UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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| ELI LILLY AND COMPANY |
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Notice of 20172019 Annual Meeting of Shareholders and Proxy Statement
Your vote is important
Please vote online, by using the Internet, telephone, or by signing, dating, and returning the enclosed proxy card by mail.
Table of Contents
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| Ownership of Company Stock | |
| Compensation | |
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| Audit Matters | |
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| Management Proposals | |
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Item 5 - Proposal to Amend the Lilly Directors' Deferral PlanCompany's Articles of Incorporation to Eliminate All Supermajority Voting Provisions | |
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Item 6 - Shareholder Proposal onRequesting Implementation of a Policy to Not Fund, Conduct, or Commission the Use of the Forced Swim Test | |
Item 7 - Requesting a Report Regarding Direct and Indirect Political ContributionsExpenditures |
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| Proposed Amendments to the Company's Articles of Incorporation | |
| Directions and Parking | |
Notice of 20172019 Annual Meeting of Shareholders
To the holders of Common Stock of Eli Lilly and Company:
The 20172019 Annual Meeting of Shareholders of Eli Lilly and Company will be held as shown below:
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● | TIME AND DATE:DATE | LOCATION | WHO CAN VOTE |
11:00 a.m. EDT, Monday, May 1, 2017 |
● | LOCATION:6, 2019 | The Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285 |
| Shareholders of record at close of business on February 26, 2019 |
| This proxy statement is dated March 22, 2019, and is first being sent or given to our shareholders on or about that date. |
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● | ITEMS OF BUSINESS: | | |
| Management Proposals | Board Voting Recommendation | Page Reference |
| Item 1 | Election of the fivefour directors listed in the proxy statement to serve three-year terms | FOR each of the Director Nominees | |
| Item 2 | Approval, by non-binding vote, of the compensation paid to the company's named executive officers |
| FOR | | Advisory vote regarding the frequency of future advisory votes on named executive officer compensation |
| Item 3 | Ratification of Ernst & Young LLP as the principal independent auditors for 20172019 | FOR | |
| Item 4 | Approve amendments to the Articles of Incorporation to eliminate the classified board structure | FOR | |
| Item 5 | Approve amendments to the Articles of Incorporation to eliminate all supermajority voting provisions | FOR | |
| Shareholder Proposals | | |
ProposalItem 6 | Shareholder proposal requesting implementation of a policy to amendnot fund, conduct, or commission the Lilly Directors' Deferral Planuse of the forced swim test | AGAINST | |
| Item 7 | Shareholder proposal seekingrequesting a report regarding direct and indirect political contributions |
●expenditures | WHO CAN VOTE:AGAINST | Shareholders of record at the close of business on February 24, 2017 |
This proxy statement
There is dated March 20, 2017,a new admission procedure for attending the annual meeting this year. To gain admission, you must have an admission ticket. You must pre-register for the meeting to receive your admission ticket. Your request for an admission ticket must be received before 5:00 p.m. EDT on April 30, 2019. For further details on the new admission process and is first being sent or given to our shareholders on or about the date.
See the back page of this report for information regarding how to attend the meeting. meeting, see the section titled "Meeting and Voting Logistics" for more information.
Every shareholder vote is important. If you are unable to attend the meeting in person, please sign, date, and return your proxy and/card or voting instructions by mail, or vote by telephone or through the Internetonline promptly so that a quorum may be represented at the meeting.
By order of the Board of Directors,
Bronwen L. Mantlo
Secretary
March 20, 201722, 2019
Indianapolis, Indiana
Important notice regarding the availability of proxy materials for the shareholder meeting to be held May 1, 2017:6, 2019: The annual report and proxy statement are available at https://www.lilly.com/annualreport2016.lilly.com/2018-annual-report
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Proxy Statement Summary
General Information
This summary highlights information contained elsewhereWhat is New in this proxy statement. It does not contain all the information you should consider, and you should read the entire proxy statement carefully before voting.
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Meeting: | Annual Meeting of Shareholders | Date: | May 1, 2017 |
Time: | 11:00 a.m. EDT | Location: | The Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285 |
Record Date: | February 24, 2017 | |
Items of Business: | Item 1: Election of the five directors listed in this proxy statement to serve three-year terms.
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| Item 2: Approval, by non-binding vote, of the compensation paid to the company's named executive officers.
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| Item 3: Advisory vote regarding the frequency of future advisory votes on named executive officer compensation.
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| Item 4: Ratification of Ernst & Young LLP as the principal independent auditor for 2017.
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| Item 5: Proposal to amend the Lilly Directors' Deferral Plan.
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| Item 6: Shareholder proposal seeking report regarding direct and indirect political contributions.
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What Is New In This Year's Proxy Statement
We refinedIn May 2018, R. David Hoover retired from the Shareholder Value Award (SVA), oneboard and in December 2018, we welcomed Karen Walker to the board. Ms. Walker is the senior vice president and chief marketing officer at Cisco Systems. Her 20-plus years in the information technology industry have included senior field and marketing leadership roles in Europe, North America, and the Asia Pacific region. Ellen Marram will be retiring from the board in May 2019 and as of the equity compensation programs for our executive officers, to include a Total Shareholder Return (TSR) modifier. The number of shares to be awarded under the SVA will increase or decrease by 1 percent for every percentage point that Lilly's three-year TSR deviates from our peer group's median three-year TSR (capped at +/-20 percent). This change rewards our executive officers for delivering top performance within the industry and increasing shareholder return. Executive officers received a larger portion of their total equity as SVAs (from 50 percent to 60 percent) to incentivize behavior that is aligned with long-term growth.
In December 2016, John C. Lechleiter, Ph.D., retired as President and CEO. David A. Ricks became President and CEO, and a member of the Board of Directors, on January 1, 2017. Dr. Lechleitertime, Juan Luciano will serve as non-executive chairman until May 31, 2017. On June 1, 2017, Mr. Ricks will succeed him as Chairman.the board’s leadindependent director.
In October 2016, we welcomed Jamere JacksonThe board has approved, and recommends that the shareholders approve, the following management proposals at this year's meeting. The board recommends approval of amendments to the board. Mr. Jackson is CFOcompany’s articles of Nielsen Holdings plc.incorporation to eliminate the classified board structure (see Item 4 herein) and to eliminate supermajority voting provisions (see Item 5 herein). The board believes these two proposals balance shareholder interests and demonstrate its accountability and willingness to take steps that address shareholder-expressed concerns.
In February 2017, we welcomed Carolyn R. Bertozzi, Ph.D.,This year the board updated its conflict of interest policy to clarify that a director must disclose his or her relationship with Lilly to the board. Dr. Bertozzidirector’s employer and any other organization with which the director has a relationship of trust and where the relationship with our company is relevant. In addition, the Anne T.policy clarifies that directors must follow the internal conflict of interest policies and Robert M. Bass Professorprocedures of Chemistry and Professor of Chemical and Systems Biology and Radiology at Stanford University. She is an investigator for the Howard Hughes Medical Institute.
In 2017, the board approved an annual compensation cap of $800,000 for non-employee directors, which is reflected in the provisions of the amended Directors' Deferral Plan (see Item 5).
Highlights of 20162018 Company Performance
The following provides a brief look at our 20162018 performance in three dimensions: operating performance, progress with our innovation progress,pipeline; and shareholder return.return (both absolute and relative). See our 20162018 annual report on Form 10-K for more details.
Operating Performance
Performance highlights:
20162018 revenue increased 67 percent to approximately $21.2$24.6 billion.
20162018 earnings per share (EPS) increased 14 percent on a reported basis were $3.13, compared to $2.58, anda 2017 EPS loss on a reported basis of $0.19.
2018 EPS increased 330 percent on a non-GAAP basis to $3.52.$5.55.
*A reconciliation of GAAPmeasures prepared in accordance with generally accepted accounting principles (GAAP) and externally reported non-GAAP measures is included in Appendix A.
2018 Innovation and Business Development Progress
We made significant pipeline advances with our pipeline in 2016,2018, including:
U.S. and EU approval of Emgality™ (galcanezumab-gnlm) for the preventive treatment of migraine in adults.
EU approval of Verzenio™ (abemaciclib) and approval in Japan of Verzenio® for the treatment of certain types of advanced or metastatic breast cancer.
U.S. approval of a new cardiovascular (CV) indicationthe 2-mg dose of Olumiant® (baricitinib) for Jardiance®(empagliflozin) tablets and an EU label update to include a change to the indication statement regarding the reductiontreatment of risk of CV death in adults with type 2 diabetesmoderately-to-severely active rheumatoid arthritis.
We also had significant business development engagement in 2018, including:
Launched an initial public offering of Elanco Animal Health, Inc.
A number of licenses, research collaborations, and established CV disease.acquisitions that will strengthen our pipeline, including the acquisition of ARMO BioSciences, an immuno-oncology company, and its lead product candidate pegilodecakin, which has demonstrated clinical benefit as a single agent, and in combination with both chemotherapy and checkpoint inhibitor therapy, across several tumor types.
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• | U.S. approval and conditional EU approval for LartruvoTM (olaratumab) for soft tissue sarcoma.
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U.S., EU, and Japan approval for Taltz® (ixekizumab) for moderate-to-severe plaque psoriasis.
Multiple new indications in the EU and Japan for Cyramza.
Shareholder ReturnReturns
We generated strong TSRs (share price appreciation plus dividends, reinvested quarterly) for the three- and five-year periods through year-end 2016.2018. Our returns significantly exceeded both the compensation peer group and the S&P 500 inacross the three- and five-yeartime periods but lagged for the one-year period that ended on December 31, 2016:presented below:
Governance
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GovernanceItem 1: Election of Directors | Further Information | |
Item 1Further information see page : Election of Directors--
| See page 9 | |
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| | Name and principal occupation | Public boards | Management recommendation | Vote required to pass
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| Michael L. Eskew, 67Ralph Alvarez, 63 | 3M Corporation; IBM Corporation; Allstate Insurance CompanyLowe's Companies, Inc. Dunkin' Brands Group, Inc. | Vote FOR | Majority of votes cast |
Former Chairman and Chief Executive Officer, United Parcel Service, Inc.Operating Partner, Advent International Corporation |
Director since 2008 | | 2009 |
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| William G. Kaelin, Jr.Carolyn R. Bertozzi, Ph.D., M.D., 5952 | Catalent | Vote FOR | Majority of votes cast |
Professor Dana-Farber Cancer Institute; Associate Director, Dana-Farber/Harvard Cancer Centerof Chemistry and Investigator of the Howard Hughes Medical Institute, Stanford University |
Director since 2012 | | 2017 |
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| John C. Lechleiter, Ph.D., 63Juan R. Luciano, 57 | Ford Motor Company; Nike, Inc.Archer Daniels Midland Company Wilmar International (alternate director) | Vote FOR | Majority of
votes cast |
| Chairman and Chief Executive Officer, Archer Daniels Midland Company |
| Director since 2016 |
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| Kathi P. Seifert, 69 | Investors Community Bank | Vote FOR | Majority of votes cast |
Chairman of the Board, Eli Lilly and CompanyRetired Executive Vice President,
Kimberly-Clark Corporation
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Director since 2005 | | 1995 |
Retirement on May 31, 2017 | | | |
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| David A. Ricks, 49 |
| Vote FOR | Majority of
votes cast
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President and Chief Executive Officer, Eli Lilly and Company |
Director since 2017 | | |
Chairman, effective June 1, 2017 | | |
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| Marshall S.Runge, M.D., Ph.D., 62 | | Vote FOR | Majority of
votes cast
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Executive Vice President for Medical Affairs, University of Michigan |
Director since 2013 | | |
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Our Corporate Governance Policies Reflect Best Practices
ü Our board membership is characterized by leadership, experience, and diversity.
ü 13 of our 14 directors, and the members of all board committees, are independent.
ü We have a strong, independent, clearly defined lead independent director role.
ü Updated conflict of interest policy clarifies when Lilly board service must be disclosed.
ü We are committed to board refreshment and seek to balance continuity and fresh perspectives.
ü We conduct orientation and continuing education programs for directors.
ü We have an annual cap on director compensation.
ü Our board conducts a robust annual assessment of board performance, including an annual assessment of each individual director.
ü We have a majority voting standard and resignation policy for the election of directors in uncontested
elections.
ü Our board values active shareholder engagement. As a result, we have put forward for consideration at this year's annual meeting management proposals to eliminate our classified board structure and supermajority voting provisions.
ü We have no shareholder rights plan (“poison pill”).
ü The charters of the committees of the board clearly establish the committees’ respective roles and responsibilities.
ü Our board holds executive sessions of the independent directors at every regular board meeting and most committee meetings.
ü Our independent directors have direct access to management and sole discretion to hire independent advisors at the company’s expense.
ü Our Corporate Governance Policies Reflect Best Practicesindependent directors select and evaluate our CEO and ensure we have a strong succession plan for executive officer roles. Our Compensation Committee determines the compensation for our CEO and other executive officers.
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ü | Our board membership is marked by leadership, experience, and diversity. |
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ü | All of our non-employee directors, and all board committee members, are independent, with the exception of Dr. John Lechleiter, our former President and CEO. Dr. Lechleiter will retire in May 2017. |
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ü | We have a strong, independent lead director role. |
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ü | Our board actively participates in company strategy and CEO/senior executive succession planning, most recently with respect to our new President and CEO. |
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ü | Our board oversees compliance and enterprise risk management practices. |
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ü | We have in place meaningful stock ownership requirements. |
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ü | We have a majority voting standard and resignation policy for the election of directors. |
ü Our board actively oversees and approves our corporate strategy.
ü Our board has a longstanding commitment to corporate responsibility.
ü Our board oversees compliance and enterprise risk management practices.
ü We have a comprehensive code of ethical and legal business conduct applicable to our board and all
employees worldwide. This code is reviewed and approved annually by the board.
ü We have a supplemental code for our CEO and all members of financial management, in recognition of their unique responsibilities to ensure proper accounting, financial reporting, internal controls, and financial stewardship.
ü We have strong governance and disclosure of corporate political spending.
ü We have transparent public policy engagement.
ü We have meaningful stock ownership and retention guidelines for our directors and executive officers.
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| Compensation | Further Information |
Item 2: Advisory Vote on Compensation Paid to Named Executive Officers
| See page 33 |
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Item 2: Advisory Vote on Compensation Paid to Named Executive Officers
Further information see page--
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Vote FOR | Vote required to pass
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Item 2 | Approve, by non-binding vote, compensation paid to the company's named executive officers
| Vote FOR | Majority of
votes cast |
Our Executive Compensation Programs Reflect Best Practices
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| ü | We have had strong shareholder support of our compensation practices: in 2016,2018, over 9897 percent of shares cast voted in favor of our executive compensation.compensation programs. |
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| ü | Our compensation programs are designed to align with shareholder interests and link pay to performance through a blend of short- and long-term performance measures. |
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| ü | Our Compensation Committee annually reviews our compensation programs to ensure they provide incentives to deliver long-term, sustainable business results while discouraging excessive risk-taking or other adverse behaviors. |
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| ü | We have a broad compensation recovery policy that applies to all executives and covers a wide range of misconduct. |
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| ü | Our executive officers (EOs) are subject to robust stock ownership and retention guidelines and are prohibited from hedging or pledging their company stock. |
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| ü | We do not have "top hat" retirement plans—supplemental plans are open to all employees and are limited to restoring benefits lost due to IRS limits on qualified plans. |
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| ü | We do not provide tax gross-ups to EOsexecutive officers (except for limited gross-ups related to international assignments). |
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| ü | We have a very restrictive policy on perquisites. |
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| ü | Our severance plans related to change-in-control generally require a double trigger. |
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| ü | We do not have employment agreements with any of our EOs.executive officers. |
Executive Compensation Summary for 20162018
At the time the total target compensation was established at the end of 2015,2017, target compensation for our named executive officers (the fivesix officers whose compensation is disclosed in this proxy statement) was in the middle range of the company's peer group. Incentive compensation programs paid out abovepayouts exceeded target, consistent with the company's strong performance in 2016, as outlined below under "Pay for Performance."2018.
Pay for Performance
As described more fully in the Compensation DisclosuresDiscussion and Analysis (CD&A) section,, we link our incentive pay programs to a balanced mix of measures on three dimensions of company performance: operating performance; progress with our innovation pipeline; and shareholder return.
return (both absolute and relative).
The summary information below highlights how our incentive pay programs are intended to align with company performance. Please also see Appendix A for any adjustments that were made to revenue and EPS for incentive compensation programs.
2018 Cash Bonus Plan Multiple
The company exceeded its annual cash bonus targets for revenue, EPS, and pipeline progress, but narrowly missed its EPS target.progress.
*Performance goal multiples are capped at 2.0.2.0.
20162017-2018 Performance Award Multiple
We exceeded ourthe EPS growth targets under our Performance Award program, which has targets based on expected EPS growth of peer companies over a two-year period. This performance resulted in a Performance Award multiple in excess of theperformance award payout above target.
