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SEC Filing Excerpt For complete filing click here |
Notice of Annual Meeting of Shareholders
April 16, 2007
The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, on Monday, April 16, 2007, at 11:00 a.m. EDT for the following purposes:
to elect four directors of the company to serve three-year terms
to ratify the appointment by the audit committee of Ernst & Young LLP as principal independent auditors for the year 2007
to approve amendments to the articles of incorporation to provide for the annual election of directors
to reapprove performance goals for the companys 2002 Lilly Stock Plan
to consider and vote on a shareholder proposal requesting that the board of directors report on the feasibility of extending the companys animal care and use policy to contract laboratories
to consider and vote on a shareholder proposal requesting that the board of directors report on international outsourcing of animal research
to consider and vote on a shareholder proposal requesting that the board of directors establish a policy separating the roles of chairman and chief executive officer
to consider and vote on a shareholder proposal requesting that the company amend its articles of incorporation to allow shareholders to amend the companys bylaws by majority vote
to consider and vote on a shareholder proposal requesting that the board of directors adopt a simple majority vote standard for certain matters other than the election of directors.
Shareholders of record at the close of business on February 15, 2007, will be entitled to vote at the meeting and at any adjournment of the meeting.
Attendance at the meeting will be limited to shareholders, those holding proxies from shareholders, and invited guests from the media and financial community. A page at the back of this proxy statement contains an admission ticket. If you plan to attend the meeting, please bring this ticket with you.
This combined proxy statement and annual report to shareholders and the proxy are being mailed on or about March 5, 2007.
By order of the board of directors,
James B. Lootens
Secretary
March 5, 2007
Indianapolis, Indiana
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SEC Filing Excerpt For complete filing click here |
V. Functioning of the Board
Executive Session of Directors
The independent directors meet alone in executive session at every regularly scheduled board meeting. In addition, at least twice a year, the independent directors meet in executive session with the chief executive officer.
Presiding Director
The board appoints a presiding director from among the independent directors (currently Ms. Horn). The presiding director:
leads the boards process for selecting and evaluating the chief executive officer;
presides at all meetings of the board at which the chairman is not present, including executive sessions of the independent directors unless the directors decide that, due to the subject matter of the session, another independent director should preside;
serves as a liaison between the chairman and the independent directors;
generally approves information sent to the board and meeting agendas and schedules; and
has the authority to call meetings of the independent directors.
Conflicts of Interest
Occasionally a directors business or personal relationships may give rise to an interest that conflicts, or appears to conflict, with the interests of the company. Directors must disclose to the company all relationships that create a conflict or an appearance of a conflict. The board, after consultation with counsel, takes appropriate steps to ensure that all directors voting on an issue are disinterested. In appropriate cases, the affected director will be excused from discussions on the issue.
To avoid any conflict or appearance of a conflict, board decisions on certain matters of corporate governance are made solely by the independent directors. These include executive compensation and the selection, evaluation, and removal of the chief executive officer.
Review and Approval of Transactions with Related Persons
The board has adopted a policy and procedures for review, approval and monitoring of transactions involving the company and related persons (directors and executive officers or their immediate family members, or shareholders owning five percent or greater of the companys outstanding stock). The policy covers any related person transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest).
Policy
Related person transactions must be approved by the board or by a committee of the board consisting solely of independent directors, who will approve the transaction only if they determine that it is in the best interests of the company. In considering the transaction, the board or committee will consider all relevant factors, including as applicable (i) the companys business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the company.
The board or relevant committee will periodically monitor the transaction to ensure that there are no changed circumstances that would render it advisable for the company to amend or terminate the transaction.
Procedures
Management or the affected director or executive officer will bring the matter to the attention of the chairman, the presiding director, the chair of the directors and corporate governance committee, or the secretary.
The chairman and the presiding director shall jointly determine (or if either is involved in the transaction, the other shall determine in consultation with the chair of the directors and corporate governance committee) whether the matter should be considered by the board or by one of its existing committees consisting only of independent directors.
If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.
The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable.
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The board or relevant committee will review the transactions annually to determine whether it continues to be in the companys best interests.
Currently the only related person transaction is the time-share arrangement for Mr. Taurels personal use of the corporate aircraft, as described on page 39. The compensation committee approved and continues to monitor this arrangement consistent with the above policy.
Orientation and Continuing Education
A comprehensive orientation process is in place for new directors. In addition, directors receive ongoing continuing education through educational sessions at meetings, the annual strategy retreat, and periodic mailings between meetings. We hold periodic mandatory training sessions for the audit committee, to which other directors and executive officers are invited. We also afford directors the opportunity to attend external director education programs.
Director Access to Management and Independent Advisers
Independent directors have direct access to members of management whenever they deem it necessary. The independent directors and the committees are also free to retain their own independent advisers, at company expense, whenever they feel it would be desirable to do so. In accordance with New York Stock Exchange listing standards, the audit, compensation, and directors and corporate governance committees have sole authority to retain independent advisers to their respective committees.
Assessment of Board Processes and Performance
The directors and corporate governance committee annually assesses the performance of the board, its committees, and board processes based on inputs from all directors. The committee also considers the contributions of individual directors at least every three years when considering whether to recommend nominating the director to a new three-year term.
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SEC Filing Excerpt For complete filing click here |
Directors who are employees receive no additional compensation for serving on the board or its committees. In 2006, we provided the following annual compensation to directors who are not employees:
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Fees Earned or Paid in Cash |
Stock Awards |
Stock Option Awards |
All Other Compensation |
Total |
|
Name |
($)1 |
($)2 |
($)3 |
($)4 |
($)5 |
|
Sir Winfried Bischoff |
$ 97,000 |
$ 139,228 |
$ 27,647 |
$ 18,823 6 |
$ 282,698 |
|
Mr. Cook |
$ 108,000 |
$ 139,228 |
0 |
0 |
$ 247,228 |
|
Dr. Feldstein |
$ 103,000 |
$ 139,228 |
$ 27,647 |
0 |
$ 269,875 |
|
Mr. Fisher |
$ 102,000 |
$ 139,228 |
$ 27,647 |
$ 663 |
$ 269,538 |
|
Mr. Fyrwald |
$ 91,000 |
$ 139,228 |
0 |
$ 641 |
$ 230,869 |
|
Dr. Gilman |
$ 96,000 |
$ 139,228 |
$ 27,647 |
$ 1,253 |
$ 264,128 |
|
Ms. Horn |
$ 122,000 |
$ 139,228 |
$ 27,647 |
$ 1,044 |
$ 289,919 |
|
Ms. Marram |
$ 92,000 |
$ 139,228 |
$ 27,647 |
$ 743 |
$ 259,618 |
|
|
|
|
|
|
|
|
Dr. Prendergast |
$ 102,000 |
$ 139,228 |
$ 27,647 |
0 |
$ 268,875 |
|
Ms. Seifert |
$ 109,000 |
$ 139,228 |
$ 27,647 |
0 |
$ 275,875 |
1 The following directors deferred 2006 cash compensation into their deferred share account under the Lilly Directors Deferral Plan (further described below):
| Name | 2006 Cash Deferred | Shares |
| Mr. Cook | $108,000 | 1,971 |
| Mr. Fisher | $ 51,000 | 926 |
2 Each nonemployee director received an award of stock with a grant date fair value of $145,000 (2,672 shares). This stock award and all prior stock awards are fully vested in that they are not subject to forfeiture; however the shares are not issued until the director ends his or her service on the board, as further described below under Lilly Directors Deferral Plan. The table shows the expense recognized by the company for each directors stock award.
