Eli Lilly 2011 Annual Report Download - page 116

PROXY STATEMENT
In addition:
•No increase in CEO target compensation since 2009. As he did for the past two years, and in light of the business chal-
lenges the company currently faces, Dr. Lechleiter requested, and the compensation committee approved, no
increases to his 2012 salary or incentive targets.
•The compensation committee reviewed the connection between compensation and risk. The committee reviewed our
compensation programs and policies for features that may encourage excessive risk taking and found the overall
program to be sound.
The Committee’s Processes and Analyses
Linking Business Strategy and Compensation Program Design
At Lilly, we aim to discover, develop, and acquire innovative new therapies—medicines that make a real difference
for patients and deliver clear value for payers. In addition, we must continually improve productivity in all that we do.
To achieve these goals, we must attract, engage, and retain highly-talented individuals who are committed to the
company’s core values of integrity, excellence, and respect for people. Our compensation and benefits programs
are based on these objectives:
Executive Compensation
Philosophy:
•Individual and company
performance
•Long-term focus
•Consideration of both
internal relativity and
competitive pay
•Efficient and egalitarian
•Reflect individual and company performance. We link employees’ pay to individual
and company performance.
—As employees assume greater responsibilities, more of their pay is linked to
company performance and shareholder returns through increased partic-
ipation in equity programs.
—We seek to deliver above-market compensation given top-tier individual and
company performance, but below-market compensation where individual
performance falls short of expectations or company performance lags the
industry.
—Our 2011 incentive programs used a combination of corporate financial goals and a pipeline metric (annual
bonus), relative EPS growth as measured against the performance of our peer companies (PA), and TSR
growth as measured by stock price goals (SVA). We design our programs to be simple and clear, so that
employees can understand how their efforts affect their pay.
—We balance the objectives of pay-for-performance and employee retention. Even during downturns in company
performance, the program should continue to motivate and engage successful, high-achieving employees.
•Foster a long-term focus. In our industry, long-term focus is critical to success and is consistent with our
goal of retaining highly-talented employees as they build their careers. A competitive benefits program aids
retention. As employees progress to higher levels of the organization, a greater portion of compensation is
tied to long-term performance through our equity programs.
•Provide compensation consistent with the level of job responsibility and reflective of the market. We seek
internal pay relativity, meaning that pay differences among jobs should be commensurate with differences
in job responsibility and impact. In addition, the committee compares the company’s programs with a peer
group of global pharmaceutical companies. Pharmaceutical companies’ needs for scientific and sales and
marketing talent are unique to the industry and we compete with these companies for talent.
•Provide efficient and egalitarian compensation. We seek to deliver superior long-term shareholder returns
and to share value created with employees in a cost-effective manner. While the amount of compensation
reflects differences in job responsibilities, geographies, and marketplace considerations, the overall struc-
ture of compensation and benefits programs should be broadly similar across the organization.
•Appropriately mitigate risk. The compensation committee reviews the company’s compensation policies and
practices annually and works with management to ensure that program design does not inadvertently cre-
ate inappropriate incentives.
•Shareholder input. In establishing 2012 compensation, the committee considered the shareholder vote in
2011 on the compensation paid to named executive officers—more than 88 percent in favor. The committee
viewed this vote as supportive of the company’s overall approach to executive compensation.
Setting Compensation
The compensation committee uses several tools to set compensation targets that meet company objectives. Among
those are:
•Assessment of individual performance. Individual performance has a strong impact on compensation.
—The independent directors, under the direction of the lead director, meet with the CEO 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 meet with the CEO and in executive session to assess the CEO’s performance based
on his achievement of the objectives, contribution to the company’s performance, ethics and integrity, and
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