20162016-2018 Shareholder Value Award Multiple
We significantly exceeded ourOur stock price growth targetsexceeded the target range (17.7% to 30.2%) under our Shareholder Value Award program, which has targetsis based on expected large-cap company returns over a three-year period. This performance resulted in a Shareholder Value Award multiple in excess of thepayout above target.
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Item 3: Ratification of Appointment of Principal Independent Auditor
Further information see page--
| Management recommendation
Vote FOR | Vote required to pass
Majority of votes cast |
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Item 4: Approval of Amendments to the Articles of Incorporation to Eliminate the Classified Board Structure
Further information see page--
| Management recommendation
Vote FOR | Vote required to pass
80% of outstanding shares |
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Item 5: Approval of Amendments to the Articles of Incorporation to Eliminate Supermajority Voting Provisions
Further information see page--
| Management recommendation
Vote FOR | Vote required to pass
80% of outstanding shares |
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Item 3Shareholder Proposals: Advisory Vote Regarding Frequency of Named Executive Officer Compensation
| Further Information |
| See page 59 |
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Item 6: Shareholder Proposal Requesting Implementation of a Policy to Not Fund, Conduct or Commission the Use of the Forced Swim Test
Further information see page --
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Vote AGAINST | Vote required to pass
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Item 3 | Advisory vote regarding the frequency of future advisory votes on executive compensation | Annual Advisory Votes | Option receiving the highest numberMajority of votes cast |
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Audit Matters | Further Information |
Item 47: Shareholder Proposal Requesting a Report Regarding Direct and Indirect Political Contributions
Further information see page : Ratification of Appointment of Principal Independent Auditor--
| See page 59 |
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Vote AGAINST | Vote required to pass
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Item 4 | Ratify the appointmentMajority of Ernst & Young LLP as the company's principal independent auditor for 2017
| Vote FOR | Majority of
votes cast |
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Lilly Directors' Deferral Plan | Further Information |
Item 5: Amendment of the Lilly Directors' Deferral Plan
| See page 62 |
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to passVoting
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Item 5 | Approve the amendment of Lilly's Directors' Deferral Plan | Vote FOR | Majority of
votes cast |
The Lilly Directors’ Deferral Plan (the “plan”) provides an ownership position in the company that aligns directors with shareholder interests.
Under the plan, a portion of directors' annual compensation is awarded in deferred shares:
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ü | all shares must be held until the second January following the director's departure from board service |
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ü | no stock options can be issued under the plan. |
Changes to the plan include:
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ü | authorizing an additional 750,000 shares (the same amount approved in 2003) |
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ü | an annual compensation cap of $800,000 for non-employee directors. |
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Shareholder Proposals | Further Information |
Item 6: Shareholder proposal seeking report regarding direct and indirect political contributions
| See page 64 |
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to pass
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Item 6 | Proposal seeking report regarding direct and indirect political contributions | Vote AGAINST | Majority of
votes cast |
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Other Information | Further Information |
| See page 66 |
How to Vote in Advance of the Meeting
Even if you plan to attend the 2017 Annual Meeting2019 annual meeting in person, we encourage you to vote prior to the meeting via one of the methods described below.
8Visit the website listed on your proxy card/voting instruction form to vote VIA THE INTERNET
)Call the telephone number on your proxy card/voting instruction form to vote BY TELEPHONE
*Sign, date, and return your proxy card/voting instruction form to vote BY MAIL |
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| ONLINE | BY TELEPHONE | BY MAIL |
| Visit the website listed on your proxy card or voting instruction form | Call the telephone number on your proxy card or voting instruction form | Sign, date, and return your proxy card or voting instruction form |
Further information on how to vote is provided at the end of the proxy statement under "Meeting and Voting Logistics."Other Information."
Voting at our 20172019 Annual Meeting
You may also opt to vote in person at the 2017 Annual Meeting,2019 annual meeting, which will be held on Monday, May 1, 2017,6, 2019, at the Lilly Corporate Center, Indianapolis, IN 46285, at 11:00 a.m., local time.EDT. See the section titled "Meeting and Voting Logistics""Other Information" for more information.
Governance
Item 1. Election of Directors
Under the company’s articles of incorporation, the board is divided into three classes with approximately one-third of the directors standing for election each year. The term for directors to be elected this year will expire at the annual meeting of shareholders held in 2020.2022. Each of the director nominees listed below has agreed to serve that term, with the exception of John C. Lechleiter, who will retire from the board on May 31, 2017. At that time, the board expects to reduce its size.term. The following sections provide information about our directors, including their qualifications, the director nomination process, and director compensation.
Board Recommendation on Item 1
The Boardboard recommends that you vote FOR each of the following nominees:
Michael L. EskewRalph Alvarez
William G. Kaelin, Jr., M.D.
John C. Lechleiter,Carolyn R. Bertozzi, Ph.D.
David A. RicksJuan R. Luciano
Marschall S. Runge, M.D., Ph.D.Kathi P. Seifert
Board Operations and Governance
Board of Directors
Each of our directors is elected to serve until his or her successor is duly elected and qualified. If a bona fide nominee set forth in this proxy statement is unavailableunable to serve or for election,good cause will not serve, proxy holders may vote for another nominee proposed by the Board of Directorsboard or, as an alternative, the Board of Directorsboard may reduce the number of directors to be elected at the annual meeting.
Director Biographies
Set forth below is information as of March 8, 2017,2019, regarding the nominees for election, which has been confirmed by each of them for inclusion in this proxy statement. We have provided the most significant experiences, qualifications, attributes, orand skills that led to the conclusion that each director or director nominee should serve as one of our directorsa director in light of our business and structure. Full biographies for each of our directors are available on our website at http://www.lilly.com/lilly.com/about/board-of-directors/Pages/board-of-directors.aspx.board-of-directors.aspx.
No family relationship exists among any of our directors, director nominees, or EOs.executive officers. To the best of our knowledge, there are no pending material legal proceedings in which any of our directors or nominees for director, or any of their associates, is a party adverse to us or any of our affiliates, or has a material interest adverse to us or any of our affiliates. Additionally, to the best of our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no judgments, sanctions, or injunctions during the past 10 years that are material to the evaluation of the ability or integrity of any of our directors or nominees for director. There is no arrangement between any director or director nominee and any other person pursuant to which he or she was or is to be selected as a director or director nominee.
Class of 2017
2019The following fivefour directors will be seekingseek election at this year's annual meeting. FourThree of these directors are standing for reelection; David A. RicksCarolyn Bertozzi is seeking election for the first time. Dr. Lechleiter will retire from the board on May 31, 2017. At that time, the board expects to reduce its size. See “Item 1. Election of Directors” above for more information.
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| Ralph Alvarez
Age: 63, Director since 2009, Board Committees: Compensation (chair); Science and Technology |
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| PUBLIC BOARDS | PRIOR PUBLIC BOARDS | MEMBERSHIPS + OTHER ORGANIZATIONS |
| Lowe's Corporation, Inc.; | McDonald's Corporation; KeyCorp;
| University of Miami: President's Council; |
| Dunkin' Brand Group, Inc. | Skylark Co., Ltd; Realogy Holdings Corp. | School of Business Administration Board of |
| | Overseers
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| CAREER HIGHLIGHTS |
• Advent International Corporation, a leading global private equity firm
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| - Operating Partner (2017 - present) |
• Skylark Co. Ltd., a leading restaurant operator in Japan |
| - Chairman of the Board (2013 - 2018) |
• McDonald's Corporation |
| - President and Chief Operating Officer (2006 - 2009) |
| QUALIFICATIONS |
| Through his positions at Skylark Co., Ltd., and McDonald's Corporation, as well as with other global restaurant |
| businesses, Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and |
| strategic planning. His international experience includes a special focus on Japan and emerging markets. He also has |
| extensive corporate governance experience through his service on other public company boards. |
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| | Michael L. EskewCarolyn R. Bertozzi, Ph.D.
Age: 67,52, Director since 2008 2017, Board CommitteesCommittees: : Audit (chair); Directors and Corporate Governance; Finance |
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| Public Boards: 3M Corporation; IBM Corporation; Allstate Insurance Company |
| Nonprofit Boards: Chairman of the board of trustees of The Annie E. Casey Foundation
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Career Highlights | | United Parcel Service, Inc., a global shippingPolicy and logistics companyCompliance;
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| | • ChairmanScience and Chief Executive Officer (2002 - 2007) |
| | • Vice Chairman (2000 - 2002) |
| | • UPS Board of Directors (1998 - 2014) |
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Qualifications: Mr. Eskew has CEO experience with UPS, where he established a record of success in managing complex worldwide operations, strategic planning, and building a strong consumer-brand focus. He is an audit committee financial expert, based on his CEO experience and his service on other U.S. company audit committees. He has extensive corporate governance experience through his service on the boards of other companies.Technology
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| PUBLIC BOARDS | NON-PROFIT BOARDS | MEMBERSHIPS + OTHER ORGANIZATIONS |
| Catalent | Grace Science Foundation; | William G. Kaelin, Jr., M.D.
Age: 59, Director since 2012
Board Committees: Finance, ScienceAmerican Chemical Society; American Society for Biochemistry and Technology (chair)
|
| | |
| Glenn Foundation | Industry Memberships: Institute of Medicine; National Academy of Sciences; Association ofMolecular Biology; American Physicians; AmericanChemical Society of Clinical Investigation
|
| |
| Honors: Canada Gairdner International Award; Lefoulon-Delalande Prize - Institute of France; Albert B. Lasker Prize
|
| Publications, Editor-in- |
| | | |
Career Highlights | | Dana-Farber/Harvard Cancer Center
Chief of ACS Central Science; National Academy of Medicine; National |
| | | • ProfessorAcademy of Medicine (2002 - present)Sciences; American Academy of Arts and Sciences; National |
| | | Brigham and Women's HospitalAcademy of Inventors; German Academy of Sciences Leopoldina; Foreign |
| | | Fellow of the Royal Society |
| HONORS | | |
| MacArthur Genius Award; Lemelson MIT Prize; Heinrich Wieland Prize; National Academy of Sciences Award in the |
| Chemical Sciences |
| CAREER HIGHLIGHTS |
• Stanford University
|
- Anne T. and Robert M. Bass Professor (2002of Chemistry, Professor of Chemical and Systems Biology and |
| Radiology by courtesy (2015 - present) |
| - Baker Family Co-Director of Stanford ChEM-H (2017 - present) |
| • Howard Hughes Medical Institute |
| | | •- Investigator (2002(2000 - present) |
| | • Assistant Investigator (1998 - 2002)University of California, Berkeley |
| - T.Z. and Irmgard Chu Professor of Chemistry and Professor of Molecular and Cell Biology (1996 - 2015) |
Qualifications: QUALIFICATIONS
|
Dr. KaelinBertozzi is a prominent medical researcher and academician. HeShe has extensive experience at Harvard Medical School, aStanford University and the |
University of Berkeley, California, two major medical institution, as well as special expertise in oncology—a key component of Lilly's business. He also hasresearch institutions. Her deep expertise in basic science, including mechanismsspans the disciplines of drug action, chemistry |
and experiencebiology, with pharmaceutical discovery research.an emphasis on studies of cell surface glycosylation associated with cancer, inflammation, and
|
bacterial infection and exploiting this knowledge for development of diagnostic and therapeutic approaches.
|
|
| | |
| Juan R. Luciano
Age: 57, Director since 2016, Board Committees: Finance (chair); Public Policy and Compliance |
|
| | |
| PUBLIC BOARDS | NON-PROFIT BOARDS | John C. Lechleiter, Ph.D.
Age: 63, Director since 2009
Board Committees: none
MEMBERSHIPS + OTHER ORGANIZATIONS |
| Archer Daniels Midland Company; | Intersect Illinois; | Economic Club of Chicago; Commercial Club of Chicago |
| Wilmar International | Boys and Girls Clubs of America; | |
| (alternate director) | Industry Memberships: American Chemical Society
|
| |
| Honorary Degrees: Marian University, UniversityKellogg School of Indianapolis, the National University of Ireland, Indiana University, Franklin College, and Purdue University
|
| Management, | |
| | | Public Boards: Ford Motor Company; Nike, Inc.
|
| | Non-profit Boards: United Way Worldwide, chairman; Chemical Heritage Foundation; and the Central Indiana Corporate Partnership (member emeritus)
|
| Northwestern University | |
Career HighlightsCAREER HIGHLIGHTS | |
Eli Lilly• Archer Daniels Midland Company, a global food-processing and Companycommodities-trading company
|
| | | •- Chairman of the Board (2009(January 2016 - present) |
| - CEO and President (2015 - present) |
| - President (2014 - 2015) |
• Past - Executive Vice President and CEO (2008Chief Operating Officer (2011 - 2016) |
| 2014) |
Qualifications• : Dr. Lechleiter servesThe Dow Chemical Company, a multinational chemical company
|
| - Executive Vice President and President, Performance Division (2010 - 2011) |
| QUALIFICATIONS |
| Mr. Luciano has CEO and global business experience with Archer Daniels Midland Company, where he has established |
a reputation for strong result-oriented and strategic leadership, as Lilly's non-executive chairman.well as many years of global leadership at The Dow |
Chemical Company. He will retire frombrings to the board on May 31, 2017. Dr. Lechleiter served as Presidenta strong technology and CEO from April 1, 2008 until his retirement on December 31, 2016. Prior to his retirement, Dr. Lechleiter had over 37 years of experienceoperations background, along with the companyexpertise in a variety of roles of increasing responsibility in researchthe |
highly-regulated food and development, pharmaceutical operations, and corporate administration. As a result, he has a sound understanding of pharmaceutical research and development, sales and marketing, and manufacturing. He also has significant corporate governance experience through his service on other public company boards.
agriculture sectors. |
|
| | |
| Kathi P. Seifert
Age: 69, Director since 1995, Board Committees: Audit; Compensation |
|
| | |
| PUBLIC BOARDS | PRIOR PUBLIC BOARDS | David A. Ricks
Age: 49, Director since 2017
Board Committees: none
NON-PROFIT BOARDS |
| Investors Community Bank | Albertsons; | Community Foundation for the Fox Valley Region; |
| | Revlon Consumer Products Co.; | Fox Cities Building for the Arts; |
| | Industry Memberships: European FederationSupervalu Inc.;
| Fox Cities Chamber of Pharmaceutical Industries and Associations (EFPIA); Pharmaceutical Research and Manufacturers of America (PhRMA)Commerce; New North; |
| | |
| Lexmark International, Inc. | Non-profit Boards: Board of GovernorsGreater Fox Cities Area Habitat for Riley Children's Foundation
|
| Humanity; |
| | | Riverview Gardens; |
Career HighlightsCAREER HIGHLIGHTS |
| Eli Lilly• Katapult, LLC, a provider of pro bono mentoring and Companyconsulting services to nonprofit organizations
|
| | | • President and CEO (2017- Chairman (2004 - present) |
• Kimberly-Clark Corporation, a global consumer products company |
| | • Senior- Executive Vice President and President, Lilly Bio-Medicines (2012(1999 - 2016)2004) |
| QUALIFICATIONS |
Qualifications: Mr. Ricks was named President and CEO on January 1, 2017, and becameMs. Seifert is a director at that time. He will be named Chairman on June 1, 2017. Mr. Ricks joined Lilly in 1996 and most recently served as presidentretired senior executive of Lilly Bio-Medicines. HeKimberly-Clark. She has deepstrong expertise in product development, globalconsumer marketing and brand
|
management, having led sales and marketing as well as public policy. Hefor several worldwide brands, with a special focus on consumer health. |
She has significant globalextensive corporate governance experience in the company's commercial operations.through her other board positions. |
|
| | | | |
| | Marschall S. Runge, M.D., Ph.D.
Age: 62, Director since: 2013
Board Committees: Public Policy and Compliance; Science and Technology
|
| |
| Industry Memberships: Experimental Cardiovascular Sciences Study Section of the National Institutes of Health
|
| |
| |
| |
| | |
Career Highlights | | University of Michigan |
| | • CEO, Michigan Medicine (2015 - present) |
| | • Executive Vice President for Medical Affairs (2015 - present) |
| | • Dean, Medical School (2015 - present) |
| | University of North Carolina, School of Medicine |
| | • Executive Dean (2010 - 2015); Chair of the Department of Medicine (2000 - 2015) |
| | • Principal Investigator and Director of the North Carolina Translational and Clinical Sciences Institute |
|
Qualifications: Dr. Runge brings the unique perspective of a practicing physician who has a broad background in health care, clinical research, and academia. He has extensive experience as a practicing cardiologist, a strong understanding of health care facility systems, and deep expertise in biomedical research and clinical trial design.
|
Class of 2018
2020The following fourfive directors are serving terms that will continueexpire in office until May 2018.2020.
|
| | |
| Michael L. Eskew
Age: 69, Director since 2018, Board Committees: Audit (chair); Compensation; Directors and Corporate Governance |
|
| | |
| PUBLIC BOARDS | NON-PROFIT BOARDS | |
| 3M Corporation; | Chairman of the board of trustees of The Annie E. Casey Foundation |
| IBM Corporation; | |
| Allstate Insurance Company | | Katherine Baicker, Ph.D.