3 No stock options were granted in 2006, as the stock option program for directors was discontinued in 2005. The amounts in this column reflect the expenses related to options granted in 2003 and 2004 recognized in our 2006 financial statements. Aggregate total numbers of stock option awards outstanding are shown below. All outstanding options were vested as of February 17, 2007. Stock option grants were established using the same procedure for timing and price as is used for employees. Please see the description under Equity Incentives Stock Options Grant Timing and Price on page 27.
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Name |
Grant Date |
Expiration Date |
Exercise Price |
Outstanding Stock Options (Exercisable) |
|
Sir Winfried Bischoff |
2/20/2001 |
2/18/2011 |
$ 73.98 |
2,800 |
|
|
2/19/2002 |
2/17/2012 |
$ 75.92 |
2,800 |
|
|
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
|
Mr. Cook |
0 |
|||
|
Dr. Feldstein |
2/19/2002 |
2/17/2012 |
$ 75.92 |
2,800 |
|
|
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
|
Mr. Fisher |
2/20/2001 |
2/18/2011 |
$ 73.98 |
2,800 |
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|
2/19/2002 |
2/17/2012 |
$ 75.92 |
2,800 |
|
|
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
|
Mr. Fyrwald |
||||
|
Dr. Gilman |
4/20/2000 |
4/19/2010 |
$ 75.94 |
2,800 |
|
|
2/20/2001 |
2/18/2011 |
$ 73.98 |
2,800 |
|
|
2/19/2002 |
2/17/2012 |
$ 75.92 |
2,800 |
|
|
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
|
Ms. Horn |
4/20/2000 |
4/19/2010 |
$ 75.94 |
2,800 |
|
|
2/20/2001 |
2/18/2011 |
$ 73.98 |
2,800 |
|
|
2/19/2002 |
2/17/2012 |
$ 75.92 |
2,800 |
|
|
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
|
Ms. Marram |
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
|
Dr. Prendergast |
4/20/2000 |
4/19/2010 |
$ 75.94 |
2,800 |
|
|
2/20/2001 |
2/18/2011 |
$ 73.98 |
2,800 |
|
|
2/19/2002 |
2/17/2012 |
$ 75.92 |
2,800 |
|
|
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
|
Ms. Seifert |
4/20/2000 |
4/19/2010 |
$ 75.94 |
2,800 |
|
|
2/20/2001 |
2/18/2011 |
$ 73.98 |
2,800 |
|
|
2/19/2002 |
2/17/2012 |
$ 75.92 |
2,800 |
|
|
2/18/2003 |
2/18/2013 |
$ 57.85 |
2,800 |
|
|
2/17/2004 |
2/17/2014 |
$ 73.11 |
2,800 |
4 For all directors other than Sir Winfried Bischoff, these amounts consist of tax reimbursements for income imputed to him or her for use of the corporate aircraft, or commercial flights, by his or her spouse to attend board functions that included spouse participation.
5 Directors do not participate in a Lilly pension plan or non-equity incentive plan.
6 This amount includes expenses for Sir Winfried Bischoffs spouse to travel to and participate in board functions that included spouse participation.
Cash Compensation
The company provides directors the following cash compensation:
retainer of $80,000 per year (payable monthly)
$1,000 for each committee meeting attended
$2,000 to the committee chairpersons for each committee meeting conducted as compensation for the chairpersons preparation time
retainer of $20,000 per year to the presiding director
reimbursement for customary and usual travel expenses.
Stock Compensation
Stock compensation for directors consists of:
Shares of Lilly stock equaling $145,000, deposited annually in a deferred stock account in the Lilly Directors Deferral Plan (as described below), payable after service on the board has ended.
Lilly Directors Deferral Plan
This plan allows directors to defer receipt of all or part of their retainer and meeting fees until after their service on the board has ended. Each director can choose to invest the funds in either of two accounts:
Deferred Share Account. This account allows the director, in effect, to invest his or her deferred cash compensation in Lilly stock. In addition, the annual award of shares to each director noted above (2,672 shares
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in 2006) is credited to this account on a pre-set annual date. Funds in this account are credited as hypothetical shares of Lilly stock based on the market price of the stock at the time the compensation would otherwise have been earned. Hypothetical dividends are reinvested in additional shares based on the market price of the stock on the date dividends are paid. All shares in the deferred share accounts are hypothetical and are not issued or transferred until the director ends his or her service on the board.
Deferred Compensation Account. Funds in this account earn interest each year at a rate of 120 percent of the applicable federal long-term rate, compounded monthly, as established the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code. The rate for 2007 is 5.7 percent. The aggregate amount of interest that accrued in 2006 for the participating directors was $182,102, at a rate of 5.6 percent.
Both accounts may be paid in a lump sum or in annual installments for up to 10 years. Amounts in the deferred share account are paid in shares of Lilly stock.
Lilly Matching Gift Program
Directors are eligible to participate in the Eli Lilly and Company Foundation, Inc. matching gift program, which is generally available to U.S. employees. Under this program, the foundation matches 100 percent of charitable donations over $25 made to eligible charities up to a maximum of $90,000 per year for each individual. These limits apply to active employees and directors.
SEC Filing Excerpt
For complete filing click here
Compensation Committee Matters
Scope of Authority
The compensation committee acts on behalf of the board of directors and by extension the shareholders to establish the compensation of executive officers of the company and provides oversight of the companys global compensation philosophy. The committee also acts as the oversight committee with respect to the companys deferred compensation plans, management stock plans, and bonus plans covering executive officers and other senior management. In overseeing those plans, the committee may delegate authority for day-to-day administration and interpretation of the plan, including selection of participants, determination of award levels within plan parameters, and approval of award documents, to officers of the company. However, the committee may not delegate any authority under those plans for matters affecting the compensation and benefits of the executive officers.
The Committees Processes and Procedures
The committees primary processes for establishing and overseeing executive compensation can be found in the Compensation Discussion and Analysis section under The Committees Processes on page 23. Additional processes and procedures include:
Meetings. The committee meets several times each year (5 times in 2006). Committee agendas are established in consultation with the committee chair and the committees independent compensation consultant. The committee meets in executive session following each regular meeting.
