROXY STATEMENT
accountable to shareholders and committed to strong corporate governance. This requires the board to carefully
balance sometimes competing interests. In this regard, the board gave considerable weight to the fact that for four
consecutive years, a substantial majority of shares voted have supported eliminating the supermajority voting
provisions. Many shareholders believe that supermajority voting provisions impede accountability to shareholders
and contribute to board and management entrenchment. If the board were to oppose eliminating the supermajority
vote, there is a risk that those shareholders would lose confidence in the company’s governance and its board, which
could threaten the company’s leadership stability and ability to carry out its long-term strategies for growth and
success.
The board also considered that even without the supermajority vote (and without the classified board, which the
board also recommends eliminating), the company has defenses that work together to discourage a would-be
acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding to
such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws as
well as certain provisions of Indiana corporation law.
Therefore, the board believes the balance of interests is best served by recommending to shareholders that the
articles of incorporation be amended to eliminate all supermajority voting provisions.
A shareholder submitted a proposal for the 2011 annual meeting requesting that the company take actions to
eliminate the supermajority vote provisions. The shareholder withdrew the proposal based on the company’s
commitment to submit this management proposal and to take steps to secure its passage. By recommending these
amendments, the board is demonstrating its accountability and willingness to take steps that address shareholder-
expressed concerns.
Text of Amendments
Articles 9(c), 9(d), and 13 of the company’s amended articles of incorporation contain the provisions that will be
affected if this proposal is adopted. These articles, set forth in Appendix A to this proxy statement, show the
proposed changes with deletions indicated by strike-outs and additions indicated by underlining. The board has also
made conforming changes to the company’s bylaws, to be effective immediately upon the effectiveness of the
amendments to the articles of incorporation.
Vote Required
The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.
The board recommends that you vote FOR amending the company’s articles of incorporation to eliminate all
supermajority voting requirements.
Item 7. Approval of Executive Officer Incentive Plan
Under Section 162(m) of the Internal Revenue Code (the code), the company cannot take a federal income tax
deduction for certain compensation paid in excess of $1 million to the chief executive officer and certain other
executive officers. However, performance-based compensation is not counted against this limit if the program under
which it is paid is approved by shareholders and meets other requirements. The annual cash incentive bonuses paid
to our top executives under The Eli Lilly and Company Bonus Plan (the bonus plan) (described in the “Compensation
Discussion and Analysis”) have qualified for this full tax deductibility. In order to provide additional assurance of
continued tax deductibility of future annual incentive bonuses in light of changes to the bonus plan, we are asking
shareholders to approve The Eli Lilly and Company Executive Officer Incentive Plan (EOIP).
The EIOP will work in conjunction with the bonus plan to provide executive officers with annual cash incentives
that align the executives’ goals with important company performance goals while preserving full tax deductibility of
the incentive payments.
Summary of Plan
The primary features of the EOIP are summarized below. This summary is qualified by reference to the full text of
the EOIP which is set forth as Appendix B to this proxy statement.
Eligibility
Executive officers of the company (as determined by the board pursuant to SEC regulations) are eligible to
participate in the EOIP. There are currently 13 executive officers.
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