Age: 45, Director since: 2011
|
| CAREER HIGHLIGHTS |
Board Committees:• Audit; Public PolicyUnited Parcel Service, Inc., a global shipping and Compliancelogistics company
|
| | - UPS Board of Directors (1998 - 2014) |
| Industry Memberships: Commissioner of the Medicare Payment Advisory Commission; Chair of the Group Insurance Commission of Massachusetts; Panel of Health Advisers to the Congressional Budget Office; Editorial boards of Health Affairs - Chairman and the Journal of Health Economics; and Member of the National Academy of Medicine
|
| |
| |
| |
| | |
Career Highlights | | Harvard T.H. Chan School of Public Health, Department of Health Policy and ManagementCEO (2002 - 2007)
|
| | | • Professor of health economics (2007 - present)Vice Chairman (2000 - 2002) |
| | • C. Boyden Gray Professor and Acting Chair, Department of Health Policy and Management (2014 - present)QUALIFICATIONS |
| Mr. Eskew has CEO experience with UPS, where he established a record of success in managing complex worldwide |
| operations, strategic planning, and building a strong consumer brand focus. He is an audit committee financial expert, |
| based on his CEO experience and his service on other U.S. public company audit committees. He has extensive corporate |
| governance experience through his service on the boards of other companies. |
|
| | |
| CouncilWilliam G. Kaelin, Jr., M.D.
Age: 61, Director since 2012, Board Committees: Finance; Science and Technology (chair) |
|
| | |
| INDUSTRY MEMBERSHIPS | HONORS |
National Academy of Economic Advisers, Executive OfficeMedicine; | Canada Gairdner International Award; |
National Academy of the PresidentSciences; | Lefoulon-Delalande Prize - Institute of France |
| Association of American Physicians; |
| American Society of Clinical Investigation |
| CAREER HIGHLIGHTS |
• Dana-Farber/Harvard Cancer Center
|
| - Professor of Medicine (2002 - present) |
| • Member (2005 - 2007)Brigham and Women's Hospital |
| - Professor (2002 - present) | |
• Senior Economist (2001Howard Hughes Medical Institute |
| - Investigator (2002 - present) |
| - Assistant Investigator (1998 - 2002) |
| QUALIFICATIONS |
Qualifications: Dr. BaickerKaelin is a leadingprominent medical researcher in the fields of health economics, public economics, and labor economics. As academician. He has extensive experience at Harvard Medical School,
|
a valued adviser to numerous health care-related commissions and committees, hermajor medical institution, as well as special expertise in health care policyoncology, a key component of Lilly's business. He also has |
deep expertise in basic science, including mechanisms of drug action, and health care delivery is recognized in both academia and government.experience with pharmaceutical discovery |
| research. |
|
| | |
| David A. Ricks
Age: 51, Director since 2017, Board Committees: none |
|
| | |
| PUBLIC BOARDS | NON-PROFIT BOARDS | INDUSTRY MEMBERSHIPS |
| Adobe; Elanco | Board of Governors for Riley Children's Foundation; | International Federation of Pharmaceutical |
| Central Indiana Community Partnership | Manufacturers & Associations (IFPMA); |
| | Pharmaceutical Research and Manufacturers |
| | of America (PhRMA) |
| CAREER HIGHLIGHTS |
• Eli Lilly and Company
|
| - Chairman of the Board, President and CEO (2017- present) |
| - Senior Vice President and President, Lilly Bio-Medicines (2012 - 2016) |
| QUALIFICATIONS |
| Mr. Ricks was named President and CEO on January 1, 2017, and Chairman on June 1, 2017. Mr. Ricks joined Lilly in 1996 |
| and most recently served as President of Lilly Bio-Medicines. He has deep expertise in product development, global |
| sales and marketing, as well as public policy. He has significant global experience in leading the company's commercial |
| operations. |
|
| | |
| | J. Erik FyrwaldMarschall S. Runge, M.D., Ph.D.
Age: 57,64, Director since: 2005 since 2013, Board Committees: Public Policy and Compliance (chair);Compliance; Science and Technology |
|
| | |
| NON-PROFIT BOARDS | MEMBERSHIPS + OTHER ORGANIZATIONS |
| Michigan Medicine | Experimental Cardiovascular Sciences Study Section of the National Institutes of Health |
| CAREER HIGHLIGHTS |
• University of Michigan
|
| - CEO, Michigan Medicine (2015 - present) |
| - Executive Vice President for Medical Affairs (2015 - present) |
| - Dean, Medical School (2015 - present) |
| • University of North Carolina, School of Medicine |
| - Executive Dean (2010 - 2015) |
| - Chair of the Department of Medicine (2000 - 2015) |
| - Principal Investigator and Director of the North Carolina Translational and Clinical Sciences Institute (2010 - 2015) |
| QUALIFICATIONS |
| Dr. Runge brings the unique perspective of a practicing physician who has a broad background in health care and |
| academia. He has extensive experience as a practicing cardiologist, a strong understanding of health care facility |
| systems, and deep expertise in biomedical research and clinical trial design. |
|
| | |
| Karen Walker
Age: 57, Director since 2018, Board Committees: Audit; Public Policy and Compliance |
|
| | |
| NON-PROFIT BOARDS | MEMBERSHIPS + OTHER ORGANIZATIONS |
| Salvation Army Advisory Board of Silicon Valley | Association of National Advertisers; IT Services Marketing Association; |
| CMO Council; Marketers that Matter |
| CAREER HIGHLIGHTS |
• Cisco Systems, a provider of packaging products, aerospace and other technologies and services to commercial and
|
| | governmental customers |
| - Senior Vice President and Chief Marketing Officer (2015 - present) |
| - Senior Vice President, Marketing (2013 - 2015) |
| - Senior Vice President of Segment, Services and Partner Marketing (2012 - 2013) |
| - Vice President of Services Marketing (2008 - 2012) |
| QUALIFICATIONS |
| Ms. Walker brings extensive marketing and digital expertise. She has valuable commercial experience developed |
| through her business and consumer leadership positions in the information technology industry and is a recognized |
| industry authority on both technology and marketing. Her business expertise includes senior field and marketing roles |
| in Europe, North America, and the Asia Pacific region. |
Class of 2021
With the exception of Ellen Marram, who will retire in May 2019, the following five directors are serving terms that will expire in May 2021.
|
| | |
| Katherine Baicker, Ph.D.
Non-profit BoardsAge: 47, Director since 2011, :Board Committees: Audit, Public Policy and Compliance (chair)
|
|
| | |
| MEMBERSHIPS + OTHER ORGANIZATIONS |
| Panel of Health Advisers to the Congressional Budget Office; Editorial Board of Health Affairs; Research Associate of the |
| National Bureau of Economic Research; Member of the National Academy of Medicine; and American Academy of |
| of Arts and Sciences |
| CAREER HIGHLIGHTS |
• Harris School of Public Policy, University of Chicago
|
| - Dean and the Emmett Dedmon Professor (2017 - present) |
| • Harvard T.H. Chan School of Public Health, Department of Health Policy and Management |
| - C. Boyden Gray Professor (2014 -2017) |
| - Acting Chair (2014 - 2016) |
| - Professor of health economics (2007 - 2017) |
| • Council of Economic Advisers, Executive Office of the President |
| - Member (2005 - 2007) |
| - Senior Economist (2001 - 2002) |
| QUALIFICATIONS |
| Dr. Baicker is a leading researcher in the fields of health economics, public economics, and labor economics. As a valued |
| adviser to numerous health care-related commissions and committees, her expertise in health policy and health care |
| delivery is recognized in both academia and government. |
|
| | |
| J. Erik Fyrwald
Age: 59, Director since 2005, Board Committees: Public Policy and Compliance; Science and Technology |
|
| | |
| PUBLIC BOARDS | PRIVATE BOARDS | NON-PROFIT BOARDS |
| Bunge Limited | Syngenta International AG | UN World Food Program Farm to Market Initiative; Crop Life International; and Swiss American Chamber of Commerce |
| |
| |
| |
| | | Crop Life International; Swiss-American Chamber of Commerce |
Career HighlightsCAREER HIGHLIGHTS | |
• Syngenta International AG,a global Swiss-based agriculture technology company that produces agrochemicals and seeds
|
| seeds |
| | • Chief Executive Officer- CEO (2016 - present) |
| | • Univar, Inc.,a leading distributor of industrial and specialty chemicals and provider of related services |
| | | •- President and Chief Executive OfficerCEO (2012 - 2016) |
• Ecolab, a leading provider of cleaning, sanitization, and water products and services |
| - President (2012) |
• Nalco Company,, a leading provider of water treatment products and services |
| | | •- Chairman and Chief Executive Officer (2008 - 2011) |
| | Ecolab, a leading provider of cleaning, sanitization, and water treatment products and services
|
| | • President (2012) |
| | E.I. duPont de Nemours and Company,, a global chemical company
|
| | | •- Group Vice President, agriculture and nutrition (2003 - 2008) |
| QUALIFICATIONS |
Qualifications: Mr. Fyrwald has a strong record of operational and strategic leadership in three complex worldwide businesses with a
|
| focus on technology and innovation. He is an engineer by training and has significant CEO experience with Syngenta, |
| Univar, and Nalco. |
|
| | | | |
| | Jamere Jackson
Age: 47,50, Director since 2016, Board CommitteesCommittees: : Audit; Finance |
| |
| | |
| CAREER HIGHLIGHTS |
Non-profit Boards• : Future 5Hertz Global Holdings, Inc., a global vehicle rental, leasing, and fleet management business.
|
| | - Chief Financial Officer (2018 - present) |
| |
| |
| | |
Career Highlights | | • Nielsen Holdings plc,a global information,measurement and data and measurementanalytics company |
| | | •- Chief Financial Officer (2014 - present)2018) |
• GE |
| | | GE |
| | •- Vice President and CFO, GE Oil & Gas, drilling and surface division
(2013 ‑ (2013 - 2014)
|
| | | •- Senior Executive, Finance, GE Aviation (2007 - 2013) |
| | | •- Finance Executive, GE Corporate (2004 - 2007) |
| | QUALIFICATIONS |
Qualifications: Through his senior financial roles at Nielsen and GE, Mr. Jackson brings to the board significant global financial
|
| expertise and strong background in strategic planning, having spent his professional career in a broad range of financial |
| and strategic planning roles. He is an audit committee financial expert, based on his CFO experience and his training as |
| a certified public accountant. |
|
| | | | |
| | Ellen R. Marram
Age: 70, Director since 2002, lead director since 2012
Board Committees: Compensation, Directors and Corporate Governance (chair)
|
| |
| Public Boards: Ford Motor Company, The New York Times Company
Prior Public Boards:Cadbury plc
Private Boards: Newman's Own, Inc.
|
| |
| Non-profit Boards: Wellesley College; New York-Presbyterian Hospital; Lincoln Center Theater; and Newman's Own Foundation
|
| |
| | |
Career Highlights | | The Barnegat Group LLC, provider of business advisory services
|
| | • President (2006 - present) |
| | North Castle Partners, LLC, private equity firm
|
| | • Managing Director (2000 - 2006) |
| | Tropicana Beverage Group |
| | • President and Chief Executive Officer (1993 - 1998) |
| | Nabisco Biscuit Company, a unit of Nabisco, Inc.
|
| | • President and Chief Executive Officer (1988 - 1993) |
| | |
Qualifications: Ms. Marram is a former CEO with a strong marketing and consumer-brand background. Through her nonprofit and private company activities, she has a special focus and expertise in wellness and consumer health. Ms. Marram has extensive corporate governance experience through service on other public company boards in a variety of industries.
|
|
| | | | |
| | Jackson P. Tai
Age: 66, Director since 2013
Board Committees: Audit; Finance
|
| |
| Public Boards: MasterCard Incorporated, Royal Philips NV, HSBC Holdings plc
Prior Boards: The Bank of China Limited; Singapore Airlines; NYSE Euronext; ING Groep NV; CapitaLand (Singapore); DBS Group Holdings and DBS Bank
|
| |
| Other (non publicly listed) Boards: Russell Reynolds Associates; Canada Pension Plan Investment Board; Metropolitan Opera; Rensselaer Polytechnic Institute
|
| |
| | |
Career Highlights | | DBS Group Holdings and DBS Bank (formerly the Development Bank of Singapore), one of the largest financial services groups in Asia
|
| | • Vice Chairman and Chief Executive Officer (2002 - 2007) |
| | • President and Chief Operating Officer (2001 - 2002) |
| | J.P. Morgan & Co. Incorporated, a leading global financial institution
|
| | • 25-year career in investment banking, including senior management responsibilities in New York, Tokyo, and San Francisco |
| | |
Qualifications: Mr. Tai is a former CEO with extensive experience in international business and finance, and is an audit committee financial expert. He has deep expertise in the Asia-Pacific region, a key growth market for Lilly. He also has broad corporate governance experience from his service on public company boards in the U.S., Europe, and Asia.
.
|
Class of 2019
The following five directors are serving terms that will expire in May 2019. Dr. Prendergast will retire from the board on May 1, 2017. At that time, the board expects to reduce its size. |
| | | | |
| | Ralph Alvarez
Age: 61, Director since 2009
Board Committees: Compensation (chair); Science and Technology
|
| |
| Memberships and Other Organizations: University of Miami: President's Council; School of Business Administration Board of Overseers; International Advisory Board
|
| |
| Public Boards: Skylark Co., Ltd.; Lowe's Companies, Inc.; Dunkin' Brands Group, Inc.; Realogy Holdings Corp.
|
| Prior Public Boards: McDonald's Corporation; KeyCorp
|
| | |
Career Highlights | | Skylark Co., Ltd., a leading restaurant operator in Japan
|
| | • Chairman of the Board (2013 - present) |
| | McDonald's Corporation |
| | • President and Chief Operating Officer (2006 - 2009) |
| | |
Qualifications: Through his senior executive positions at Skylark Co., Ltd. and McDonald’s Corporation, as well as with other global restaurant businesses, Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and strategic planning. His international experience includes a special focus on Japan and emerging markets. He also has extensive corporate governance experience through his service on other public company boards.
|
|
| | | | |
| | Carolyn R. Bertozzi, Ph.D.
Age: 50, Director since 2017
Board Committees: Public Policy and Compliance; Science and Technology
|
| |
| Industry Memberships and Other Organizations: American Chemical Society; American Society for Biochemistry and Molecular Biology; American Chemical Society Publications, Editor-in-Chief of ACS Central Science; Institute of Medicine; National Academy of Sciences; American Academy of Arts and Sciences
|
| |
| Honors: MacArthur Genius Award; Lemelson MIT Prize; Heinrich Wieland Prize, National Academy of Sciences Award in the Chemical Sciences
|
| |
| | |
Career Highlights | | Stanford University |
| | • Anne T. and Robert M. Bass Professor of Chemistry, Professor of Chemical and Systems Biology and Radiology by courtesy (2015 - present) |
| | Howard Hughes Medical Institute |
| | • Investigator (2000 - present) |
| | University of California, Berkeley |
| | • T.Z. and Irmgard Chu Professor of Chemistry and Professor of Molecular and Cell Biology
(1996 - 2015)
|
| | |
Qualifications: Dr. Bertozzi is a prominent researcher and academician. She has extensive experience at Stanford University and the University of Berkeley, California, two major research institutions. Her deep expertise spans the disciplines of chemistry and biology, with an emphasis on studies of cell surface glycosylation associated with cancer, inflammation and bacterial infection, and exploiting this knowledge for development of diagnostic and therapeutic approaches.
|
|
| | |
| Ellen R. Marram
Age: 72, Director since 2002, lead independent director since 2012, Board Committees: Compensation; Directors and Corporate Governance (chair) |
|
| | | |
| PUBLIC BOARDS | PRIOR PUBLIC BOARDS | PRIVATE BOARDS | R. David Hoover
Age: 71, Director since 2009
Board Committees: Finance (Chair); Directors and Corporate Governance
NON-PROFIT BOARDS |
| Ford Motor Company | Cadbury plc; | Newman's Own, Inc. | Wellesley College; |
| | | |
| The New York Times Company | | Memberships and Other Organizations:Indiana University Kelley School of Business, Dean's Council
|
| | |
| | Public Boards: Ball Corporation; Edgewell Personal Care Co.
|
| | Prior Public Boards: Qwest International, Inc.; Steelcase, Inc.
|
| | Non-profit Boards:Children's Hospital Colorado; DePauw University
|
| | |
| | New York-Presbyterian Hospital; |
| | | | |
| Career Highlights | | Ball Corporation, a provider of packaging products, aerospace and other technologies and services to commercial and governmental customers
|
| Lincoln Center Theater; |
| | | | Newman's Own Foundation |
| CAREER HIGHLIGHTS | |
• Chairman (2002 - 2013)The Barnegat Group LLC, provider of business advisory services
| |
| - President (2006 - present) | |
• North Castle Partners, LLC, private equity firm | | • Chairman and CEO (2010 - 2011) |
| - Managing Director (2000 - 2006) | |
• Tropicana Beverage Group | |
• - President and Chief Executive Officer (2001(1993 - 2010)1998) | |
| | | • Chief Operating Officer (2000 - 2001) |
| | | • Chief Financial Officer (1998 - 2000) |
| | Nabisco Biscuit Company, a unit of Nabisco, Inc. | |
| - President and Chief Executive Officer (1988 - 1993) | Qualifications: Mr. Hoover has extensive
|
| QUALIFICATIONS | |
Ms. Marram is a former CEO experience at Ball Corporation, with a strong record of leadershipmarketing and consumer-brand background. Through her non-profit and |
private company activities, she has a special focus and expertise in operationswellness and strategy. Heconsumer health. Ms. Marram has deep financial expertise as a result of his experience as CEO and CFO of Ball. He also has |
extensive corporate governance experience through his service on other public company boards.
boards in a variety of industries. |
|
| | | | | |
| | | Juan R. LucianoJackson P. Tai
Age: 55,68, Director since 2016 2013, Board CommitteesCommittees: : Finance; Public PolicyAudit; Directors and Compliance |
| | |
| | Public Boards: Archer Daniels Midland Company; Wilmar
|
| | Non-profit Boards:Boys and Girls Clubs of America
|
| | |
| | |
| | |
| | |
| | | |
| Career Highlights | | Archer Daniels Midland Company, a global food-processing and commodities-trading company
|
|
| | | • Chairman (January 2016 - present) |
| | | • Chief Executive Officer and President (2015 - present) |
| | | • President (2014 - 2015) |
| | | • Executive Vice President and Chief Operating Officer (2011 - 2014) |
| | | The Dow Chemical Company, a multinational chemical company
|
|
| | | • Executive Vice President and President, Performance Division (2010 - 2011) |
| | | |
| Qualifications: Mr. Luciano has CEO and global business experience with Archer Daniels Midland Company, where he has established a reputation for strong result-oriented and strategic leadership, as well as many years of global leadership experience at The Dow Chemical Company. He brings to the board a strong technology and operations background, along with expertise in the food and agriculture sectors, an expanding area of focus for Lilly and its Elanco business.Corporate Governance; Finance
|
|
| | | |
| PUBLIC BOARDS | PRIOR PUBLIC BOARDS | PRIVATE BOARD | NON-PROFIT BOARDS |
| MasterCard Incorporated; | The Bank of China Limited; | Canada Pension Plan | Metropolitan Opera; |
| Singapore Airlines; | Investment Board | Rensselaer Polytechnic Institute |
(until March 31, 2019); | NYSE Euronext; | (until March 31, 2019) | | Franklyn G. Prendergast, M.D., Ph.D.