Role of Independent Consultant. The committee has retained Frederic W. Cook and his firm, Frederic W. Cook & Co., as its independent compensation consultant to assist the committee in evaluating executive compensation programs and in setting executive officers compensation. The use of an independent consultant provides additional assurance that the companys executive compensation programs are reasonable and consistent with company objectives. The consultant reports directly to the committee and does not perform any services for management. The consultant regularly participates in committee meetings and advises the committee with respect to compensation trends and best practices, plan design, and the reasonableness of individual compensation awards. In addition, with respect to the chief executive officer, the consultant prepares the specific compensation recommendations for the committees consideration; the CEO does not participate in the development of the recommendations and has no knowledge of the recommendations when they are presented to the committee.
Role of Executive Officers and Management. With the oversight of the CEO, chief operating officer, and the senior vice president of human resources, the companys global compensation group formulates recommendations on matters of compensation philosophy, plan design, and the specific compensation recommendations for executive officers (other than the CEO as noted above). The CEO gives the committee a performance assessment and compensation recommendation for each of the other named executive officers. Those recommendations are then considered by the committee with the assistance of its compensation consultant. The CEO and the senior vice president of human resources generally attend committee meetings but are not present for the executive sessions or for any discussion of their own compensation.
Directors compensation is established by the board of directors upon the recommendation of the directors and corporate governance committee.
Compensation Committee Interlocks and Insider Participation
None of the compensation committee members
has ever been an officer or employee of the company
is or was a participant in a related person transaction in 2006 (see pages 14-15 for a description of our policy on related person transactions)
is an executive officer of another entity, at which one of our executive officers serves on the board of directors.
Compensation Discussion and Analysis
Executive Compensation Policy
As a research-based pharmaceutical company, our long-term success depends on our ability to discover, develop, and market a stream of innovative medicines that address important medical needs. In addition, the intense global
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pressures on health care costs require us to continually improve productivity in all that we do. To achieve these goals, it is critical that we be able to attract, motivate, and retain highly talented individuals at all levels of the organization who are committed to the companys core values of excellence, integrity, and respect for people.
The compensation committee bases its executive compensation programs on the same objectives that guide the company in establishing all its compensation programs:
Compensation should be based on the level of job responsibility, individual performance, and company performance. As employees progress to higher levels in the organization, an increasing proportion of their pay should be linked to company performance and shareholder returns, because they are more able to affect the companys results.
Compensation should reflect the value of the job in the marketplace. To attract and retain a highly skilled work force, we must remain competitive with the pay of other premier employers who compete with us for talent.
Compensation should reward performance. Our programs should deliver top-tier compensation given top-tier individual and company performance; likewise, where individual performance falls short of expectations and/or company performance lags the industry, the programs should deliver lower-tier compensation. In addition, the objectives of pay-for-performance and retention must be balanced. Even in periods of temporary downturns in company performance, the programs should continue to ensure that successful, high-achieving employees will remain motivated and committed to Lilly.
Compensation should foster the long-term focus required for success in the pharmaceutical industry. While all employees receive a mix of both annual and longer-term incentives, employees at higher levels have an increasing proportion of their compensation tied to longer-term performance because they are in a position to have greater influence on longer-term results.
To be effective, performance-based compensation programs should enable employees to easily understand how their efforts can affect their pay, both directly through individual performance accomplishments and indirectly through contributing to the companys achievement of its strategic and operational goals. No matter how elegant a performance measure may be in theory, if in practice employees cannot easily understand how it works or how it relates to their daily jobs, it will not be an effective motivator.
Compensation and benefit programs should be egalitarian. While the programs and individual pay levels will always reflect differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefit programs should be broadly similar across the organization. Perquisites for executives should be rare and limited to those that are important to the executives ability to safely and effectively carry out his or her responsibilities.
Compensation and benefit programs should attract employees who are interested in a career at Lilly. The companys nationally recognized benefit programs provide a competitive advantage by helping the company attract and retain highly talented employees who are looking for the opportunity to build a career. These programs include a strong retirement program, flexible health care coverage options for active employees and retirees, and leading-edge work/life programs to help employees manage the sometimes conflicting demands of career and family.
The Committees Processes
The compensation committee has established a number of processes to assist it in ensuring that the companys executive compensation program is achieving its objectives. Among those are:
Assessment of Company Performance. The committee uses company performance measures in two ways. First, in establishing total compensation ranges, the committee considers various measures of company and industry performance, including sales, earnings per share, return on assets, return on equity, and total shareholder return. The committee does not apply a formula or assign these performance measures relative weights. Instead, it makes a subjective determination after considering such measures collectively. Second, as described in more detail below, the committee has established specific company performance measures that determine the size of payouts under the companys three formula-based incentive programs the Eli Lilly and Company Bonus Plan, the performance award program and, beginning in 2007, the shareholder value award which replaces the stock option program (the shareholder value award is discussed on pages 29-30.)
Assessment of Individual Performance. Individual performance has a strong impact on the compensation of all employees, including the CEO and the other executive officers. With respect to the CEO, the independent directors, under the direction of the presiding director, meet with the CEO in executive session annually at the beginning of the year to agree upon the CEOs performance objectives (both individual and company objectives) for the year. At the end of the year, the independent directors meet in executive session under the direction of the presiding director to conduct a performance review of the CEO based on his or her achievement of the
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agreed-upon objectives, contribution to the companys performance, and other leadership accomplishments. This evaluation is shared with the CEO by the presiding director and is provided to the compensation committee for its consideration in setting the CEOs compensation.
For the other named executive officers, the committee receives a performance assessment and compensation recommendation from the CEO and also exercises its judgment based on the boards interactions with the executive officer. As with the CEO, the performance evaluation of these executives is based on achievement of pre-agreed objectives by the executive and his or her organization, his or her contribution to the companys performance, and other leadership accomplishments.
Benchmarking. The committee benchmarks the companys programs with a peer group of global pharmaceutical companies. Pharmaceutical companies needs for scientific and sales/marketing talent are unique to the industry and as such, Lilly must compete with these companies for talent: Abbott Laboratories; Amgen; Bristol-Myers Squibb Company; GlaxoSmithKline; Johnson & Johnson; Merck & Co.; Pfizer, Inc.; Schering-Plough Corporation; and Wyeth Laboratories. The committee compares the companies executive compensation programs as a whole, and also compares the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful. The committee uses the peer group data primarily to ensure that the executive compensation program as a whole is competitive, meaning generally within the broad middle range of comparative pay of the peer group companies when the company achieves the targeted performance levels. The individuals relative position is driven by individual and company performance.
Total Compensation Review. The committee reviews each executives base pay, bonus, and equity incentives annually with the guidance of the committees independent consultant. In addition to these primary compensation elements, the committee reviews the deferred compensation program, perquisites and other compensation, and payments that would be required under various severance and change-in-control scenarios. Following the 2006 review, the committee determined that these elements of compensation were reasonable in the aggregate. In response to evolving corporate governance trends, the committee recommended to the board, and it approved, amendments to the change-in-control severance pay programs in 2006 to reduce the severance benefit for executive officers from three times to two times annual base salary plus bonus. This change aligns the executive officers benefit with that of all other executives. See Severance Benefits on pages 28-29.
