Eli Lilly 2012 Annual Report Download - page 154

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50
Grants Under the Plan
All employees of the company, including officers, are eligible to participate in the 2002 Lilly Stock Plan. Currently
approximately 38,000 employees, including all 14 executive officers, are eligible to participate. The compensation
committee may make grants to officers and employees in its discretion. The board may grant stock options under
the 2002 Plan to nonemployee directors. There are currently 13 nonemployee directors.
Stock Options and Stock Appreciation Rights
The committee may grant nonqualified options, incentive stock options, or other tax favored stock options under the
Internal Revenue Code. The committee establishes the option price, which may not be less than 100 percent of the
fair market value of the stock on the date of grant. Options may not be repriced. The committee also establishes the
vesting date and the term of the option.
The committee may also grant stock appreciation rights (SARs)—the right to receive an amount based on
appreciation in the fair market value of shares of Lilly stock over a base price. If granted without a related stock
option, the committee establishes the base price of the SARs, which may not be less than 100 percent of the fair
market value of the stock on the date of grant, and the settlement or exercise date, which may not be more than
11 years after the grant date. If granted in connection with a stock option, the holder of SARs may, upon exercise,
surrender the related options and receive payment, in the form of Lilly stock, equal to the excess of the fair market
value of Lilly stock over the exercise price on the date of exercise multiplied by the number of shares exercised. The
price and term of the SARs mirror those of the related stock option, and the SARs automatically terminate to the
extent the related options are exercised. Effectively, these awards give the holder the benefit of the related stock
options (in the form of shares of Lilly stock) without requiring payment of the exercise price.
No grantee may receive options and SARs, considered together, for more than 3,500,000 shares under the
2002 Plan in any period of three consecutive calendar years.
Performance Awards
The committee may grant PAs under which payment is made in shares of Lilly stock, cash, or both if the financial
performance of the company or a subsidiary, division, or other business unit of the company selected by the
committee meets certain performance goals during an award period.
Performance Goals. The committee establishes the performance goals at the beginning of the award period based
on one or more performance goals specified in the 2002 Lilly Stock Plan. The material terms of those performance
goals are:
• earnings per share
• net income
• divisional income
• corporate or divisional revenue
• EVA® (after-tax operating profit less the annual total cost of capital)
• Market Value Added (the difference between a company's fair market value, as reflected primarily in its stock
price, and the economic book value of capital employed)
• any of the foregoing goals before the effect of acquisitions, divestitures, accounting changes, and restructuring,
special charges, or other unusual gains or losses (as determined according to criteria established by the
committee)
• total shareholder return
• other Lilly stock price goals.
The committee also establishes the award period (four or more consecutive fiscal quarters), the threshold, target
and maximum performance levels, and the number of shares or dollar amounts payable at various performance
levels from the threshold to the maximum. Pursuant to these provisions, the committee currently grants PAs based
on EPS and SVAs based on stock price goals.
The maximum number of shares that may be received by an individual in payment of PAs in any calendar year is
600,000. The committee can elect to pay cash in lieu of part or all of the shares of Lilly stock payable under a PA,
and such cash payment is counted as a payment of shares (based on the market value of Lilly stock on the payment
date) for purposes of determining compliance with the 600,000 share limit. In order to receive payment, a grantee
must generally remain employed by the company until the end of the award period. The committee may impose
additional conditions on a grantee's entitlement to receive payment under a PA.