Age: 72, Director since 1995
Board Committees: Public Policy and Compliance; Science and Technology
|
| HSBC Holdings | ING Groep NV; | | |
| | Public Boards: Cancer Genetics Incorporated
CapitaLand (Singapore); |
| | |
| | |
| |
| DBS Holdings and DBS Bank | | |
Career Highlights | | Mayo Medical School |
| | • Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology (1986 - 2014) |
| | • Professor of Molecular Pharmacology and Experimental Therapeutics
(1987 - 2014)
|
| | • Mayo Clinic Center for Individualized Medicine, Director Emeritus
(2006 - 2012)
|
| | Mayo Clinic Cancer Center |
| | • Director Emeritus (1995 - 2006) |
| CAREER HIGHLIGHTS | |
Qualifications• : Dr. PrendergastDBS Group Holdings and DBS Bank (formerly the Development Bank of Singapore), one of the largest financial
|
| services groups in Asia |
| - Vice Chairman and Chief Executive Officer (2002 - 2007) |
| - President and Chief Operating Officer (2001 - 2002) |
• J.P. Morgan & Co. Incorporated, a leading global financial institution |
| QUALIFICATIONS | |
Mr. Tai is a prominent medical clinician, researcher, and academician. He hasformer CEO with extensive experience in senior-most administration at Mayo Clinic, a major medical institution,international business and as director of its renowned cancer center. He retired from Mayo at the end of 2014.finance, and is an audit committee |
financial expert. He has specialdeep expertise in two critical areas for Lilly—oncology and personalized medicine. As a medical doctor, he bringsthe Asia-Pacific region, an important practicing-physician perspective togrowth market for Lilly. He also has |
broad corporate governance experience from his service on public company boards in the Board’s deliberations.U.S., Europe, and Asia. |
|
| | | | |
| | Kathi P. Seifert
Age: 67, Director since 1995
Board Committees: Audit; Compensation
|
| |
| Public Boards: Investors Community Bank
Private Boards: Appvion, Inc.
Prior Public Boards:Albertsons; Revlon Consumer Products Co.; Supervalue Inc.; Lexmark International, Inc.
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| Non-profit Boards: Community Foundation for the Fox Valley Region; Fox Cities Building for the Arts; Fox Cities Chamber of Commerce; New North
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Career Highlights | | Kimberly-Clark Corporation, a global consumer products company
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| | • Executive Vice President (1999 - 2004) |
| | Katapult, LLC, a provider of pro bono mentoring and consulting services to non-profit organizations
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| | • Chairman (2004 - present) |
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Qualifications: Ms. Seifert is a retired senior executive of Kimberly-Clark. She has strong expertise in consumer marketing and brand management, having led sales and marketing for several worldwide brands, with a special focus on consumer health. She has extensive corporate governance experience through her other board positions.
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Director Qualifications and Nomination Process
Director Qualifications
The board assesses board candidates by considering the following:
Experience:Our directors are responsible for overseeing the company's business consistent with their fiduciary duties. This significant responsibility requires highly skilled individuals with various qualities, attributes, and professional experience. TheWe believe the board is well-rounded, with a balance of relevant perspectives and experience, as illustrated in the following charts:chart:
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| CEO Experience: | | 86 |
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Financial Expertise: | | 7 |
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Relevant Scientific/Academic Expertise: | | 6 |
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| Relevant Scientific/Academic Expertise: | | 4 |
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| Healthcare Experience: | | 75 |
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| Operational/Strategic Expertise: | | 109 |
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| International Experience: | | 87 |
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| Marketing and Sales Expertise: | | 7 |
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| Digital Expertise: | | 1 |
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Board Tenure and Refreshment:
In 2016 and 2017, the board added three new non-employee members: Mr. Juan Luciano, Mr. Jamere Jackson, and Dr.Tenure: Carolyn R. Bertozzi, as well as Mr. David A. Ricks. Also in 2016 and 2017, three members retired or will retire from the board: Ms. Karen Horn, Dr. John Lechleiter, and Dr. Frank Prendergast.
As the following chart demonstrates, our director composition also reflects a mix of tenure on the board, which provides an effective balance of historical perspective and an understanding of the evolution of our business with fresh perspectives and insights.
In 2018, Karen Walker joined the board and David Hoover retired from the board. Ellen Marram, who joined the board in 2002, will retire in May 2019.
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23 Years Tenure or Less: | | 4 |
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| 3-5 Years: | | 43 |
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| 6-10 Years: | | 32 |
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| More than 10 Years: | | 5 |
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Diversity:The board strives to achieve diversity in the broadest sense, including persons diverse in geography, gender, ethnicity, age, and experiences. Although the board does not establish specific diversity goals or have a stand-alonestandalone diversity policy, the board's overall diversity is an important consideration in the director selection and nomination process. The Directors and Corporate Governance Committee assesses the effectiveness of board diversity efforts in connection with the annual nomination process as well as in new director searches. The company's sixteen14 directors range in age from 4546 to 72 and include fourfive women and fivefour ethnically diverse members.
Character:Board members should possess the personal attributes necessary to be an effective director, including unquestioned integrity, sound judgment, a collaborative spirit, and commitment to the company, our shareholders, and other constituencies.
Director Nomination ProcessRefreshment
The Directors and Corporate Governance Committee performs periodic assessments of the overall composition and skills of the board in order to ensure that the board and management are actively engaged in succession planning for directors, and that our board reflects the viewpoints, diversity, and expertise necessary to support our complex and evolving business. The Directors and Corporate Governance Committee, with input from all board members, also considers the contributions of the individual directors.
The results of these assessments inform the board's recommendations on nominations for directors at the annual meeting each year and help provide us with insight on the types of experiences, skills, and other characteristics we should be seeking for future director candidates. Based on this assessment, the Directors and Corporate Governance Committee has recommended that the directors in the 2019 class be elected at the 2019 annual meeting.
The board delegates the director screening process to the Directors and Corporate Governance Committee, which receives input from other board members. Potential directorsDirector candidates are identified from several sources, including executive search firms retained by the committee, incumbent directors, management, and shareholders.
The Directors and Corporate Governance committee employs the same process for evaluating all candidates, including those submitted by shareholders. The committee initially evaluates a candidate based on publicly available information and any additional information supplied by the party recommending the candidate. If the candidate appears to satisfy the selection criteria and the committee’s initial evaluation is favorable, the committee, assisted by management or a search firm, gathers additional data on the candidate’s qualifications, availability, probable level of interest, and any potential conflicts of interest. If the committee’s subsequent evaluation continues to be favorable, the candidate is contacted by the Chairman of the Board and one or more of the independent directors, including the lead independent director, for direct discussions to determine the mutual level of interest in pursuing the candidacy. If these discussions are favorable, the committee makes a final recommendation torecommends that the board to nominate the candidate for election by the shareholders (or to selectelects the candidate to fill a vacancy, as applicable).
The committee performs periodic assessments of the overall composition and skills of the board in order to ensure that the board and management are actively engaged in succession planning for directors, and that our board reflects the appropriate viewpoints, diversity, and expertise necessary to support our complex and evolving business. The committee, with input from all board members, also considers the contributions of the individual directors at least every three years when considering whether to nominate the director to a new three-year term. The results of these assessments inform the board's recommendations on nominations for directors at the annual meeting each year and help provide us with insight on the types of experiences, skills, and other characteristics we should be seeking for future director candidates. Based on this assessment, the committee has recommended that the directors in the 2017 class be elected at the 2017 annual meeting.
Director Compensation
Director compensation is reviewed and approved annually by the board, on the recommendation of the Directors and Corporate Governance Committee. Directors who are employees receive no additional compensation for serving on the board.
Cash Compensation
The following table shows the retainers and meeting fees for all non-employee directors in effect in 2016.2018.
| | | Board Retainers (annual, paid in monthly installments) | Board Retainers (annual, paid in monthly installments) | | Committee Retainers (annual, paid in monthly installments) | Board Retainers (annual, paid in monthly installments) | | Committee Retainers (annual, paid in monthly installments) |
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| Annual Board Retainer | Annual Board Retainer | $110,000 | | Audit Committee; Science and Technology Committee members (including the chairs) | $6,000 | Annual Board Retainer | $110,000 | | Audit Committee; Science and Technology Committee members (including the chairs) | $6,000 |
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| Annual Retainers (in addition to annual board retainer): | Annual Retainers (in addition to annual board retainer): | | Compensation Committee; Directors and Corporate Governance; Finance Committee; Public Policy and Compliance Committee members (including the chairs) | $3,000 | Annual Retainers (in addition to annual board retainer): | | Compensation Committee; Directors and Corporate Governance Committee; Finance Committee; Public Policy and Compliance Committee members (including the chairs) | $3,000 |
| | Lead Director | $30,000 | | Lead Independent Director | $35,000 | | Audit Committee Chair | td8,000 |
| | Audit Committee Chair | $18,000 | | | | Compensation Committee Chair; Directors and Corporate Governance Committee Chair; Finance Committee Chair; Public Policy and Compliance Committee Chair | $12,000 | | Science and Technology Committee Chair | $15,000 |
| | Science and Technology Committee Chair | $15,000 | | | | |
| | Compensation Committee Chair; Directors and Corporate Governance Committee Chair; Finance Committee Chair; Public Policy and Compliance Committee Chair | $12,000 | | | | |
Directors are reimbursed for customary and usual travel expenses.expenses in connection with their travel to and from board meetings and other company events. Directors may also receive additional cash compensation for serving on ad hoc committees that may be assembledformed from time-to-time.time to time.
Stock Compensation
Directors are required to hold meaningful equity ownership positions in the company; accordingly,company, and may not sell the equity compensation they earn as a director until after leaving the board. A significant portion of director compensation is in the form of deferred Lilly stock.stock payable after they leave the board. Directors are required to hold Lilly stock, directly or through company plans, valued at not less than five times their annual board retainer; new directors are allowed five years to reach this ownership level. All directors serving at least five years have satisfied these guidelines, and all other directors are making progress toward these requirements.
Non-employeeIn 2018, non-employee directors received $160,000$175,000 of equity compensation (but no more than 7,500 shares), deposited annually in a deferred stock account in the Lilly Directors’ Deferral Plan (as described below),. This award is prorated for time served and payable beginning the second January following the director's departure from board service.
Annual Compensation Cap for Directors
In 2018, the board approved a cap to the total annual compensation (cash and equity compensation) for non-employee directors of $800,000. The cap is intended to avoid excessive director compensation and is included in
both our Directors' Deferral Plan and in the Amended and Restated 2002 Lilly Stock Plan approved by shareholders at the 2018 annual shareholders' meeting.
Lilly Directors’ Deferral PlanPlan:: In addition to stock compensation, theThe Lilly Directors' Deferral Plan allows non-employee directors to defer receipt of all or part of their cash compensation until after their service on the board has ended. Each director can choose to invest the amounts deferred in one or both of the following two accounts:
Deferred Stock Account. This account allows the director, in effect, to invest his or her deferred cash compensation in company stock. Funds in this account are credited as hypothetical shares of company stock based on the closing stock price on pre-set monthly dates. In addition, the annual stock compensation award as described above is also credited to this account. The number of shares credited is calculated by dividing the $160,000$175,000 annual compensation figure by the closing stock price on a pre-set annual date. Hypothetical dividends are “reinvested” in additional shares based on the market price of the stock on the date dividends are paid. Actual shares are issued on the second January following the director's departure from board service.
Deferred Compensation AccountAccount..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 of 1986 as amended (the Internal Revenue Code). The aggregate amount of interest that accrued in 20162018 for the participating directors was $124,379,$143,381, at a rate of 3.1 percent. The rate for 20172019 is 2.73.9 percent.
Both accounts may generally only be paid out in a lump sum or in annual installments for up to 10 years, beginning the second January following the director’s departure from board service. Amounts in the deferred stock account are paid in shares of company stock.
See Item 5, Amendment of the Lilly Directors' Deferral Plan, for more information regarding this plan.
20162018 Compensation for Non-employeeNon-Employee Directors
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Name1 | Fees Earned
or Paid in Cash ($) | Stock Awards ($)2 | All Other
Compensation
and Payments ($)3 | Total ($)4 |
| Mr. Alvarez | $124,250 | | $160,000 | | $0 | | $284,250 | |
| Dr. Baicker | $119,000 | | $160,000 | | $0 | | $279,000 | |
| Mr. Eskew | $140,000 | | $160,000 | | $0 | | $300,000 | |
| Mr. Fyrwald | $131,000 | | $160,000 | | $17,434 | | $308,434 | |
| Mr. Hoover | $128,000 | | $160,000 | | $30,000 | | $318,000 | |
| Ms. Horn | $53,333 | | $66,667 | | $14,050 | | $134,050 | |
| Mr. Jackson | $29,750 | | $40,000 | | $0 | | $69,750 | |
| Dr. Kaelin | $134,000 | | $160,000 | | $20,500 | | $314,500 | |
| Mr. Luciano | $106,333 | | $146,667 | | $0 | | $253,000 | |
| Ms. Marram | $158,000 | | $160,000 | | $30,000 | | $348,000 | |
| Dr. Prendergast | $119,000 | | $160,000 | | $0 | | $279,000 | |
| Dr. Runge | $123,500 | | $160,000 | | $0 | | $283,500 | |
| Ms. Seifert | $119,000 | | $160,000 | | $10,800 | | $289,800 | |
| Mr. Tai | $123,500 | | $160,000 | | $0 | | $283,500 | |
1 Carolyn R. Bertozzi, Ph.D., is not included in this chart as she became a board member effective February 2017. |
| | | | | | | | |
| Name | Fees Earned
or Paid in Cash ($) | | Stock Awards ($)1 | All Other
Compensation
and Payments ($)2 | Total ($)3 |
| Mr. Alvarez | $131,000 | | $175,000 | | | | $306,000 | |
| Dr. Baicker | $127,000 | | $175,000 | | | | $302,000 | |
| Dr. Bertozzi | $119,000 | | $175,000 | | | | $294,000 | |
| Mr. Eskew | $140,000 | | $175,000 | | | | $315,000 | |
| Mr. Fyrwald | $123,000 | | $175,000 | | | | $298,000 | |
| Mr. Jackson | $119,000 | | $175,000 | | | | $294,000 | |
| Dr. Kaelin | $134,000 | | $175,000 | | | | $309,000 | |
| Mr. Luciano | $124,000 | | $175,000 | | | | $299,000 | |
| Ms. Marram | $163,000 | | $175,000 | | | | $338,000 | |
| Dr. Runge | $119,000 | | $175,000 | | | | $294,000 | |
| Ms. Seifert | $119,000 | | $175,000 | | | | $294,000 | |
| Mr. Tai | $121,000 | | $175,000 | | | | $296,000 | |
| Ms. Walker | $9,917 | | $14,583 | | | | $24,500 | |
| Retired | |
| Mr. Hoover | $53,333 | | $72,917 | | | | $126,250 | |
21 Each non-employee director received an award of stock valued at $160,000$175,000 (approximately 2,0881,511 shares), except Ms. Horn, whoMr. Hoover (who retired from the board in May 2016; Mr. Luciano, who2018) and Ms. Walker (who joined the board in
February 2016; and Mr. Jackson, December 2018), who joined the board in October 2016. Alleach received a pro-rated award for a partial year of service. This stock award and all prior stock awards are fully vested; however, the shares are not issued until the second January following the director's departure from board service, as described above under “Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award.award computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. See Note 11 of the consolidated financial statements in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for additional detail regarding assumptions underlying the valuation of equity awards. Aggregate outstanding stock awards are shown in the “Common Stock Ownership by Directors and Executive Officers” table in the “Stock Units Not Distributable Within 60 Days” column.