Components of Executive Compensation for 2006
For 2006, the compensation of executives consisted of the same four primary components as were provided to other levels of management base salary, a cash incentive bonus award under the Eli Lilly and Company Bonus Plan, equity grants of a performance award (a performance-based stock incentive award under the 2002 Lilly Stock Plan) and stock options, and a benefits package. The committee believes that this program balances both the mix of cash and equity compensation, the mix of currently-paid and longer-term compensation, and the security of foundational benefits in a way that furthers the compensation objectives discussed above. Following is a discussion of the committees considerations in establishing each of the components for the executive officers.
Base Salary
Base salary is the guaranteed element of employees annual cash compensation. The value of base salary reflects the employees long-term performance, skill set and the market value of that skill set. In setting base salaries for 2006, the committee considered the following factors:
The corporate merit budget, meaning the companys overall budget for base salary increases. The aggregate increases for the executive officers were within the corporate merit budget. The corporate merit budget was established based on company performance for 2005, planned performance for 2006, and peer group data. The objective of the merit budget is to allow salary increases to retain and motivate successful performers while maintaining affordability within the companys business plan.
Internal relativity, meaning the relative pay differences for different job levels.
Individual performance. As described above under The Committees Processes, base salary increases were driven by individual performance assessments.
In establishing Mr. Taurels base salary for 2006, the committee applied the principles described above under The Committees Processes. In an executive session including all independent directors, the committee assessed Mr. Taurels 2005 performance. They considered the companys and Mr. Taurels accomplishment of objectives that had been established at the beginning of the year and its own subjective assessment of his performance. They noted that under Mr. Taurels leadership, in 2005 the company achieved 6 percent sales growth, with strong growth of several recently launched products offsetting declines in Zyprexa and Strattera sales. The companys successful implementation of Six Sigma exceeded objectives in its first year,
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as did other productivity initiatives. Through strict headcount control, the company was able to reduce its headcount through attrition by nearly 2,000 employees. Improved productivity led to a 9 percent increase in reported earnings per share and an 11 percent increase in adjusted earnings per share. The company also made significant strides in brand equity and customer satisfaction, compliance and enterprise risk management, and diversity. In recognition of his continued strong leadership in 2005, the committee increased Mr. Taurels annual salary by 4.4 percent effective March 2006.
The committee reviewed similar considerations for each of the other named executives. In addition, with regard to Dr. Lechleiters performance, the committee considered his leadership in increasing the productivity of the sales and marketing, manufacturing, and other operational functional areas of the company. The committee had increased Dr. Lechleiters annual salary by 18 percent in recognition of his promotion to president and chief operating officer in October 2005, and therefore did not increase his annual salary in 2006.
With regard to Dr. Pauls performance, the committee gave particular weight to his leadership of the companys research and development efforts, noting that Lilly Research Laboratories improved productivity in all phases of discovery and development, increasing the number and success of early phase candidates, and more quickly identifying compounds likely to be unsuccessful. The committee increased Dr. Pauls annual salary by 4 percent effective March 2006.
In establishing Mr. Armitages annual salary (an 8 percent increase), the committee noted his leadership in implementing successful litigation strategies, enhancing the companys compliance programs, and improving productivity within the law division.
Mr. Rices base salary was raised upon his promotion to chief financial officer in May 2006.
Peer group data specific to the executives position,
where applicable. As noted above, we used the peer group data to
test for reasonableness and competitiveness of base salaries,
but we also exercised subjective judgment
in view of our compensation objectives.
Consideration of the mix of overall compensation. Consistent with our compensation objectives, as employees progress to higher levels in the organization, a greater proportion of overall compensation is directly linked to company performance and shareholder returns. Thus, for example, Mr. Taurels overall compensation is more heavily weighted toward incentive compensation and equity compensation than that of the other executive officers.
Cash Incentive Bonuses
The company has established an annual cash bonus program in order to align employees goals with the companys sales and earnings growth objectives for the current year. Cash incentive bonuses for all management employees worldwide, as well as all non-management employees in the U.S. other than sales representatives, were determined under the Eli Lilly and Company Bonus Plan, a shareholder-approved formula-based incentive plan adopted in 2004. The bonuses paid for 2006 appear in the Summary Compensation Table under the Non-equity Incentive Plan Compensation column. Under the plan, bonus target amounts, expressed as a percentage of base salary, are established for participants at the beginning of each year. Bonus payouts for the year are then determined by the companys financial results for the year relative to predetermined performance measures. Satisfactory individual performance is a condition to payment. At the end of the performance period, the committee has discretion to adjust an award payout downward, but not upward, from the amount yielded by the formula. The committee considered the following when establishing the awards for 2006:
Bonus Targets. Bonus targets were based on job responsibilities, internal relativity, and peer group data. Our objective was to set bonus targets such that total annual cash compensation was within the broad middle range of peer group companies and a substantial portion of that compensation was linked to company performance. Consistent with our executive compensation policy, individuals with greater job responsibilities had a greater proportion of their total cash compensation tied to company performance through the bonus plan. Thus, the committee established the following bonus targets for 2006 (expressed as a percentage of base salary): Mr. Taurel, 125 percent; Dr. Lechleiter, 100 percent; Dr. Paul, 85 percent; Mr. Golden, 85 percent; Mr. Rice, 75 percent; and Mr. Armitage, 75 percent.
Company performance measures. For all participants in the plan, including the executive officers, the committee established 2006 company performance measures based 25 percent on sales growth (target of 5 percent growth) and 75 percent on earnings per share (EPS) growth adjusted for certain items as described below under Adjustments for Certain Items (target of 7 percent growth). The measures were determined in January 2006. The committee believes that this mix of performance measures will encourage employees to focus appropriately on improving both top-line sales and bottom-line earnings. Special emphasis is given to bottom line earnings so that employees can be directly rewarded for their productivity improvements. The measures are also effective motivators because they are easy to track and clearly understood by employees. Under the
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plan formula, payouts can range from zero to 200 percent of target depending on company performance. In establishing the target growth rates for both sales and EPS (that is, the growth rates at which the payouts would be 100 percent of target), the committee considered the expected 2006 performance of companies in our peer group, based on published investment analyst estimates. Consistent with the compensation objectives discussed above, the target growth percentages represented approximately the median expected growth for our peer group; accordingly, Lilly performance exceeding the peer group would result in above-target payouts and Lilly performance lagging the peer group would result in below-target payouts. The bonuses paid to executive officers for 2006 were 134 percent of target as a result of above-target growth in both sales (7 percent) and adjusted earnings per share (11 percent). (Adjustments for certain items are discussed on page 29.)
