Eli Lilly 2011 Annual Report Download - page 122

PROXY STATEMENT
Target grant values. For 2011, the committee set the aggregate target grant val-
ues for the named executive officers based on internal relativity, individual perform-
ance, and aggregated peer-group data. Mr. Rice and Dr. Lundberg’s target grant
values were increased, reflecting Mr. Rice’s increased responsibilities and
implementation of the global services organization and Dr. Lundberg’s successful
first year. The target grant values for the remaining named executive officers were
maintained. Consistent with the company’s compensation objectives, individuals at
higher levels received a greater proportion of total compensation in the form of equi-
ty. The committee determined that for members of senior management, a 50/50 split
between PAs and SVAs appropriately balances the company financial performance
and shareholder equity return metrics of the two programs. Target values for 2010
and 2011 equity grants for the named executive officers were as follows:
Equity Compensation:
• Performance metrics of
growth in non-GAAP EPS
and share price are
objective and align with
shareholder interests
• Target grant values set based
on internal relativity,
performance, and peer data
Target Grant Values (thousands)
Name 2010-2011 PA 2011-2012 PA 2010-2012 SVA 2011-2013 SVA Percentage Increase (total)
Dr. Lechleiter $3,750 $3,750 $3,750 $3,750 0%
Mr. Rice $1,500 $1,900 $1,500 $1,900 27%
Mr. Carmine $1,500 $1,500 $1,500 $1,500 0%
Dr. Lundberg $1,250 $1,375 $1,250 $1,375 10%
Mr. Armitage $1,000 $1,000 $1,000 $1,000 0%
Equity Incentives—Performance Awards
PAs provide employees with shares of company stock if certain company performance
goals are achieved. The awards are structured as a schedule of potential shares of
company stock earned based on cumulative, compounded annual growth in non-GAAP
EPS over a two-year period. In 2011, the company granted a two-year award to global
management (approximately 15 percent of our employee population). Possible payouts
for the 2011-2012 PA range from 0 to 150 percent of the target depending on non-GAAP
EPS growth over the performance period. No dividends are accrued or paid on the
awards during the performance period.
Performance Awards:
• Target 2-year EPS growth
was 4.6%, slightly above
expected peer-group
performance
• Payout in restricted stock for
executive officers
Company performance measure. For the 2011 grants, the committee established the performance measure as
non-GAAP EPS growth. The committee believes non-GAAP EPS growth is an effective motivator because it is closely
linked to shareholder value, is broadly communicated to the public, is easily understood by employees, and allows
for objective comparisons to peer-group performance. The target compounded growth percentage of 4.6 percent per
year slightly exceeded the median expected non-GAAP EPS of companies in our peer group, based on investment
analysts’ published estimates. Accordingly, consistent with our compensation objectives, company performance
exceeding the expected peer-group median will result in above-target payouts, while company performance lagging
the expected peer-group median will result in below-target payouts. The measure of non-GAAP EPS used in the PA
program differs from the non-GAAP EPS measure used in our annual bonus program in two ways. First, the annual
bonus program measures EPS over a one-year period, while the PA program measures EPS over a two-year period.
Second, the target EPS goal in the annual bonus program is set with reference to our internal operating plan for the
year, while the target EPS goal in the PA program is set relative to expected growth rates for other companies in our
industry.
Payouts for 2011-2012 PAs are illustrated by the chart below:
2011-2012 PA
50% payout
Payout Multiple
EPS Growth
Cumulative 2-Year Non-GAAP EPS
1.50
4.64%
1.251.00
Target
$10.39+
$9.55 $9.97
0.00
-38.20%
$4.46 $8.74 $9.14
-1.36% 1.64% 7.64% 10.64%+
0.50 0.75
32