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32
| This column consists of amounts donated by the Eli Lilly and Company Foundation, Inc. ("Foundation") under its matching gift program, which is generally available to U.S. employees as well as the non-employee directors. Under this program, the Foundation matched 100 percent of charitable donations over $25 made to eligible charities, up to a maximum of $30,000 per year for each individual. The Foundation matched these donations via payments made directly to the recipient charity. The amounts for Mr. Fyrwald, Ms. Horn, Mr. Kaelin, Ms. Marram, and Ms. Seifert include matching contributions for donations made at the end of 2015 (Mr. Fyrwald - $17,434; Ms. Horn - $7,150; Mr. Kaelin - $19,500; Ms. Marram - $8,000; and Ms. Seifert - $2,550), for which the matching contribution was not paid until 2016.XXXXXXXXXX . |
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43
| Directors do not participate in a company pension plan or non-equity incentive plan. |
20172019 Director Compensation
In 2017,2018, the board approved an annualDirectors and Corporate Governance Committee reviewed the company’s compensation cap of $800,000 for non-employeeindependent directors, including a peer group analysis which is reflected in the provisions of the amended Directors' Deferral Plan (see Item 5). Directors' compensation remains unchanged from 2016.
Dr. Lechleiter will continue serving as non-executive chairman until May 31, 2017, at which time he will leave the board. He will be eligible for theshowed total director compensation describedslightly above as well as an additional retainerthe median. As a result of $200,000this analysis, the committee recommended no changes to independent director compensation for his service as chairman of the board. His total compensation will be prorated for his partial period of service on the board.
2019.
Director Independence
The board annually determines the independence of directors based on a review by the Directors and
Corporate Governance Committee. No director is considered independent unless the board has determined that he or she has no material relationship with the company, either directly or as a partner, significant shareholder, or officer of an organization that has a material relationship with the company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others. To evaluate the materiality of any such relationship, the board has adopted categorical independence standards consistent with the New York Stock Exchange (NYSE) listing standards, except that the “look-back period” for determining whether a director’s prior relationship(s) with the company impairs independence is extended from three to four years.
The company's process for determining director independence is set forth in our Standards for Director Independence, which can be found on our website at https://www.lilly.com/lilly.com/who-we-are/governance, along with our Corporate Governance Guidelines.
On the recommendation of the Directors and Corporate Governance Committee, the board determined that each current non-employee director other than Dr. Lechleiter, is independent. Prior to expiration of her board termhis retirement in 2016,2018, the board reached the same conclusionconclusions regarding Ms. Horn,Dr. Hoover, and determined that the members of each committee also meet our independence standards. The board determined that none of the non-employee directors other than Dr. Lechleiter, has had during the last four years (i) any of the relationships referenced aboveidentified in the company’s categorical independence standards or (ii) any other material relationship with the company that would compromise his or her independence. The table that follows includes a description of categories or types of transactions, relationships, or arrangements the board considered in reaching its determinations.
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| Director | Organization | Type of Organization | Director Relationship to Organization | Primary Type of Transaction/ Relationship/ Arrangement between Lilly and Organization | 20162018 Aggregate Percentage of Organization's Revenue |
| Dr. Baicker | Harvard University of Chicago | Educational Institution | Employee | Research grants | Less than 0.1 percent |
| Dr. Bertozzi | Stanford University | Educational Institution | Employee | Research grants | Less than 0.1 percent |
| Mr. Fyrwald | Syngenta International AG | For-profit Corporation | Executive Officer | Purchases of products | Less than 0.1 percent |
Univar, Inc. | For-profit Corporation | Former Executive Officer | PurchasesPurchase of products | Less than 0.1 percent |
| Mr. Jackson | Hertz Global Holdings Inc | For-profit Corporation | Executive Officer | Purchase of products | Less than 0.1 percent |
| Nielsen Holdings plc | For-profit Corporation | Former Executive Officer | Purchase of products | Less than 0.1 percent |
| Dr. Kaelin | Harvard University | Educational Institution | Employee | Research grants | Less than 0.1 percent |
| Brigham and Women's Hospital | Health Care Institution | Employee | Research grants | Less than 0.1 percent |
| Dana-Farber Cancer Institute | Health Care Institution | Employee | Research grants | Less than 10.1 percent |
| Mr. Luciano | Archer Daniels Midland | For-profit Corporation | Executive Officer | PurchasesPurchase of products | Less than 0.1 percent |
SalesSale of products | Less than 0.1 percent of Lilly's revenue |
Dr. Prendergast | Mayo Clinic and Mayo Medical School | Health Care and Educational Institution | Retired Employee | Research grants | Less than 0.1 percent |
Mayo Foundation | Charitable Organization | Retired employee of affiliated Mayo Clinic and Mayo Medical School | Contributions | Less than 0.1 percent |
| Dr. Runge | University of Michigan Medical School | Educational Institution | Executive Officer | Research grants | Less than 0.1 percent |
UniversityMs. Walker | Cisco Systems Inc | For-profit Corporation | Employee | Purchase of North Carolina Medical School | Educational Institution | Executive Officer | Research grantsproducts | Less than 0.1 percent |
All of the transactions described above were entered into at arm’s length in the normal course of business and, to the extent they are commercial relationships, have standard commercial terms. Aggregate payments to each of the relevant organizations, in each of the last four fiscal years, did not exceed the greater of $1 million or 2 percent of that organization's consolidated gross revenues in a single fiscal year for the relevant four-year period. No director had any direct business relationships with the company or received any direct personal benefit from any of these transactions, relationships, or arrangements.
Committees of the Board of Directors
The duties and membership of the six board-appointed committees are described below. All committee members in 2016 and currently are independent as defined in the NYSE listing requirements and Lilly's independence standards, and thestandards. The members of the Audit and Compensation Committees each meet the additional independence requirements applicable to them as members of those committees.
The Directors and Corporate Governance Committee makes recommendations to the board regarding director committee membership and selection of committee chairs. The board has no set policy for rotation of committee members or chairs but annually reviews committee memberships and chair positions, seeking the best blend of continuity and fresh perspectives.
The chair of each committee determines the frequency and agenda of committee meetings. The Audit, Compensation, and Public Policy and Compliance Committees meet alone in executive session on a regular basis; all other committees meet in executive session as needed.
Membership and Meetings of the Board and Its Committees
In 2018, each director attended at least 80 percent of the total number of meetings of the board and the committees on which he or she served during his or her tenure as a board or committee member. In addition, all board members are expected to attend the 2019 annual meeting, and all directors then serving attended the annual meeting in 2018. Current committee membership and the number of meetings of the board and each committee in 2018 are shown in the table below.
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| Name | Board | Audit | Compensation | Directors and
Corporate Governance | Finance | Public Policy and
Compliance | Science and
Technology |
| Mr. Alvarez | ü |
| C |
|
|
| ü |
| Dr. Baicker | ü | ü |
|
|
| C |
|
| Dr. Bertozzi | ü |
|
|
|
| ü | ü |
| Mr. Eskew | ü | C | ü | ü |
|
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| Mr. Fyrwald | ü |
|
|
|
| ü | ü |
| Mr. Jackson | ü | ü |
|
| ü |
|
|
| Dr. Kaelin | ü |
|
|
| ü |
| C |
| Mr. Luciano | ü |
|
|
| C | ü |
|
| Ms. Marram | LD |
| ü | C |
|
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|
| Mr. Ricks | ü |
|
|
|
|
|
|
| Dr. Runge | ü |
|
|
|
| ü | ü |
| Ms. Seifert | ü | ü | ü |
|
|
|
|
| Mr. Tai | ü | ü |
| ü | ü |
|
|
| Ms. Walker | ü | ü |
|
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| ü |
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| Number of 2018 Meetings | 6 | 10 | 6 | 6 | 8 | 4 | 5 |
C Committee Chair
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| LD | Lead Independent Director: Ms. Marram will be the lead independent director until May 2019, at which time she will retire from serving on the board. Mr. Luciano has been appointed as the new lead independent director starting in May 2019, pending his reelection at the 2019 annual meeting. |
Audit Committee
AssistsThe Audit Committee assists the board in fulfilling its oversight responsibilities by monitoring:
Thethe integrity of financial information provided to the shareholders and others;others
Management'smanagement's systems of internal controls and disclosure controls;controls
Thethe performance of internal and independent audit functions; andfunctions
Thethe company's compliance with legal and regulatory requirements.
The committee has sole authority to appoint or replace the independent auditor, subject to shareholder ratification.
The Board of Directors has determined that Mr. Eskew, Mr. Jackson, and Mr. Tai are audit committee financial experts, as defined in the SEC rules.
Compensation Committee
The Compensation Committee:•Overseesoversees the company’s global compensation philosophy and policies;policies
•Establishesestablishes the compensation of our chief executive officer (CEO)CEO and other EOs;executive officers
Actsacts as the oversight committee with respect to the company’s deferred compensation plans, management stock plans, and other management incentive compensation programs; andprograms
Reviews
reviews succession plans for the CEO and other key senior leadership positions.
reviews, monitors, and oversees stock ownership guidelines for executive officers.
Compensation Committee Interlocks and Insider Participation
None of the Compensation Committee members:
•has ever been an officer or employee of the company;company
is or has been a participant in a related-personrelated person transaction with the company (see “Review and Approval of Transactions with Related Persons” for a description of our policy on related-personrelated person transactions); or
has any other interlocking relationships requiring disclosure under applicable SEC rules.
Directors and Corporate Governance Committee
The Directors and Corporate Governance Committee:Together with the lead director, leads the process for director recruitment;recruitment, together with the lead independentdirector
Recommendsrecommends to the board candidates for membership on the board and its committees, as well as for the role of lead director; andindependent director
Overseesoversees matters of corporate governance, including board performance, director independence and compensation, the corporate governance guidelines, and shareholder engagement on governance matters.
Finance Committee
ReviewsThe Finance Committee reviews and makes recommendations to the board regarding financial matters, including:
capital structure and strategies;strategies
dividends;dividends
stock repurchases;repurchases
capital expenditures;expenditures
investments, financing, and borrowings;borrowings
benefit plan funding and investments;investments
financial risk management; andmanagement
significant business development opportunities.
Public Policy and Compliance Committee
The Public Policy and Compliance Committee:Overseesreviews, identifies and when appropriate, brings to the processes by whichattention of the board political, social, and legal trends and issues, and compliance and quality matters that may have an impact on the business operations, financial performance or public image of the company conducts its business so that the company will do so in a manner that complies with laws and regulations and reflects the highest standards of integrity; and
Reviewsreviews, monitors and makes recommendations regardingto the board on corporate policies practices, and procedures of the companypractices that relate to public policy and social, political, and economic issues.compliance.
Science and Technology Committee
The Science and Technology Committee:Reviewsreviews and makes recommendations regarding the company’s strategic research goals and objectives;objectives
Reviewsreviews new developments, technologies, and trends in pharmaceutical research and development;development
Reviewsreviews the progress of the company's product pipeline;pipeline
Reviewsreviews the scientific aspects of significant business development opportunities; andopportunities
Overseesoversees matters of scientific and medical integrity and risk management.
Membership and Meetings of the Board and Its Committees
In 2016, each director attended at least 80 percent of the total number of meetings of the board and the committees on which he or she served during his or her tenure as a board or committee member. In addition, all board members are expected to attend the annual meeting of shareholders, and all directors then serving attended the meeting in 2016. Current committee membership and the number of meetings of the board and each committee in 2016 are shown in the table below.
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| Name | Board | Audit | Compensation | Directors and
Corporate Governance | Finance | Public Policy and
Compliance | Science and
Technology |
| Mr. Alvarez | ü |
| C |
|
|
| ü |
| Dr. Baicker | ü | ü |
|
|
| ü |
|
| Dr. Bertozzi | ü |
|
|
|
| ü | ü |
| Mr. Eskew | ü | C |
| ü | ü |
|
|
| Mr. Fyrwald | ü |
|
|
|
| C | ü |
| Mr. Hoover | ü |
|
| ü | C |
|
|
| Mr. Jackson | ü | ü |
|
| ü |
|
|
| Dr. Kaelin | ü |
|
|
| ü |
| C |
| Dr. Lechleiter | C |
|
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|
| Mr. Luciano | ü |
|
|
| ü | ü |
|
| Ms. Marram | LD |
| ü | C |
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| Dr. Prendergast | ü |
|
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|
| ü | ü |
| Mr. Ricks | ü |
|
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| Dr. Runge | ü |
|
|
|
| ü | ü |
| Ms. Seifert | ü | ü | ü |
|
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|
| Mr. Tai | ü | ü |
|
| ü |
|
|
| Number of 2016 Meetings | 7 | 10 | 7 | 6 | 4 | 4 | 5 |
Board Oversight of Compliance and Risk Management
The board, together with the Audit and Public Policy and Compliance Committees,its committees, oversees the processes by which the company conducts its business to ensure the company operates in a manner that complies with laws and regulations and reflects the highest standards of integrity. On an annual basis, the full board reviews the company's overall state of compliance.
The company also has an enterprise risk management program overseendirected by its chief ethics and compliance officer, who reports directly to the CEO. Enterprise risks are identified and prioritized by management through both top-down and bottom-up processes. The top prioritiesrisk management program is overseen by the full board and certain prioritized risks are assigned toreviewed by a board committee or the full board for oversight.board. Company management is charged with managing risk through robust internal processes and controls. The enterprise risk management program as a whole is reviewed annually at a full board meeting, and enterprise risks are also addressed in periodic business function reviews and at the annual board and senior management strategy session.
Code of Ethics
The board approves the company's code of ethics, which is set out in:
The Red BookBook:: a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our Board of Directors. The Red Book is reviewed and approved annually by the board.
Code of Ethical Conduct for Lilly Financial ManagementManagement:: a supplemental code for our CEO and all members of financial management, in recognition of their unique responsibilities to ensure proper accounting, financial reporting, internal controls, and financial stewardship.
These documents are available online at: https://www.lilly.com/lilly.com/who-we-are/governance/ethics-and-compliance-program and https://www.lilly.com/lilly.com/ethical-conduct-for-financial-management, or upon request to the company's corporate secretary. In the event of any amendments to, or waivers from, a provision of the code affecting the chief executive officer,CEO, chief financial officer, chief accounting officer, controller, or persons performing similar functions, we intend to post on the above website within four business days after the event a description of the amendment or waiver as required under applicable SecuritiesSEC rules, and Exchange Commission rules. Wewe will maintain that information on our website for at least 12 months.
Highlights of the Company’s Corporate Governance
The company is committed to good corporate governance, which promotes the long-term interests of shareholders and other company stakeholders, builds confidence in our company leadership, and strengthens accountability forby the board and company management. The board has adopted corporate governance guidelines that set forth the company's basic principles of corporate governance. The section that follows outlines key elements of the guidelines and other governance matters. Investors can learn more by reviewing the corporate governance guidelines, which are available online at https://www.lilly.com/lilly.com/who-we-are/governanceor upon request to the company’s corporate secretary.
Role of the Board
The directors are elected by the shareholders to oversee the actions and results of the company’s management. The board exercises oversight over a broad range of areas, but the board's key responsibilities include:
include the following (certain of which are carried out through the board's committees):
providing general oversight of the business;business
approving corporate strategy;strategy
approving major management initiatives;initiatives
selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer,CEO, and
compensating other key senior executives;leadership positions
ensuring that an effective succession plan is in place for all executive officerskey senior leadership positions and reviewing the broader talent management process, including diversity and inclusion;inclusion
overseeing the company’s ethics and compliance program and management of significant business risks;risks
nominating, compensating, and evaluating directors; anddirectors
overseeing the company's enterprise risk management program.program
The board takes an active role in its oversight of our corporate strategy. Each year, the board and executive management closely examine the company's strategy, including key risks and decisions facing the company. Decisions reached in this session are updated throughout the year, including as the board discusses the company's financial performance, the performance of our business units, and progress in our pipeline.
Board Composition and Requirements
Mix of Independent Directors and Officer-Directors
ThereWe believe there should always be a substantial majority (75 percent or more) of independent directors. The CEO should be a board member.member of the board.