Equity Incentives Total Equity Program
Through 2006, we employed two forms of equity incentives granted under the 2002 Lilly Stock Plan: stock options and performance awards. These incentives foster the long-term perspective necessary for continued success in our business. They also ensure that our leaders are properly focused on shareholder value. Stock options and performance awards have traditionally been granted broadly and deeply within the organization, with approximately 4,900 management and professional employees now participating. In determining the value of grants for executives, the committees overall objective was to set combined grant values of stock options and performance awards that were competitive within the broad middle range of peer company long-term incentive grant amounts. The committee approves grant values (expressed in U.S. dollars) prior to the pre-established grant date. The committees process for setting grant dates is discussed on page 27. Then, on the grant date those values are converted to the equivalent number of shares using the same valuation methodology as the company uses to determine the accounting expense of the grants under Statement of Financial Accounting Standards (SFAS) 123R.
For 2005, the committee had lowered grant values significantly at all levels consistent with marketplace trends, and had also shifted the mix of awards to increase emphasis on performance awards and decrease emphasis on stock options. For 2006, the committee maintained the same total grant values but continued to place greater emphasis on performance-based equity incentives by increasing the performance award portion of executive officers equity grants from 40 percent to 50 percent of the total grant value. In making this determination, the committee reviewed available peer group data but found it provided only limited insight because of rapidly changing equity grant practices. Grant values for individuals were determined by individual performance and internal relativity. Consistent with the companys compensation philosophy, individuals at higher levels received a greater proportion of total pay in the form of equity. The values for 2006 grants for the named executives were as follows:
|
Name |
Stock Options |
Performance Awards |
|
Current |
|
|
|
Mr. Taurel |
$ 3,600,000 |
$ 3,600,000 |
|
Dr. Lechleiter |
$ 2,340,000 |
$ 2,340,000 |
|
Dr. Paul |
$ 1,200,000 |
$ 1,200,000 |
|
Mr. Armitage |
$ 900,000 |
$ 900,000 |
|
Mr. Rice 1 |
$ 450,000 |
$ 450,000 |
|
Retired |
|
|
|
Mr. Golden 2 |
$ 1,100,000 |
$ 1,100,000 |
1 Mr. Rices grants were made before he was promoted to chief financial officer. Mr. Rice received an additional grant of stock options valued at $471,900 in May 2006 upon his promotion to chief financial officer.
2 Mr. Golden retired in April 2006, and his 2006 stock option grant was forfeited in accordance with its terms. His 2006 performance award was prorated based on the portion of the year worked.Equity Incentives Performance Awards
Performance awards provide employees with shares of Lilly stock if certain company performance goals are achieved, aligning employees with shareholder interests and providing an ownership stake in the company. The awards, normally granted annually, are structured as a schedule of shares of Lilly stock based on the companys achievement of specific earnings-per-share (EPS) levels over specified time periods of one or more years. We granted performance awards for 2006 to executive officers with possible payouts ranging from zero to 200 percent of the target amount, depending on 2006 EPS growth as adjusted based on predetermined criteria. No dividends are paid on the awards during the performance period. At the end of the performance period, the committee has
26
discretion to adjust an award payout downward, but not upward, from the amount yielded by the formula. For executive officers, the payout was in the form of restricted stock, as noted below. The committee approved the terms of the 2006 performance awards in January 2006, and took into consideration the following:
Target grant size. As noted above, following a substantial reduction in total equity grant values in 2005, the committee decided to maintain the same grant values in 2006 but increased the performance award portion of the total grant value from 40 to 50 percent.
Company performance measure. As in previous years, the committee established the performance measure as EPS growth (adjusted as described below under Adjustments for Certain Items) over a one-year period. The committee believes EPS growth is an effective motivator because it is closely linked to shareholder value and it is easily understood by employees. In setting the target growth percentage of 7 percent, the committee considered the expected earnings performance of companies in our peer group. Consistent with the compensation objectives discussed above, the target growth percentage represented approximately the median expected growth for our peer group; accordingly, Lilly performance exceeding the peer group would result in above-target payouts and Lilly performance lagging the peer group would result in below-target payouts. Above-target growth in adjusted earnings per share (11 percent) resulted in a 2006 performance award payout at 150 percent of target.
Longer-term focus and retention considerations. To enhance the performance awards incentives for longer-term focus and retention, the awards to executive officers for 2006 are payable in restricted stock that is subject to forfeiture if the executive leaves the company prior to February 2008, except by reason of death, disability, retirement, or by consent of the committee. The additional one-year restriction period is consistent with our share retention guidelines discussed on page 29.
Equity Incentives Stock Options
Stock options align employee incentives with shareholders because options have value only if the stock price increases over time. The companys 10-year options, granted at the market price on the date of grant, help focus employees on long-term growth. In addition, options are intended to help retain key employees because they typically cannot be exercised for three years and, if not exercised, are forfeited if the employee leaves the company before retirement. The three-year vesting also helps keep employees focused on long-term performance. The company does not reprice options; likewise, if the stock price declines after the grant date, we do not replace options.
The committee considered the following in establishing the 2006 option grants to executive officers:
Grant size. As noted above under Equity Incentives Total Equity Program, stock option grants were 50 percent of the total equity grant values (measured in accordance with SFAS 123R) established by the committee. The total equity grant values were unchanged from 2005; however, we decreased the stock option portion of the total grant value from 60 to 50 percent.
Grant Timing and Price. The committees procedure for timing of equity grants (performance awards and stock options) provides assurance that grant timing is not being manipulated to result in a price that is favorable to employees. The annual equity grant date for all eligible employees, including executive officers (more than 4,900 employees), is in mid-February. This date is established by the committee well in advance typically at the committees October meeting or in December when there is no meeting in October. The mid-February grant date timing is driven by three considerations:
It coincides with the companys calendar-year-based performance management cycle, allowing supervisors to deliver the equity awards close in time to performance appraisals, which increases the impact of the awards by strengthening the link between pay and performance.
It is within about two weeks after release of quarterly earnings, so that the stock price at that time can reasonably be expected to fairly represent the markets collective view of our then-current results and prospects.
To take advantage of favorable local tax laws for stock options in certain jurisdictions outside the U.S., options may not be granted within a specified number of days before or after announcing earnings or filing financial reports.
In the event of grants to new hires, the grants are effective on the first trading day of the month following hire.
Our process for establishing the grant date well in advance provides assurance that grant timing is not being manipulated for employee gain.
Employee and Post-Employment Benefits
The company offers core employee benefits coverage in order to:
provide our global workforce with a reasonable level of financial support in the event of illness or injury, and
27
enhance productivity and job satisfaction through programs that focus on work/life balance.
