Eli Lilly 2011 Annual Report Download - page 113

PROXY STATEMENT
Compensation Committee Matters
Scope of Authority
The compensation committee oversees the company’s global compensation philosophy and establishes the compen-
sation of executive officers. The committee also acts as the oversight committee with respect to the company’s
deferred compensation plans, management stock plans, and other management incentive compensation programs.
The committee may delegate authority to company officers for day-to-day plan administration and interpretation,
including selecting participants, determining award levels within plan parameters, and approving award documents.
However, the committee may not delegate any authority for matters affecting the executive officers.
The Committee’s Processes and Procedures
The committee’s primary processes for establishing and overseeing executive compensation can be found in the
“Compensation Discussion and Analysis” section under “The Committee’s Processes and Analyses” below. Addi-
tional processes and procedures include:
•Meetings. The committee meets several times each year (7 times in 2011). Committee agendas are approved by
the committee chair in consultation with the committee’s independent compensation consultant. The committee
meets in executive session after each meeting.
•Role of independent consultant. The committee has retained Cimi B. Silverberg of Frederic W. Cook & Co., Inc., as
its independent compensation consultant to assist the committee. Ms. Silverberg reports directly to the
committee, and neither she nor her firm is permitted to perform any services for management. The consultant’s
duties include the following:
—review committee agendas and supporting materials in advance of each meeting and raise questions with
the company’s global compensation group and the committee chair as appropriate
—review the company’s total compensation philosophy, peer group, and target competitive positioning for
reasonableness and appropriateness
—review the company’s executive compensation program and advise the committee of plans or practices that
might be changed in light of evolving best practices
—provide independent analyses and recommendations to the committee on the CEO’s pay
—review draft “Compensation Discussion and Analysis” and related tables for the proxy statement
—proactively advise the committee on best practices for board governance of executive compensation
—undertake special projects at the request of the committee chair.
The consultant interacts directly with members of company management only on matters under the commit-
tee’s oversight and with the knowledge and permission of the committee chair.
•Role of executive officers and management. With the oversight of the CEO and the senior vice president of human
resources, the company’s global compensation group formulates recommendations on compensation philoso-
phy, plan design, and the specific compensation recommendations for executive officers (other than the CEO, as
noted below). The CEO gives the committee a performance assessment and compensation recommendation for
each of the other executive officers. The committee considers those recommendations with the assistance of its
compensation consultant. The CEO and the senior vice president of human resources attend committee meet-
ings but are not present for executive sessions or for any discussion of their own compensation. (Only non-
employee directors and the committee’s consultant attend executive sessions.)
The CEO normally does not participate in the formulation or discussion of his pay recommendations; how-
ever, as he did for the past two years, Dr. Lechleiter requested that no increases be made to his base salary or
incentive targets for 2012. The CEO has no prior knowledge of the recommendations that the consultant makes
to the committee.
•Risk assessment. With the help of its compensation consultant, in 2011 the committee reviewed the company’s
compensation policies and practices for all employees, including executive officers. The committee concluded
that the company’s compensation programs will not have a material adverse effect on the company, after
reviewing the business risks identified in the annual enterprise risk management assessment process. The
committee noted several design features of the company’s cash and equity incentive programs that reduce the
likelihood of inappropriate risk-taking:
—cash and equity and short-term and long-term incentive compensation are balanced
—incentive plans include a range of payout opportunities below and above target
—incentive payouts are capped at appropriate levels
—multiple measures/goals and different measurement periods are used across our incentive plans
—company performance targets and individual incentive payment targets are set using multiple inputs
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