Voting for Directors
In an uncontested election, directors are elected by a majority of votes cast. An incumbent nominee who fails to receive a majoritygreater number of the votes cast“for” than “against” his or her election will tender his or her resignation.resignation from the board (following the certification of the shareholder vote). The board, on recommendation of the Directors and Corporate Governance Committee, will decide whether to accept the resignation. The company will promptly disclose the board's decision, including, if applicable, the reasons why the board rejected the resignation.
Director Tenure and Retirement Policy
Non-employee directors must retire no later than the date of the annual meeting that follows their seventy-second birthday. Thebirthday, although the Directors and Corporate Governance Committee has authority to recommend exceptions to this policy. The committee,Directors and Corporate Governance Committee, with input from all board members, also considers the contributions of the individual directors annually, with a more robust assessment at least every three years when considering whether to nominate the directordirectors to a new three-year term.terms. The company has not adopted term limits because the board believes that arbitrary term limits on a director’s service are not appropriate.
Other Board Service
In general, no director may serve on more than three other public company boards. The Directors and Corporate Governance Committee may approve exceptions if it determines that the additional service will not impair the director's effectiveness on the Lilly board. The Directors and Corporate Governance Committee reviewed an exception request for Mr. Alvarez (who serves on four other company boards), considering his attendance record and continued engagement in board matters. Upon review, the committee determined that he could effectively balance his other board responsibilities and continue to be a strong contributor to the Lilly board.
Board Confidentiality Policy
The board has adopted a Confidentiality Policy, applicable to all current and future members of the board. The policy prohibits a director from sharing confidential information obtained in his or her role as a director with any outside party except under limited circumstances where the director is seeking legal advice or is required to disclose information by order of law. The Confidentiality Policy can be viewed on the company's website here: http://www.lilly.com/website: lilly.com/about/corporate-governance/Pages/corporate-governance.aspx.corporate-governance.aspx.
Leadership Structure; Oversight of Chairman, CEO, and Senior Management
Leadership Structure
The board currently believes that combining the role of Chairman of the Board and the CEO, coupled with a strong lead independentdirector position (see the description of the role below), is the most efficient and effective leadership model for the company, fostering clear accountability, effective decision-making,decision making, and alignment on corporate strategy. The board periodically reviews its leadership structure and developments in the area of corporate governance in order to ensure that this approach continues to strike the appropriate balance for the company and our stakeholders,stakeholders. Such a review was conducted most recently
during the succession-management process relating to the retirementappointment of Dr. Lechleiter.Mr. Ricks as chairman, effective June 2017.
Board Independence
The board has put in place a number of governance practices to ensure effective independent oversight, including:
•Executive sessions of the independent directors:held after every regular board meeting.
•Annual performance evaluation of the chairman and CEOCEO:: conducted by the independent directors, the
results of which are reviewed with the CEO and considered by the Compensation Committee in establishing
the CEO’s compensation for the next year.
•A strong, independent, clearly defined lead independent director rolerole:: The lead Independent director's
responsibilities include:
◦leading the board’s processes for selecting and evaluating the CEO
◦presiding at all meetings of the board at which the chairman is not present
| |
◦ | leading the board’s processes for selecting and evaluating the CEO; |
| |
◦ | presiding at all meetings of the board at which the chairman is not present; |
| |
◦ | serving as a liaison between the chairman and the independent directors; |
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◦ | if requested by major shareholders, ensures that she is available for consultation and direct communication; |
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◦ | approving meeting agendas and schedules and generally approving information sent to the board; |
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◦ | conducting executive sessions of the independent directors; |
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◦ | overseeing the independent directors' annual performance evaluation of the chairman and CEO; and |
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◦ | together with the Directors and Corporate Governance Committee, leading the director recruitment process. |
◦serving as a liaison between the chairman and the independent directors
◦if requested by major shareholders, ensuring that he/she is available for consultation and direct
communication
◦approving meeting agendas and schedules and generally approving information sent to the board,
◦conducting executive sessions of the independent directors
◦overseeing the independent directors' annual performance evaluation of the chairman and CEO
◦together with the Directors and Corporate Governance Committee, leading the director recruitment
process.
•The lead independent director also has authority to call meetings of the independent directors and to retain advisers
advisors for the independent directors.
•The lead independent director is appointed annually by the board. Currently Ms. Marram is the lead
independent director. Ms. Marram will retire from the board in May 2019 at which time Mr. Luciano, contingent upon his reelection at the 2019 annual meeting, will become the new lead independent director.
Director access to management and independent advisorsadvisors:: Independent directors have direct access to members of management whenever they deem it necessary, and the company's EOsexecutive officers attend part of each regularly scheduled board meeting. The independent directors and all committees are also free to retain their own independent advisors, at companythe company's expense, whenever they feel it would be desirable to do so.
CEO Succession Planning
The Compensation Committee, board, and CEO annually review the company's succession plans for the CEO and other key senior leadership positions. The independent directors also meet without the CEO to discuss CEO succession planning.
|
| | | |
During these reviews, the CEO and directors discuss: |
Ÿ | future candidates for the CEO and other senior leadership positions; |
Ÿ | succession timing; and |
Ÿ | During these reviews, the CEO and directors discuss: future candidates for the CEO and other senior leadership positions succession timing development plans for the highest-potential candidates. |
The company ensures that the directors have multiple opportunities to interact with the company's top leadership talent in both formal and informal settings in order to allow them to most effectively assess the candidates' qualifications and capabilities. In 2016, the board followed this process, and the independent directors also met without the CEO present when selecting Mr. Ricks to succeed Dr. Lechleiter as president and CEO of the company, effective January 1, 2017.
The independent directors and the CEO maintain a confidential plan for the timely and efficient transfer of the CEO's responsibilities in the event of an emergency or his sudden departure, incapacitation, or death.
The company ensures that the directors have multiple opportunities to interact with the company's top leadership talent in both formal and informal settings to allow them to most effectively assess the candidates' qualifications and capabilities.
Board Education and Annual Performance Assessment
The company engages in a comprehensive orientation process for incoming new directors. Directors also receiveattend ongoing continuing educational sessions on areas of particular relevance or importance to our company, and we hold periodic mandatory training sessions for the Audit Committee.
Additionally,Every year the Directors and Corporate Governance Committee conducts an annuala robust assessment of the board's performance, board committee performance, and all board processes, based on input from all directors. We also conduct an annual assessment of each individual director performance and every three years we conduct a detailed review of individual director performance when considering whether to nominate the director to a new three-year term.
Conflicts of Interest and Transactions with Related Persons
Conflicts of Interest
DirectorsOccasionally a director's business or personal relationships may give rise to an interest that conflicts, or appears to conflict, with the interests of the company. As outlined in the company's corporate governance guidelines, directors must disclose to the company all relationships that could create a conflict or an appearance of a conflict. The board, after consultation with counsel, takes appropriate steps to identify actual or apparent conflicts and ensure that all directors voting on an issue are disinterested.disinterested with respect to that issue. A director may be excused from board discussions and decisions on thean issue related to an actual or apparent conflict, as appropriate.
In addition, a director’s relationship with Lilly may give rise to an interest that conflicts, or appears to conflict, with the interests of another company, institution, or other stakeholder. A director must disclose his or her relationship with Lilly in connection with any scientific publication, using the International Committee of Medical Journal Editors (ICMJE) conflict of interest form for this purpose when possible. Each director must disclose his or her service on the board to his or her employer and any other organization with which the director has a relationship of trust and where the relationship with the company is relevant. In addition, directors must follow the internal conflict of interest policies and procedures of each such organization.
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 EOs,executive officers, their immediate family members, or shareholders of more than 5 percent of the company’s 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).
PolicyPolicy::
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 determinethe board or committee determines that it is in the best interests of the company. In considering the transaction, the board or committee will consider all relevant factors, including:
the company’s business rationale for entering into the transaction;transaction
the alternatives to entering into a related-person transaction;transaction
whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally;generally
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; andconflicts
the overall fairness of the transaction to the company.
Procedures:Procedures:
Management or the affected director or EOexecutive officer will bring the matter to the attention of the chairman, the lead independent director, the chair of the Directors and Corporate Governance Committee, or the corporate secretary.
The chairman and the lead independent director shall jointly determine (or, if either is involved in the transaction, the other shall determine) whether the matter should be considered by the board or by one of its existing committees.
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, if appropriate, as promptly as practicable.
The board or relevant committee will review the transaction annually to determine whether it continues to be in the company’s best interests.
The Directors and Corporate Governance Committee has approved the following employment relationships that are considered related-party transactions under the SEC rules.
We have three current employees who are relatives of current or former EOs. Dr. John Bamforth vice president, chief marketing officer, global marketing, is the spouse of Dr. Susan Mahony, an EO. Myles O’Neill, seniora former executive officer. Dr. Bamforth, who retired as vice president, global drug products, is the spouse of Dr. Fionnuala Walsh, an EO. Finally, Andrew Lechleiter, general manager, Hong Kong, is the son of Dr. John Lechleiter, Lilly's former CEO. For 2016, these three employeesmarketing, received cash compensation, and equity grants between $195,000payments totaling $1,220,000, and $1,480,000.
All three individuals participatehe participated in the company’s benefit programs generally available to U.S. employees. Their compensation is consistent with the compensation paid to other employees at their levels and with the Company's overall compensation principles based on their years of experience, performance, and positions within the company.while he was an active employee.
Communication with the Board of Directors
You may send written communications to one or more members of the board, including independent directors, addressed to:
Board of Directors
Eli Lilly and Company
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, IN 46285
Shareholder Engagement on Governance Issues
Each year, the company engages large shareholders and other key constituents to discuss key areas of interest or concern related to corporate governance, as well as any specific issues for the coming proxy season. In 2016,2018, we spoke with a number of our largest investors. Issues discussed included shareholders' perspectives regarding a potential management proposal to eliminateinvestors on topics such as eliminating the company's classified board and supermajority voting requirements, proxy access, board composition and recruitment, andsuccession planning, the company's executive compensation, environmental and social responsibility, drug pricing, and shareholders' ability to amend the bylaws, among other topics. The overall tone fromof these conversations was productive and positive, and the investors with whom we spoke were generally supportive of our performance and our overall compensation and governance policies. We have sharedpolicies, although a few shareholders communicated differing views on some of our governance practices. This feedback has been discussed with our CEO and chairman, the feedback we received from these conversations withlead independent director, our Compensation Committee, and our Directors and Corporate Governance Committee.Committee, and it was a key input into board discussions on corporate governance topics. As a result of these discussions and its own deliberations, the board decided to put forward the two management proposals described below. We are committed to continuing to engage with our investors to ensure their diverse perspectives on corporate governance issues are thoughtfully considered.
Prior Management Proposals to Eliminate Classified Board and Supermajority Voting Requirements
BetweenEach year between 2007 and 2012, each year we submittedand again in 2018, our management put forward proposals to eliminate the company's classified board structure. The proposals did not pass because they failed to receive a “supermajority vote” of 80 percent of the outstanding shares of our common stock, as required in the company's articles of incorporation. In addition, in 2010, 2011, 2012, and 2018, we submitted management proposals to eliminate the supermajority voting requirements themselves. Those proposals also fell short of the required 80 percent vote.
Prior to 2012, these proposals received support ranging from 72 to 77 percent of the outstanding shares. In 2012, the vote in support of these proposals was even lower, approximately 63 percent of the outstanding shares, driven in part by a 2012 NYSE rule revision prohibiting brokers from voting their clients' shares on corporate governance matters absent specific instructions from such clients. We have decided not to resubmit those proposalsIn 2018, the vote in 2016 based on our discussions with large shareholders as described abovesupport was approximately 62 percent of the outstanding shares.
After considering the interests of the company and our assessment thatshareholders, we have resubmitted management proposals to eliminate the proposals would not be successful.classified board and supermajority voting requirements for consideration at the 2019 annual meeting (see Items 4 and 5). We will continue to monitor this situation and engage with our shareholders on these and other topics to ensure that we continue to demonstrate strong corporate governance and accountability to shareholders.
Shareholder Proposals
Shareholder proposals
If a shareholder wishes to have a proposal considered for inclusion in next year’s proxy statement, he or she must submit the proposal in writing so that we receive it by November 20, 2017.23, 2019. Proposals should be addressed to the company’s corporate secretary, Lilly Corporate Center, Indianapolis, Indiana 46285. In addition, the company’s bylaws provide that any shareholder wishing to propose any other business at the 2020 annual meeting must give the company written notice by November 20, 2017,23, 2019, and no earlier than September 21, 2017.24, 2019. That notice must provide certain other information as described in the bylaws. Copies of the bylaws are available online at https://www.lilly.com/lilly.com/who-we-are/governance or upon request to the company’s corporate secretary.
Shareholder Recommendations and Nominations for Director Candidates
A shareholder who wishes to recommend a director candidate for evaluation should forward the candidate's name and information about the candidate's qualifications to:
Chair of the Directors and Corporate Governance Committee
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, IN 46285
The candidate must meet the selection criteria described above under "Director Qualifications and Nomination Process - Director Qualifications" and must be willing and expressly interested in serving on the board.
Under Section 1.9 of the company’s bylaws, a shareholder who wishes to directly nominate a director candidate at the 20182020 annual meeting (i.e., to propose a candidate for election who is not otherwise nominated by the board through the recommendation process described above) must give the company written notice by November 20, 2017,23, 2019, and no earlier than September 21, 2017.24, 2019. The notice should be addressed to the corporate secretary at the address provided above. The notice must contain prescribed information about the candidate and about the shareholder proposing the candidate as described in more detail in Section 1.9 of the bylaws. A copy of the bylaws is available online at https://www.lilly.com/ lilly.com/who-we-are/governance.governance. The bylaws will also be provided by mail upon request to the corporate secretary.
We have not received any notice regarding shareholder nominations for board candidates or other shareholder business to be presented at the 2019 shareholders' meeting.
Ownership of Company Stock
Common Stock Ownership by Directors and Executive Officers
The following table sets forth the number of shares of company, including company subsidiaries, common stock, beneficially owned by the directors, the named executive officers, and all directors and EOsexecutive officers as a group, as of February 17, 2017.15, 2019. None of the stock or stock units owned by any of the listed individuals has been pledged as collateral for a loan or other obligation.
| | | Beneficial Owners | Common Stock 1 | Stock Units Not Distributable Within 60 Days 4 | Common Stock 1 | Stock Units Not Distributable Within 60 Days 4 | |
Shares Owned 2 | | Stock Units Distributable Within 60 Days 3 | Shares Owned 2 | | Stock Units Distributable Within 60 Days 3 | |
| Ralph Alvarez | — |
| | — |
| 35,224 |
| — |
| | — |
| 43,373 |
| |
| Katherine Baicker, Ph.D. | — |
| | — |
| 12,758 |
| — |
| | — |
| 16,872 |
| |
| Carolyn R Bertozzi, Ph.D. | | — |
| | — |
| 3,317 |
| |
| Enrique A. Conterno | 144,173 |
| | — |
| 41,326 |
| 138,147 |
| | — |
| 55,012 |
| |
| Michael L. Eskew | — |
| | — |
| 34,239 |
| — |
| | — |
| 39,420 |
| |
| J. Erik Fyrwald | 100 |
| | — |
| 54,701 |
| 100 |
| | — |
| 61,600 |
| |
| Michael J. Harrington | 85,314 |
| | — |
| 24,524 |
| 126,745 |
| | — |
| 18,765 |
| |
| R. David Hoover | 1,500 |
| | — |
| 33,724 |
| |
| Jamere Jackson | — |
| | — |
| 522 |
| — |
| | — |
| 4,029 |
| |
| William G. Kaelin, Jr., M.D. | — |
| | — |
| 11,309 |
| — |
| | — |
| 15,351 |
| |
| John C. Lechleiter, Ph.D. | 1,068,402 |
| 5 | — |
| 106,625 |
| |
| Juan R. Luciano | — |
| | — |
| 2,039 |
| — |
| | — |
| 8,208 |
| |
| Jan M. Lundberg, Ph.D. | 156,219 |
| | — |
| 36,252 |
| |
| Ellen R. Marram | 1,000 |
| | — |
| 49,215 |
| 1,000 |
| | — |
| 55,200 |
| |
| Franklyn G. Prendergast, M.D., Ph.D. | — |
| | — |
| 67,355 |
| |
| Derica W. Rice | 424,905 |
| 6 | — |
| 40,518 |
| |
| David A. Ricks | 109,620 |
| | — |
| 26,822 |
| 170,367 |
| 5 | — |
| 69,350 |
| |
| Marschall S. Runge, M.D., Ph.D. | — |
| | — |
| 7,222 |
| — |
| | — |
| 11,061 |
| |
| Kathi P. Seifert | 3,533 |
| | — |
| 61,594 |
| 3,533 |
| | — |
| 68,135 |
| |
| Jeffrey N. Simmons | | 179,858 |
| 6 | — |
| 162,246 |
| 6 |
| Daniel Skovronsky, M.D., Ph.D. | | 70,818 |
| | — |
| — |
| |
| Joshua L. Smiley | | 31,951 |
| | — |
| 7,947 |
| |
| Jackson P. Tai | 42,141 |
| | — |
| 6,707 |
| 43,709 |
| | — |
| 10,538 |
| |
All directors and EOs as a group (28 people)7: | 2,762,123 |
| | — |
| 816,332 |
| |
| Karen Walker | | — |
| | — |
| 211 |
| |
| All directors and executive officers as a group (28 people): | | 1,159,748 |
| | — |
| 703,611 |
| |
| |
1 | The sum of the "Shares Owned" and "Options Exercisable/Stock"Stock Units Distributable Within 60 Days" columns represents the shares considered "beneficially owned" for purposes of disclosure in the proxy statement. Unless otherwise indicated in a footnote, each person listed in the table possesses sole voting and sole investment power with respect to their shares. No person listed in the table owns more than 0.10.02 percent of the outstanding common stock of the company. AllThe directors and EOsexecutive officers as a group own approximately 0.20.11 percent of the outstanding common stock of the company. |
2 This column includes the number of shares of common stock held individually as well as the number of
401(k) Plan shares held by the beneficial owners indirectly through the 401(k) Plan.
| |
3 | This column sets forth RSUsrestricted stock units that vest within 60 days.days of February 15, 2019. |
4 For the EOs,executive officers, this column reflects RSUsrestricted stock units that will not vest within 60 days.days of February 15, 2019. For the independent directors, this column includes the number of stock units credited to the directors' accounts in the Lilly Directors' Deferral Plan.