The benefits available are the same for all U.S. employees and executive officers and include medical and dental coverage, disability insurance, and life insurance. In addition, the Lilly 401(k) Plan and the Lilly Retirement Plan provide a reasonable level of retirement income reflecting employees careers with the company. All U.S. employees, including executive officers, participate in these plans. To the extent that any employees retirement benefit exceeds IRS limits for amounts that can be paid through a qualified plan, Lilly also offers a non-qualified retirement plan and savings plan. These plans provide only the difference between the calculated benefits and the IRS limits.
The cost of both employee and post-employment benefits is partially borne by the employee, including each executive officer.
The company does not provide significant perquisites or personal benefits to executive officers, except that the company aircraft is made available for the personal use of Mr. Taurel and Dr. Lechleiter, where the committee believes the security and efficiency benefits to the company clearly outweigh the expense. Mr. Taurels only use of the corporate aircraft for personal flights in 2006 was to attend outside board meetings for the two public companies at which he serves as an independent director. The compensation committee believes that Mr. Taurels service on these boards, and his ability to conduct company business while traveling to board meetings, provides clear benefits to the company. As described on page 39, Mr. Taurel has entered into a time share arrangement for the corporate aircraft under which he pays the company a lease fee for personal use. This amount offsets part of the companys incremental cost of providing the aircraft. Dr. Lechleiter did not use the corporate aircraft for personal flights. In addition, depending on seat availability, family members of executive officers may travel on the company aircraft to accompany executives who are traveling on business. There is no incremental cost to the company for these trips.
Deferred Compensation Program
Executives may defer receipt of part or all of their cash compensation under the companys deferred compensation program. The program allows executives to save for retirement in a tax-effective way at minimal cost to the company. Under this unfunded program, amounts deferred by the executive are credited at an interest rate of 120 percent of the applicable federal long-term rate, as described in more detail following the Non-qualified Deferred Compensation in 2006 Table on page 36.
Except in the case of a change in control of the company, the company is not obligated to pay severance or other enhanced benefits to named executive officers upon termination of their employment.
The company has adopted a change-in-control severance pay program for nearly all employees of the company, including the executive officers. The program is intended to preserve employee morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change in control of the company. In addition, for executives, the program is intended to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of the shareholders and other constituents of the company without undue concern over whether the transactions may jeopardize the executives own employment.
Although there are some differences in benefit levels depending on the employees job level and seniority, the basic elements of the program are comparable for all employees:
Double trigger. Unlike single trigger plans that pay out immediately upon a change in control, the Lilly program requires a double trigger a change in control followed by an involuntary loss of employment within two years thereafter. This is consistent with the purpose of the program, which is to provide employees with a guaranteed level of financial protection upon loss of employment. The only exception is performance awards, a portion of which would be paid out upon change in control, based on time worked prior to the change in control and the target or forecasted payout level at the time of the change in control. The committee believes this partial payment is appropriate because of the difficulties in converting the Lilly EPS targets into an award based on the surviving companys EPS.
Covered terminations. Employees are eligible for payments if, within two years of the change in control, their employment is terminated (i) without cause by the company or (ii) for good reason by the employee, each as is defined in the program. See pages 38-39 for a more detailed discussion.
Severance payment. Eligible terminated employees would receive a severance payment ranging from six months to two years base salary. Executives are all eligible for two years base salary plus cash bonus (with bonus established as the higher of the then-current years target bonus or the last bonus paid prior to the change in control).
28
Benefit continuation. Basic employee benefits such as health and life insurance would be continued for up to two years following termination of employment. All executives, including named executive officers are entitled to two years benefit continuation.
Pension supplement. Under the portion of the program covering executives, a terminated employee would be entitled to a supplement of two years of age credit and two years of service credit for purposes of calculating eligibility and benefit levels under the companys defined benefit pension plan.
Accelerated vesting of equity awards. Any unvested equity awards at the time of termination of employment would become vested.
Excise tax. In the event the payments made to the employee, or the value of other benefits received by the employee, in connection with a change in control exceed certain limits, Section 280G of the Internal Revenue Code imposes an excise tax on the employee. The costs of this excise tax, including related tax gross-ups, would be borne by the company.
Share Retention Guidelines; Hedging Prohibition
Share retention guidelines help to foster a focus on long-term growth. We expect our executive officers to retain all net shares received from stock options and performance awards, net of taxes, for at least one year. Consistent with this objective, performance award shares earned for 2006 performance were issued in the form of restricted stock that is subject to forfeiture if the executive leaves the company prior to February 2008, except by reason of death, disability, or retirement. Employees are not permitted to hedge their economic exposures to the Lilly stock that they own.
Adjustments for Certain Items
Consistent with past practice and based on criteria established at the beginning of the performance period, the committee adjusted the earnings results on which 2006 bonuses and performance awards were determined to eliminate the effect of certain items. The adjustments are intended to ensure that award payments represent the underlying growth of the core business and are not artificially inflated or deflated due to such items either in the award year or the previous (comparator) year. For the 2006 awards calculation, the committee adjusted EPS to eliminate the effect in both 2005 and 2006 of product liability charges, major asset impairments, restructuring and other special charges. In addition, the committee eliminated the 2005 cumulative effect of an accounting change relating to the adoption of FIN 47 (conditional asset retirement obligations).
Deductibility Cap on Executive Compensation
U.S. federal income tax law prohibits the company from taking a tax deduction for certain compensation paid in excess of $1,000,000 to the named executive officers listed in the summary compensation table below. However, performance-based compensation, as defined in the tax law, is fully deductible if the programs are approved by shareholders and meet other requirements. Our policy is to qualify our incentive compensation programs for full corporate deductibility to the extent feasible and consistent with our overall compensation goals as reflected in the summary compensation table below.
The company has taken steps to qualify compensation under the Eli Lilly and Company Bonus Plan, as well as stock options and performance awards under its management stock plans, for full deductibility as performance-based compensation. The committee may make payments that are not fully deductible if, in its judgment, such payments are necessary to achieve the companys compensation objectives and to protect shareholder interests. For 2006, the non-deductible compensation under this law was essentially the portion of Mr. Taurels and Dr. Lechleiters base salary that exceeded $1,000,000 as shown in the Summary Compensation Table.
Executive Compensation Recovery Policy
The committee has adopted an executive compensation recovery policy applicable to executive officers. Under this policy, the company may recover incentive compensation (cash or equity) that was based on achievement of financial results that were subsequently the subject of a restatement if an executive officer engaged in intentional misconduct that caused or partially caused the need for the restatement and the effect of the wrongdoing was to increase the amount of bonus or incentive compensation. This policy covers income related to cash bonuses and performance awards.
2007 Compensation Decisions
Beginning in 2007, the company is implementing a new equity program, the shareholder value award (SVA), which replaces our stock option program going forward. The SVA pays out shares of stock based on the growth of the companys stock price over a three-year performance period. Payouts are based on individual target grids, and range from 60 percent of target (zero for executive officers) to 140 percent of target. Targets are set based on an
29
expected investment return for large cap companies. Because the SVA pays in shares, it has stronger retention power.
