Eli Lilly 2015 Annual Report Download - page 166

P50
Termination for Cause. Executives terminated for cause receive no severance or enhanced benefits and
forfeit any unvested equity grants.
Change-in-Control Severance Pay Plan. As described in the CD&A under “Severance Benefits,” the
company maintains a change-in-control severance pay plan for nearly all employees, including the named
executive officers. The change-in-control plan defines a change in control very specifically, but generally the
terms include the occurrence of one of the following: (i) acquisition of 20 percent or more of the company’s
stock; (ii) replacement by the shareholders of one half or more of the Board of Directors; (iii) consummation of
a merger, share exchange, or consolidation of the company (other than a transaction that results in the Lilly
shareholders prior to the transaction continuing to hold more than 60% of the voting stock of the combined
entity); or (iv) liquidation of the company or sale or disposition of all or substantially all of its assets. The
amounts shown in the table for “involuntary or good-reason termination after change in control” are based on
the following assumptions and plan provisions:
• Covered terminations. The table assumes a termination of employment that is eligible for severance
under the terms of the plan, based on the named executive officer’s compensation, benefits, age, and
service credit at December 31, 2015. Eligible terminations include an involuntary termination for reasons
other than for cause or a voluntary termination by the executive for good reason, within two years
following the change in control.
• A termination of an executive officer by the company is for cause if it is for any of the following
reasons: (i) the employee’s willful and continued refusal to perform, without legal cause, his or her
material duties, resulting in demonstrable economic harm to the company; (ii) any act of fraud,
dishonesty, or gross misconduct resulting in significant economic harm or other significant harm to the
business reputation of the company; or (iii) conviction of or the entering of a plea of guilty or nolo
contendere to a felony.
• A termination by the executive officer is for good reason if it results from: (i) a material diminution in
the nature or status of the executive’s position, title, reporting relationship, duties, responsibilities, or
authority, or the assignment to him or her of additional responsibilities that materially increase his or
her workload; (ii) any reduction in the executive’s then-current base salary; (iii) a material reduction in
the executive’s opportunities to earn incentive bonuses below those in effect for the year prior to the
change in control; (iv) a material reduction in the executive’s employee benefits from the benefit
levels in effect immediately prior to the change in control; (v) the failure to grant to the executive stock
options, stock units, performance shares, or similar incentive rights during each 12-month period
following the change in control on the basis of a number of shares or units and all other material
terms at least as favorable to the executive as those rights granted to him or her on an annualized
average basis for the three-year period immediately prior to the change in control; or (vi) relocation of
the executive by more than 50 miles.
• Cash severance payment. The cash severance payment amounts to two times the executive officer's
annual base salary plus two times the executive officer’s bonus target for that year under the bonus plan.
• Continuation of medical and welfare benefits. This amount represents the present value of the change-in-
control plan’s provision, following a covered termination, of 18 months of continued coverage equivalent
to the company’s current active employee medical, dental, life, and long-term disability insurance. Similar
actuarial assumptions to those used to calculate incremental pension benefits apply to the calculation for
continuation of medical and welfare benefits, with the addition of actual COBRA rates based on current
benefit elections.
• Acceleration of equity awards. Upon a covered termination, any unvested equity awards would vest and a
partial payment of outstanding PAs would be made, reduced to reflect the portion of the performance
period worked prior to the change in control. Likewise, in the case of a change in control in which Lilly is
not the surviving entity, SVAs would pay out based on the change-in-control stock price and be prorated
for the portion of the three-year performance period elapsed. The amount in this column represents the
value of the acceleration of unvested equity grants, prorated for PAs and SVAs that would have been
applicable at December 31, 2015.