5 The shares shown for Dr. Lechleiter include 62,582 shares that are owned by a family foundation for which he is a director. Dr. Lechleiter has shared voting power and shared investment power with respect to the shares held by the foundation. Also included are 6,468 shares held in family trusts. Pursuant to the terms of the trusts, Dr. Lechleiter has shared investment power and no voting power over the shares held in the trusts.
6The shares shown for Mr. RiceRicks include 11,59611,389 shares that are owned by a family foundation for which he is a director. Mr. RiceRicks has shared voting power and shared investment power with respect to the shares held by the foundation.
76 Carolyn R. Bertozzi, Ph.D., joined the board in February 2017,The shares shown for Mr. Simmons include 22,000 shares of Elanco common stock and currently does145,929 Elanco stock units not beneficially own any shares.distributable within 60 days.
Principal Holders of Stock
ToBased on reports filed with the bestSEC pursuant to Regulation 13D-G of the company’s knowledge,Securities Exchange Act of 1934 (the Exchange Act), the only beneficial owners of more than 5 percent of the outstanding shares of the company’s common stock, as of December 31, 2016,2018, are the shareholders listed below:
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| | |
| Name and Address | Number of Shares
Beneficially Owned | Percent of Class |
Lilly Endowment Inc. (the Endowment)
2801 North Meridian Street
Indianapolis, Indiana 46208 | 125,575,804 | 11.4% |
| | |
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355 | 66,415,305 | 6.0% |
| | |
BlackRock, Inc.
55 East 52nd Street
New York, New York 10055 | 62,755,539 | 5.7% |
| | |
PRIMECAP Management Company
177 E. Colorado Boulevard, 11th Floor
Pasadena, CA 91105 | 57,501,098 | 5.2% |
| | |
Wellington Management Company, LLP
280 Congress Street
Boston, MA 02210 | 56,814,140 | 5.2% |
| | |
|
| | |
| Name and Address | Number of Shares
Beneficially Owned | Percent of Class |
Lilly Endowment Inc. (the Endowment)
2801 North Meridian Street
Indianapolis, IN 46208 | 118,015,304 | 11.1% |
| | |
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355 | 75,658,219 | 7.1% |
| | |
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055 | 68,956,519 | 6.5% |
| | |
The Endowment has sole voting and sole dispositive power with respect to all of its shares. The Board of Directors of the Endowment is composed of N. Clay Robbins, chairman, president & chief executive officer;CEO; Mary K. Lisher; William G. Enright; Daniel P. Carmichael; Charles E. Golden; Eli Lilly II; David N. Shane; Craig Dykstra; and Jennett M. Hill.Hill; and John C. Lechleiter.
The Vanguard Group provides investment management services for various clients. It has sole voting power with respect to 1,522,9481,145,235 of its shares and sole dispositive power with respect to 64,711,23574,302,105 of its shares.
BlackRock, Inc. provides investment management services for various clients. It has sole voting power with respect to 54,096,41360,041,509 of its shares and sole dispositive power with respect to 62,729,638 of its shares.
PRIMECAP Management Company acts as investment advisor to various clients. It has sole voting power with respect to 12,675,302 shares and sole dispositive power with respect to all of its shares.
Wellington Management Company, LLP provides investment management services for various clients. It has shared voting power with respect to 11,484,836 shares and shared dispositive power with respect to all of its shares.
Compensation
Item 2. Advisory Vote on Compensation Paid to Named Executive Officers
Section 14A of the Securities Exchange Act of 1934 provides the company's shareholders with the opportunity to approve, on an advisory basis, the compensation of the company's named executive officers as disclosed in the proxy statement. Our compensation philosophy is designed to attract, engage, and retain highly talented individuals and motivate them to create long-term shareholder value by achieving top-tier corporate
performance while embracing the company’s values of integrity, excellence, and respect for people.
The Compensation Committee and the Board of Directors believe that our executive compensation aligns well with our philosophy and with corporate performance. Executive compensation is an important matter for our shareholders. We routinely review our compensation practices and engage in ongoing dialogdialogue with our shareholders in order to ensure our practices are aligned with stakeholder interests and reflect best practices.
We request shareholder approval, on an advisory basis, of the compensation of the company’s named executive officers as disclosed in this proxy statement. As an advisory vote, this proposal is not binding on the company. However, the Compensation Committee values input from shareholders and will consider the outcome of the vote when making future executive compensation decisions.
Board Recommendation on Item 2
The Board of Directorsboard recommends that you vote FOR the approval, on an advisory basis, of the compensation paid to the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the CD&A,Compensation Discussion and Analysis (CD&A), the compensation tables, and related narratives provided below in this proxy statement.
Compensation Discussion and Analysis (CD&A)
This CD&A describes our executive compensation philosophy, the Compensation Committee'sCommittee’s process for setting executive compensation, the elements of our compensation program, the factors the committeeCompensation Committee considered when setting executive compensation in 2016,for 2018, and how the company'scompany’s results affected incentive payouts for 20162018 performance. This CD&A provides compensation information for the CEO, chief financial officer, and the three other most highly compensated executive officers who were serving as executive officers on December 31, 2018. It also provides compensation information for one former executive officer, Jeffrey Simmons. On September 20, 2018, Lilly launched an initial public offering of Elanco Animal Health, Inc. (“Elanco”). At that time, Mr. Simmons ceased being an executive officer of Lilly and became the CEO of Elanco.
Say-on-Pay Results for 2016
At last year's annual meeting, more than 98 percent of the shares cast voted in favor of the company's Say-on-Pay proposal on executive compensation. Management and the Compensation Committee view this vote as supportive of the company's overall approach toward executive compensation.
Our Philosophy on Compensation
At Lilly, our missionpurpose is to makeunite caring with discovery to create medicines that helpmake life better for people live longer, healthier, more active lives.around the world. In order to accomplish our mission,do this, we must attract, engage, and retain highly talented individuals who are committed to the company'sour core values of integrity, excellence, and respect for people. Our compensation programs are designed to help us achieve these goals while balancing the long-term interests of our shareholders and customers.
Objectives
Our compensation and benefits programs are based on the following objectives:
Reflect individual and company performance. performance:We reinforce a high-performance culture by linking pay with individual performance and company performance. As employees assume greater responsibilities, the proportion of total compensation based on company performance and shareholder returns increases. We perform an annual reviewreviews to ensure theour programs provide incentivesan incentive to deliver long-term, sustainable business results while discouraging excessive risk-taking or other adverse behaviors.
Attract and retain talented employees.employees: Compensation opportunitiesopportunity should be market competitive with our peer group and reflect the level of job impact and responsibilities. Retention of talent is an important factor in the design of our compensation and benefit programs.
Implement broad-based programs.programs: While the amount of compensation paid to employees varies, the overall structure of our compensation and benefit programs is broadly similar across the organization to encourage and reward all employees who contribute to our success.
Consider shareholder input.input: Management and the Compensation Committee consider the results of our annual Say-on-Pay vote and other sources of shareholder feedback when designing executive compensation and benefit programs.
Say-on-Pay Results for 2018
At last year's annual meeting, more than 97 percent of the shares cast voted in favor of the company's say-on-pay proposal on executive compensation. Management and the Compensation Committee view this vote as supportive of the company's overall approach toward executive compensation.
Compensation Committee's Processes and Analyses
Process for setting compensationSetting Compensation
The Compensation Committee considers individual performance assessments, compensation recommendations from the following inCEO, company performance, peer group data, input from its compensation consultant, and its own judgment when determining compensation for its executive compensation:officers.
Assessment of the executive's individual performance and contributionIndividual performance: .
CEO: Generally, the independent directors, under the direction of the lead independent director, meet with the CEO at the beginning of each year to agree upon the CEO's performance objectives for the year.objectives. At the end of the year, the independent directors meet to assess the CEO's achievement of those objectives along with other factors, including contribution to the company's performance and ethics, and integrity. The year-endThis evaluation is used in setting the CEO's compensation for the next year. In June 2016, David A. Ricks was appointed to serve as CEO, effective January 1, 2017. His compensation for the role of President and CEO was set at the time of his appointment.
Other Executive Officers (EOs):
The committeeCompensation Committee receives individual performance assessments and compensation recommendations from the CEO and exercises its judgment based onfor each of the board's knowledge and interactions with the EOs.remaining executive officers. Each EO'sexecutive officer’s performance assessment is based on the achievement of objectives established between such EOthe executive officer and the CEO at the start of the year, as well as other factors, including the demonstration of Lilly values and leadership behaviors. The Compensation Committee considers these inputs, its knowledge of and interactions with each executive officer and its judgement to develop a final individual performance assessment. For new EOs,executive officers, compensation is set by the Compensation Committee at the time of promotion or offer.
offer.
Assessment of companyCompany performance: Lilly performance. The Compensation Committee considers company and, with respect to Mr. Simmons, Elanco performance is considered in two ways:
AsOverall performance for the prior year based on a variety of metrics, which is a factor in establishing potentialtarget compensation for the coming year.
Specific performance goals are established at the beginning of each performance year the committee considers overall company performance during the prior year across a variety of metrics.
Toto determine payouts under the cash and equity incentive programs, the committee establishes specific company performance goals related to revenue, earnings per share (EPS), progress of our pipeline portfolio, stock price growth, and Total Shareholder Return (TSR) relative to our peer companies.programs.
Peer-group analysisPeer group analysis:. The committeeCompensation Committee uses peer-group data from the peer group described below as a market check for compensation decisions, but does not use this data as the sole basis for its compensation targets. The companytargets and does not target a specific position within that range of market data.
Input from an independent compensation consultant concerning executive paypay:. The role Lilly’s Compensation Committee considers the advice of theits independent compensation consultant, is described in more detail underFrederic W. Cook & Co., Inc., when setting executive officer compensation.
Elanco Animal Health: Prior to the "CompensationElanco initial public offering, the Compensation Committee Matters" section that followsreviewed and approved how the CD&A.already granted bonus and equity elements of Mr. Simmons’ Lilly compensation would transition to Elanco. Lilly management, working with an independent consultant, proposed an Elanco compensation structure for Mr. Simmons’ to the Elanco board of directors, including base salary, target bonus, target equity compensation, and a one-time founders award comprised of stock options and RSUs. The Elanco board of directors reviewed and approved the recommended compensation.
Competitive pay assessmentPay Assessment
OurLilly’s peer group is comprised of companies that directly compete with us, operate inLilly, use a similar business model, and employ people with the unique skills required to operate an established biopharmaceutical company. The committeeLilly’s Compensation Committee selects a peer group whose median market cap and revenuesrevenue are broadly similar to Lilly. The committeeCompensation Committee reviews the peer group at least every three years. The committee reviewedLilly’s Compensation Committee established the following peer group in 2015. The committee removed Allergan (acquired by Actavis Plc) and replaced Abbott with Shire Plc, lowering the peer group median revenues and market cap. The peer group referenced in DecemberJune 2015 whenfor purposes of assessing competitive pay included: Abbvie, Amgen, AstraZeneca, Baxter, Biogen, Bristol-Myers Squibb, Celgene, Gilead, GlaxoSmithKline, Hoffman-La Roche, Johnson & Johnson, Medtronic, Merck, Novartis,pay:
|
| | |
| Abbvie | Celgene | Merck |
| Amgen | Gilead | Novartis |
| AstraZeneca | GlaxoSmithKline | Pfizer |
| Baxter | Hoffman-LaRoche | Sanofi-Aventis |
| Biogen | Johnson & Johnson | Shire |
| Bristol-Myers Squibb | Medtronic | |
Pfizer, Sanofi-Aventis, and Shire Plc. WithAt the exceptiontime of Johnson & Johnson, Novartis, and Pfizer,the review in June 2015, all peer companies were no greater than three times our size with regard to both measures.revenue or market cap except Johnson & Johnson, Novartis, and Pfizer. The committeeCompensation Committee included these three companies despite their size because they compete directly with Lilly, have similar business models, and seek to hire from the same pool of management and scientific talent.
When determining pay levels for target compensation, the Compensation Committee considers an analysis of peer group pay for each executive officer position (except CEO) along with internal factors such as the performance and experience of each executive officer. The independent compensation consultant for the Compensation Committee provides a similar analysis when recommending pay levels for the CEO. The CEO analysis includes a comparison of our CEO actual total direct compensation in the prior year to company performance on an absolute basis and on a relative basis to the peer group. The analysis also includes a comparison of current target total direct compensation
for our CEO to the most recently available market data on CEO target total direct compensation for our peer companies. In the aggregate, the company’s target total compensation to named executive officers when reviewed at the end of 2015, was in the middle range of the peer group.group at the end of 2018.
Components of Our Compensation
Our executive compensation hasis primarily composed of three components: (1)
base salary; (2) salary
annual cash bonus, which is generally calculated based on company'scompany performance relative to internal targets for revenue, earnings per share (EPS), and the progress of the pipeline; and (3) our pipeline
two different forms of equity incentives: (i) Performance Awards (PAs)—equity awards vesting over three years, with a performance component measuring the company's two-year growth in EPS relative to the expected peer group growth followed by a 13-month service-vesting period; and (ii) Shareholder Value Awards (SVAs)—performance-based equity awards that pay out based on absolute company stock price growth and total shareholder return (TSR) relative to peers, both measured over a three-year period, followed by a one-year holding period.
| |
| ◦ | performance awards, which are performance-based equity awards that vest over three years and have a performance component measuring the company's two-year growth in EPS relative to the expected peer group growth followed by a 13-month service-vesting period |
| |
| ◦ | shareholder value awards, which are performance-based equity awards that pay out based on absolute company stock price growth and total shareholder return (TSR) relative to peers, both measured over a three-year period, followed by a one-year holding period. |
Executives also receive a company benefits package, described below under "Other Compensation Practices and Information - Employee Benefits."
When Lilly divests its remaining interest in Elanco, Mr. Simmons’ unvested Lilly equity awards will terminate in accordance with their terms for no consideration. Prior to the Elanco initial public offering, the Compensation Committee reviewed and approved how the bonus and equity elements of Mr. Simmons’ 2018 Lilly compensation would transition to Elanco. Lilly management, working with an independent consultant, proposed a compensation structure for 2018 for Mr. Simmons’ to the Elanco board of directors, including base salary, target bonus, target equity compensation, and a one-time founders’ award comprised of stock options and RSUs. The Elanco board of directors reviewed and approved the recommended compensation, as described in more detail below. It is anticipated that the Elanco compensation committee will authorize the issuance of Elanco equity awards of a value and duration similar to Mr. Simmons’ unvested Lilly equity awards, subject to the requirements of applicable law and terms of applicable equity incentive plans and award agreements.
Adjustments to reported financial resultsReported Financial Results
The Compensation Committee has authority to adjust the company's reported revenue and EPS onupon which incentive compensation payouts are determined in order to eliminate the distorting effect of unusual income or expense items. These items may impactaffect year-over-year growth percentages or improve comparability with peer companies. The committeeCompensation Committee considers the adjustments approved by the Audit Committee for reporting non-GAAP EPS and other adjustments, based on guidelines approved by the committeeCompensation Committee prior to the performance period. The Compensation Committee considers adjustments on a quarterly basis and may adjust payouts to eliminate the benefit of share repurchases, large swings in foreign exchange rates, or the impact of price adjustments significantly above the business plan. For 2018 compensation, the Compensation Committee eliminated the benefit of share repurchases in excess of a pre-established collar from the bonus payout.The Compensation Committee has also removed the positive impact of tax reform from our 2017-2018 performance award results to avoid artificial uplift that was not considered at the time goals were established. Further details on the adjustments for 20162018 and the rationale for making these adjustments are set forth in Appendix A, "Summary of Adjustments Related to the Annual Cash Bonus and Performance Award." For ease of reference, throughout the CD&A and the other compensation disclosures, we refer simply to "revenue" and "EPS" but we encourage you to review the information in Appendix A to understand the adjustments from GAAPreported revenue and EPS that were approved.