The performance award program remains in place, and executive officers received 50 percent of their total equity grant value for 2007 in performance award shares and 50 percent in SVA shares. All other compensation programs are unchanged from 2006.
The following table summarizes the compensation committees 2007 equity compensation decisions for named executive officers:
| Name | Shareholder Value Awards | Performance Awards |
|
Mr. Taurel |
$ 3,060,000 |
$ 3,060,000 |
|
Dr. Lechleiter |
$ 1,989,000 |
$ 1,989,000 |
|
Dr. Paul |
$ 1,200,000 |
$ 1,200,000 |
|
Mr. Armitage |
$ 855,000 |
$ 855,000 |
|
Mr. Rice |
$ 855,000 |
$ 855,000 |
Compensation Committee Report
The compensation committee (we or the committee) evaluates and establishes compensation for executive officers and oversees the deferred compensation plan, the companys management stock plans, and other management incentive, benefit and perquisite programs. Management has the primary responsibility for the companys financial statements and reporting process, including the disclosure of executive compensation. With this in mind, we have reviewed and discussed with management the Compensation Discussion and Analysis found on pages 22-30 of this report. The committee is satisfied that the Compensation Discussion and Analysis fairly and completely represents the philosophy, intent, and actions of the committee with regard to executive compensation. We recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement for filing with the Securities and Exchange Commission.
Karen N. Horn, Ph.D., Chair
George M.C. Fisher
J. Erik Fyrwald
Ellen R. Marram
|
Name and Principal Position |
Year |
Salary |
Stock Awards2 |
Option Awards2 |
Non-equity Incentive Plan Compensation3 |
Change in Pension Value4 |
All Other Compensation5 |
Total Compensation |
|
Current |
|
|
|
|
|
|
|
|
|
Sidney Taurel Chairman of the Board and Chief Executive Officer |
2006 |
$1,650,333 |
$5,400,000 |
$3,805,333 |
$2,764,308 |
$1,417,434 |
$192,409 |
$15,229,817 |
|
John C. Lechleiter, Ph.D. President and Chief Operating Officer |
2006 |
$1,112,000 |
$3,510,000 |
$3,967,976 |
$1,490,080 |
$1,156,247 |
$ 68,790 |
$11,305,093 |
|
Steven M. Paul, M.D. Executive Vice President, Science and Technology |
2006 |
$ 916,167 |
$1,864,460 |
$1,240,000 |
$1,043,514 |
$ 607,463 |
$ 55,789 |
$ 5,727,393 |
|
Robert A. Armitage Senior Vice President and General Counsel |
2006 |
$ 701,657 |
$1,394,053 |
$1,339,911 |
$ 705,165 |
$ 231,862 |
$ 42,691 |
$ 4,415,339 |
|
Derica W. Rice Senior Vice President and Chief Financial Officer Retired |
2006 |
$ 615,000 |
$ 675,000 |
$ 590,928 |
$ 580,466 |
$ 168,627 |
$ 37,722 |
$ 2,667,743 |
|
Retired |
|
|
|
|
|
|
|
|
|
Charles E. Golden Retired Executive Vice President and Chief Financial Officer |
2006 |
$ 285,900 |
$ 550,000 |
$ 619,1676 |
$ 325,640 |
$ 134,878 |
$475,494 |
$ 2,391,079 |
1 No bonus was paid to a named executive officer except as part of a non-equity incentive plan.
2 A discussion of the assumptions used in calculating these values may be found in Note 7 to our 2006 audited financial statements on pages 40-41 of our annual report.
30
3 Payment for 2006 performance made in March 2007 under the Lilly Bonus Plan.
4 The amounts in this column are the change in pension value for each individual. No named executive officer received preferential or above-market earnings on deferred compensation.
5 The table below shows the components of this column, which include the company match for each individuals 401(k) plan contributions, tax gross-ups, perquisites, and the cost of Mr. Goldens retiree medical and dental coverage. We calculate the incremental cost to the company of any personal use of the corporate aircraft based on the cost of fuel, trip-related maintenance, crew travel expenses, on-board catering, landing fees, trip-related hangar and parking costs, and smaller variable costs, offset by any time share lease payments by the executive. Since the company-owned aircraft are used primarily for business travel, we do not include the fixed costs that do not change based on usage, such as pilots salaries, the purchase costs of the company-owned aircraft, and the cost of maintenance not related to trips.
|
Name |
Name 401(k) Match |
Tax Gross-ups |
Perquisites |
Retiree Medical Other |
Total All Expense Compensation |
|
Mr. Taurel |
$ 99,020 |
$ 1,382 a |
$ 92,007 d |
0 |
$ 192,409 |
|
Dr. Lechleiter |
$ 66,720 |
$ 2,070 b |
0 |
0 |
$ 68,790 |
|
Dr. Paul |
$ 54,970 |
$ 819 b |
0 |
0 |
$ 55,789 |
|
Mr. Armitage |
$ 42,099 |
$ 592 b |
0 |
0 |
$ 42,691 |
|
Mr. Rice |
$ 36,900 |
$ 822 b |
0 |
0 |
$ 37,722 |
|
Mr. Golden |
$ 17,154 |
$ 361,916 c |
0 |
$ 96,424 |
$ 475,494 |
a Tax reimbursements on income imputed to Mr. Taurel for his use of the corporate aircraft to attend outside board meetings and for travel by his wife on the corporate aircraft to attend certain company functions involving spouse participation.
b Tax reimbursements for travel by the executives spouses on the corporate aircraft to attend certain company functions involving spouse participation.
c Tax reimbursements on income imputed to Mr. Golden for FICA tax payments made by the company on his benefits accrued under the companys non-qualified pension plan. All participants in the non-qualified pension plan are eligible for this one-time reimbursement upon retirement.
d Includes $91,069, representing the incremental cost to the company of use of the corporate aircraft to attend outside board meetings. The amount in this column also includes Mrs. Taurels expenses to attend board functions that included spouse participation. In addition, Mr. Taurels family members have occasionally accompanied him on business trips, at no incremental cost to the company.
6 This amount reflects expense to the company for options granted to Mr. Golden in 2004 and 2005. There was no expense for Mr. Goldens 2006 stock option award, which was forfeited on his retirement according to its terms.
We have no employment agreements with our named executive officers.
The compensation plans under which the grants in the following table were made are generally described in the Compensation Discussion and Analysis, beginning on page 22, and include the Eli Lilly and Company Bonus Plan, a non-equity incentive plan, and the 2002 Lilly Stock Plan, which provides for performance awards, stock options, restricted stock grants, and restricted stock units.
31
Grants of Plan-Based Awards During 2006
| Name | Grant Date | Compensation Committee Action Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated P{ossible Payouts Under Equity Incentive Plan Awards | All Other Option Awards Number of Securities Underlying Options | Exercise or Base Price of Option Awards ($/share) | Greant Date Fair Value of Equity Awards | ||||
| Threshold ($) | Target ($) | Maximum ($) | Threshold (# shares) | Target (# shares) | Maximum (# shares) | ||||||
| Mr. Taurel | -- 2/10/2006 2/10/2006 |
-- 12/19/2005 12/19/2005 |
0 | $2,062,917 | $4,125,834 | 0 |
64,080 |
128,160 |
216,867 |
$56.18 |
|$3,600,000 $3,600,000 |
| Dr. Lechleiter | __ 2/10/2006 2/10/2006 |
-- 12/19/2005 12/19/2005 |
0 | $1,112,000 | $2,224,000 | 0 |
41,652 |
83,304 |
140,964 |
$56.18 |
$2,340,000 $2,340,000 |
| Dr. Paul | __ 2/10/2006 2/10/2006 |
-- 12/19/2005 12/19/2005 |
0 | $ 778,742 | $1,557,484 | 0 |
21,360 |
42,720 |
72,289 |
$56.18 |
$1,200,000 $1,200,000 |
| Mr. Armitage | __ 2/10/2006 2/10/2006 |
-- 12/19/2005 12/19/2005 |
0 | $ 526,243 | $1,052,486 | 0 |
16,020 |
32,040 |
65,217 |
$56.18 |
$900,000 $900,000 |
| Mr. Rice | __ 2/10/2006 2/10/2006 5/1/20065 |
-- --4 --4 1/20/2006 |
0 | $ 433,183 | $ 866,366 | 0 |
8,010 |
16,020 |
27,108 30,000 |
$56.18 $52.54 |
$450,000 $450,000 $471,900 |
| Retired | 12/19/2005 | ||||||||||
| Mr. Golden | __ 2/10/2006 2/10/2006 |
-- 12/19/2005 12/19/2005 |
0 | $ 729,0456 | $1,458,0906 | 0 |
19,5807 |
39,1607 |
66,2658 |
$56.18 |
$1,100,0009 $1,100,000 |
1 These columns show the range of payouts targeted for 2006 performance under the Eli Lilly and Company Bonus Plan as described in the section titled Cash Incentive Bonuses in the Compensation Discussion and Analysis. The 2007 bonus payment for 2006 performance has been made based on the metrics described, at 134 percent of target, and is shown in the Summary Compensation Table in the column titled Non-equity Incentive Plan Compensation.
2 These columns show the range of payouts targeted for 2006 performance under the 2002 Lilly Stock Plan as described in the section titled Equity Incentives Performance Awards in the Compensation Discussion and Analysis. The dollar amount recognized by the company for these performance awards is shown in the Summary Compensation Table in the column titled Stock Awards and their valuation assumptions are referenced in footnote 2 to that table. The 2006 stock award payout was made in January 2007 and is shown in more detail below.
3 Stock options granted under the 2002 Lilly Stock Plan are described in the Outstanding Equity Awards at Fiscal Year-End Table below.
4 Mr. Rices stock award and stock option award granted in February 2006 were not approved by the compensation committee because he was not an executive officer at the time they were granted.
5 Mr. Rice became an executive officer when he was promoted to his current position effective May 1, 2006, and received a special grant of stock options at that time.
6 Mr. Goldens bonus payment was prorated, based on the amount of base salary he earned prior to his retirement and is shown in the Summary Compensation Table on page 30.
7 Mr. Goldens equity incentive grant payout was prorated, based on his retirement date. His actual stock award is listed in the table below.
8 Mr. Goldens 2006 stock option award was forfeited on his retirement according to its terms.
9 The value shown is the grant date fair value of the full award; however, Mr. Goldens equity incentive grant was prorated based on his retirement date.
Our performance awards granted in 2006 paid out in January 2007, and the named executive officers received the following shares:
| Mr. Taurel | 96,120 | $ 5,007,852 |
| Dr. Lechleiter | 62,478 | $ 3,255,104 |
| Dr. Paul | 32,040 | $ 1,669,284 |
| Mr. Armitage | 24,030 | $ 1,251,963 |
| Mr. Rice | 12,015 | $ 625,982 |
| Mr. Golden | 9,656 | $ 503,078 |
For 2006 performance, payouts were 150 percent of target. In order to receive a performance award payout, a participant must have remained employed with the company through December 31, 2006 (except in the case of death, disability, or retirement). In addition, an executive who was an executive officer at the time of grant and at the time of payout received payment in shares of restricted stock. Non-preferential dividends are paid during the one-year restriction period. Each executive was awarded the shares identified above, and except for Mr. Rice and
32
Mr. Golden, these shares will remain restricted (and subject to forfeiture if the executive resigns) until February 2008. Mr. Rices shares are not restricted because he was not an executive officer at the time of grant, and Mr. Goldens shares are not restricted because he retired prior to payment.
Options are granted at 100 percent of fair market value on the date of grant; they vest after three years and expire after 10 years. We do not pay dividend equivalents on stock options. More discussion of our equity compensation programs can be found in the Compensation Discussion and Analysis on pages 22-30.
Outstanding Equity Awards at December 31, 20061
| Name | Option Awards | Stock Awards2 | ||||
| Number of Securities Underlying Unexercised Options (#)3 Unexercisable | Number of Securities Underlying Unexercised Options (#)3 Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | |
| Mr. Taurel | ||||||
| 92,120 5 | $ 5,007,852 | |||||
| 64,690 6 | $ 3,370,349 | |||||
| 216,867 4 | $ 56.18 | 2/09/2016 | ||||
| 255,621 | 55.65 | 2/10/2015 | ||||
| 400,000 | 73.11 | 2/14/2014 | ||||
| 350,000 | 57.85 | 2/15/2013 | ||||
| 350,000 7 | 75.92 | 2/17/2012 | ||||
| 175,000 | 79.28 | 10/04/2011 | ||||
| 350,000 | 88.41 | 12/17/2010 | ||||
| 350,000 | 66.38 | 10/16/2009 | ||||
| 240,000 | 74.28 | 10/17/2008 | ||||
| 50,000 | 61.22 | 5/30/2008 | ||||
| 125,000 | 64.06 | 10/19/2007 | ||||
| Dr. Lechleiter | ||||||
| 62,478 5 | $ 3,255,104 | |||||
| 32,345 6 | $ 1,685,174 | |||||
| 140,964 4 | $ 56.18 | 2/09/2016 | ||||
| 127,811 | 55.65 | 2/10/2015 | ||||
| 200,000 | 73.11 | 2/14/2014 | ||||
| 120,000 | 57.85 | 2/15/2013 | ||||
| 120,000 8 | 75.92 | 2/17/2012 | ||||
| 60,000 | 79.28 | 10/04/2011 | ||||
| 10,000 | 88.41 | 12/17/2010 | ||||
| 100,000 | 88.41 | 12/17/2010 | ||||
| 80,000 | 66.38 | 10/16/2009 | ||||
| 50,000 | 74.28 | 10/17/2008 | ||||