The Compensation Committee also has general authority to apply downward (but not upward) discretion to bonus, performance award, and shareholder value award payouts for individual executive officers.
In setting salaries, Lilly seeks to retain, motivate, and reward successful performers while maintaining affordability within the company's business plan. Base salaries are reviewed and established annually and may also be adjusted upon promotion, following a change in job responsibilities, or to maintain market competitiveness. Salaries are based on
each person's level of contribution, responsibility, expertise, and expertise, alongcompetitiveness and are compared annually with peer group data.
Annual baseBase salary increases arefor 2018, if any, were established based upon a corporate budget for salary increases, which is set considering company performance over the prior year, expected company performance for the following year, and general external trends. In setting salaries, the Compensation Committee seeks to retain, motivate, and reward successful performers while maintaining affordability within the company's business plan.
The Eli Lilly and Company Bonus Plan (Bonus Plan)(Lilly bonus plan) is designed to reward successfulthe achievement of the company'scompany’s annual financial plans and pipeline objectivesinnovation objectives. The named executive officers, except Mr. Simmons, participated in the Lilly bonus plan during 2018. Mr. Simmons participated in the Elanco Corporate Bonus Plan (Elanco bonus plan).
Lilly Bonus Plan
The Compensation Committee sets performance goals and individual bonus targets for the Lilly bonus plan at the beginning of each year. The bonus is based on three areas of company performance in three areas over the course of the year,measured relative to internal targets: (1) revenue; (2) EPS;revenue, EPS, and (3) pipelineinnovation progress. The annual cash bonus payout is calculated as follows:
Company performance goals and individual(bonus plan multiple) x (individual bonus targets are set at the beginning of each year, and actual bonusestarget) x (base salary earnings) = payout
Actual payouts can range from 0 to 200 percent of an individual's bonus target. In establishing performance goals, theThe Compensation Committee references the annual operating plan. Each year, the committee reviews to establish performance targets and to assess the relative weighting for each of the factors.objective. The 20162018 weightings remainedremain unchanged from the prior year:
|
| |
GoalLilly Goals | Weighting |
| Revenue performance | 25% |
| EPS performance | 50% |
| Pipeline progress | 25% |
Based on this weighting, the company bonus multiple is calculated as follows:
Bonus Plan Multiple
(0.25 x revenue multiple) + (0.50 x EPS multiple) + (0.25 x pipeline multiple)
= company bonus multiple
Multiples for each performance goal can range from 0—2.0.
The annual cash bonus payout is calculated as follows:
company bonus multiple x individual bonus target x base salary earnings = payout
To preserve tax deductibility of bonus payouts, EOsExecutive officer bonuses are also subject to the terms of the Executive Officer Incentive Plan (EOIP), which sets limits on allowable bonus amounts.. Under the EOIP, the maximum annual cash bonus allowable is calculated based on non-GAAP net income (generally described in "Adjustments to Reported Results" in Appendix A to this proxy statement)A) for the year. For the CEO,Mr. Ricks, the maximum bonus awardamount for 2018 is 0.3 percent of non-GAAP net income. For other EOs,executive officers except Dr. Skovronsky, the maximum amount is 0.15 percent of non-GAAP net income. EOs will not receive anyDr. Skovronsky’s maximum amount is 0.15 percent of non-GAAP net income prorated for the time served as a Lilly executive officer. In addition, none of the executive officers receives an annual cash bonus paymentspayment unless the company has a positive non-GAAP net income for the year.
OnceUnder the maximum payout for an EO is determined,EOIP, the Compensation Committee has the discretion to reduce (but not to increase) the amount of the annual cash bonus to be paid. In exercising this discretion, the committeeCompensation Committee intends to award EOs the lesser of (i) the bonuses theybonus the executive officer would have received under the Bonus PlanLilly bonus plan, or (ii) the EOIP maximum bonuses.payout.
Elanco Corporate Bonus Plan
Mr. Simmons’ bonus was aligned with the Elanco bonus plan for all of 2018, which is designed to reward the achievement of Elanco’s financial goals, innovation objectives, and contributions to Lilly’s overall financial success for the year. Prior to the Elanco initial public offering, the Elanco bonus plan was approved by Lilly management and Mr. Simmons’ EOIP participation and payout alignment with the Elanco bonus plan was approved by the Compensation Committee. The compensation committee of Elanco’s board of directors approved the 2018 Elanco bonus plan of which Mr. Simmons is a participant.
The annual Elanco bonus plan payout is calculated as follows:
(Elanco bonus plan multiple) x (individual bonus target) x (base salary earnings) = payout
The bonus is based on four areas of Elanco and Lilly performance measured relative to internal targets: Elanco revenue, Elanco operating margin, Elanco innovation progress, and Lilly corporate objectives as measured under the Lilly bonus plan. The weighting for the Elanco bonus plan objectives for 2018 were:
|
| |
| Elanco Goals | Weighting |
| Elanco Revenue performance | 25% |
| Elanco Operating Margin performance | 25% |
| Elanco Innovation progress | 25% |
| Lilly Bonus Plan Multiple | 25% |
Based on this weighting, the Elanco bonus multiple is calculated as follows:
Elanco Bonus Plan Multiple
(0.25 x revenue multiple) + (0.25 x operating margin multiple) + (0.25 x innovation multiple) + (0.25 x Lilly bonus plan multiple)
For the time period from January 1 through September 20, 2018, Mr. Simmons will receive the lesser of (i) the bonus he would have received under the Elanco bonus plan or (ii) an EOIP maximum payout prorated for service through September 20, 2018. For the period from September 20 through December 31, 2018, Mr. Simmons will receive a prorated bonus under the Elanco bonus plan as approved by the compensation committee of Elanco's board of directors.
The company grants two types of equity incentives to EOs—PAsexecutives and SVAs. The PAscertain other employees: performance awards and shareholder value awards are designed to focus companyits leaders on multiyearmulti‑year operational performance relative to peer companies. The SVAsShareholder value awards are intended to align earned compensation with long-termlong‑term growth in shareholder value and relative TSR performance within our industry. The Compensation Committee has the discretion to adjust any payout from an equity award granted to an executive officer downward (but not upward) any EO's equity award payout from the amount yielded by the applicable formula.
Performance Awards
PAsPerformance awards vest over three years. Potential sharesPayouts are earned based on achieving EPS growth targets over a two-year performance period, followed by an additional 13-month service-vesting period for executive officers, during which the award is held in the form of restricted stock units ("RSUs").units. The growth-rate targets are set relative to the median expected EPS growth for our peer group over the peer group.same performance period. These awards do not accumulate dividends during the two-year performance period, but they do accumulate dividendsdividend equivalent units during the service-vesting period.
The Compensation Committee believes EPS growth is an effective measure of operational performance because it is closely linked to shareholder value, is broadly communicated to the public, is easily understood by Lilly employees, and allows for objective comparisons to performance of Lilly's peer group performance.group. Consistent with ourits compensation objectives, Lilly company performance exceeding the expected peer group median will resultresults in above-targetabove‑target payouts, while Lilly company performance lagging the expected peer group median will resultresults in below-targetbelow‑target payouts. Possible payouts range from 0 percent to 150 percent of the target, depending on Lilly EPS growth over the performance period.
The measure of EPS used in the PAperformance award program differs from the measure used in our annual cashthe Lilly bonus programplan in two ways. First, the target EPS goal in the Lilly bonus programplan is set with reference to internal goals
that align to our annual operating plan for the year, while the target EPS goal in the PAperformance award program is set relative tobased on the expected growth rates amongof our peer group. Second, the Lilly bonus programplan measures EPS over a one-year period, while the PA
performance award program measurersmeasures EPS over a two-year period. In a given year, as seen in prior years, the Lilly bonus programplan may pay out above target while the PAperformance award pays at thresholdbelow target (or vice versa).
Because Mr. Smiley and Dr. Skovronsky were not executive officers when their 2017-2018 performance awards were granted, those awards were not subject to the additional 13-month service-vesting period and vested in full as of December 31, 2018.
Shareholder Value Awards
SVAsShareholder value awards are earned based on Lilly's share price (and beginning in 2016, relative TSR performance). SVAsperformance. Shareholder value awards pay above target if Lilly's stock outperforms an expected rate of return and below target if Lilly's stock underperforms that expected rate of return. The expected rate of return is based on the three-year TSR that a reasonable investor would consider appropriate when investing in a basket of large-cap U.S. companies, as determined by the Compensation Committee. The minimum target price to achieve is calculated by multiplying the starting share price of Lilly's stock by the three-year compounded expected rate of return less Lilly's dividend yield. Shareholder value awards have a three-year performance period, and any shares paid out are subject to a one-year holding requirement. No dividends are accrued during the performance period. SVAs pay out above target if Lilly stock outperforms an expected compounded annual rate of return and below target if company stock underperforms that rate of return. The expected rate of return includes dividends and is based on the three-year TSR that a reasonable investor would consider appropriate for investing in a basket of large-cap U.S. companies, as determined by the Compensation Committee. The target share price is based on this expected rate of return less the company’s dividend yield, applied to the starting share price. EOsExecutive officers receive no payout if Lilly's TSR for the three-year period is zero or negative.
Possible payouts are based on share price growth goals (prior to applying the applicable modifier described below)and range from 0 to 150 percent of the target amount, depending on stock performance over the period.target.
Beginning with the 2016-2018 SVA award, aA modifier based on Lilly's three-year cumulative TSR relative to our peer companies' median TSR performance will beis applied to payouts for EOs.executive officer payouts. The committee added the relative TSR modifier to the shareholder value award program to align executive officers' rewards with shareholder experience while also encouraging strong performance within the industry. If Lilly's TSR is above the median of our peers, the payout is increased by 1 percent for every percentage point that Lilly's TSR exceeds the median (up to a maximum of 20 percent). Likewise, if Lilly's TSR is below our peers'the median, the payout will be reduced by up to a maximum of 20 percent. The committee added
Because Dr. Skovronsky was not an executive officer at the time of the grant, his 2016-2018 shareholder value award is not subject to the relative TSR modifiermodifier.
Other Equity Awards
In addition to his performance award and shareholder value award grants in 2018, Mr. Simmons received a founders’ award shortly after Elanco’s initial public offering which was approved by the SVA program because it ensures senior leaders' rewards align with shareholder experience while encouraging strongcompensation committee of the Elanco board of directors. This award is comprised of 50 percent Elanco stock options and 50 percent Elanco time-based restricted stock units, and is intended to tie a significant portion of Mr. Simmons' compensation to Elanco’s performance withinand the industry.interests of Elanco shareholders. The Elanco stock options will vest over three years, at which point Mr. Simmons will have seven additional years to exercise. The Elanco restricted stock units will vest over three years.
Pay for Performance
The mix of compensation for the CEO and otherour named executive officers (NEO) reflects ourLilly’s desire to link executive compensation with company performance. As reflected in the charts below, a substantial portion of the target pay for all named executive officers is performance-based. Both theThe annual cash bonus and equity payouts are contingent upon company performance, with the bonus factoring in performance over a one-year period, and equity compensation factoring in performance over a longer termtwo- and three- year periods (as described above under "Componentsabove). The charts below depict the annualized mix of Our Compensation - 3. Equity Incentives").target compensation for Lilly’s CEO and the average for the other named executive officers, excluding Mr. Simmons.
*The pay mix for the other named executive officers would have been 22% base salary, 20% bonus, and 58% equity with Mr. Simmons’ annualized base pay, blended bonus, and annual equity award. The mix does not include his one-time founders’ award.
2016
2018 Target Total Compensation
Performance Review Process
In setting potential EOtarget compensation for 2016,the named executive officers in 2018, the Compensation Committee considered both individual contributions, Lilly and companyElanco (as appropriate) performance during 2015.2017, internal pay equity, peer group data, and input from the CEO to establish executive officer compensation for 2018. Dr. Skovronsky’s pay was adjusted on June 1, 2018, when he became senior vice president and chief scientific officer. Mr. Simmons' pay was adjusted during the annual review based on 2017 performance and further adjusted by the Elanco board of directors when he was appointed as the president, CEO, and director of Elanco Animal Health, Inc.
20152017 Individual NEONamed Executive Officer Performance
A summary of the committee'sCompensation Committee's review of the individual NEOsnamed executive officer performances is provided below:
Dr. John LechleiterDavid Ricks, Chairman, President and Chief Executive Officer: In accordance with the company’s Corporate Governance Guidelines, the lead independent director conducted an assessment of Mr. Ricks’ performance during his first year as CEO, which was discussed by the independent directors conductedduring an executive session of the board. The independent directors believe the company largely met or exceeded its combined financial and strategic goals for 2017 under Mr. Ricks’ leadership. Mr. Ricks and his team:
delivered on the company's financial commitments
continued implementation of next generation research and development leading to the launch of Verzenio in the United States, Olumiant in Europe and nine other product approvals around the world which deliver value to patients and provide continued future growth for the company. Numerous potential medicines entered phase one and two clinical development from both internal research efforts and external sources
drove a cross-company productivity agenda resulting in savings that funded increased investment in research and development and allowed above-plan capital return to shareholders
announced the strategic review of Dr. Lechleiter’s performance during 2015, which was providedthe Elanco animal health business
appointed several new members to the Compensation Committee duringleadership team while improving the team’s diversity profile
implemented a private session. Under Dr. Lechleiter’s leadership,strategy that improved diversity and inclusion across the company, increased its growth prospectsthe representation of women and minorities in the mediummanagement, and long termand drove near-term volume growth, attributable to new products including Cyramza, Trulicity®, and Jardiance. In 2015, the company launched Basaglar and Portrazza®, following the successful launch of three new molecular entities (NMEs) in 2014. In addition, the company achieved the successful integration of Novartis Animal Health and led an initiative to improve the efficiency and sustainability ofdemonstrated the company’s research and development process. Dr. Lechleiter continuedcommitment to set a positive tone of integrity, inclusiveness, safety, and compliance in his internal and external interactions.
Derica Rice: Mr. Rice demonstrated strong leadership of our portfolio management in partnership with Dr. Lundberg. The committee noted the portfolio review process is far more robust than in past years. His function met very difficult financial targets while continuing to provide outstanding support to the business.
Jan Lundberg: Dr. Lundberg led Lilly Research Laboratories positive pipeline progression, including regulatory approvals for Cyramza in 2nd-line gastric cancer in Japan and 2nd-line metastatic colorectal cancer in the U.S., Trulicity in Japan, Humalog® U-200 Kwikpen, and Glyxambi® in the U.S., and Synjardy® in the U.S. and Europe. In addition, regulatory submissions were completed for Taltz and all planned Phase 3 trial starts were achieved.
Dr. Lundberg played a key leadership role in reorganizing external research. He sponsored the expansion of our research capabilities in San Diego and Boston and progressed our next-generation development strategy.
pay equity
progressed Lilly 30x30, a program to improve access to quality health care in resource-limited settings for 30 million people on an annual basis by 2030
improved certain environmental performance areas, such as greenhouse gas emissions, energy efficiency, waste efficiency, and wastewater.
In addition, the company was named one of the world’s most ethical companies by Ethisphere Institute.
Joshua Smiley, Senior Vice President and Chief Financial Officer: Mr. Smiley became senior vice president and CFO on January 1, 2018. Prior to becoming CFO, Mr. Smiley led the company’s treasury function throughout 2017, where he played a critical role in:
development and implementation of the company’s productivity agenda during the 2017 strategic plan and 2018 operating plan process
leadership of the capital allocation process allowing for the investment in several in-licensing deals and increased funding for the advancement of new medicines
co-leadership of the Elanco strategic review ultimately leading to the Elanco initial public offering in 2018
engagement with legislation leading to U.S. tax reform
establishment of an excellent rapport with the investment community
leadership and executive sponsorship of Lilly’s Indian Network, an employee resource group focused on supporting and advancing people of Indian heritage in the company.
Michael Harrington, Senior Vice President and General Counsel: Mr. Harrington provided thoughtful counsel onwas effective and influential in his role as General Counsel in 2017, and he was a varietyproductive partner with the executive team. Key performance contributions by Mr. Harrington included:
defending several key patents, including patents for Alimta in the United States, Europe, and Japan
developing and implementing legal strategies across the company
working to ensure the company has robust compliance around the world
leading a company initiative to increase protection of issues including commercial practices, pricing,Lilly's intellectual property policy,assets and several other areas. He was instrumental in several successful negotiations with external parties,improve cyber security
leading and serving as an executive sponsor of the company prevailed in several patent lawsuits including Alimta® in the U.S.company’s PRIDE organization (Lilly’s employee resource group focused on supporting and Europe.advancing lesbian, gay, bisexual, and transgender employees).
Enrique Conterno, Senior Vice President and President, Lilly Diabetes and President, Lilly USA: Under Mr. Conterno's leadership, the Diabetes business had a very strong year beating revenue and earnings targets. The business successfully launched several new products in the U.S. (Trulicity, Humalog U-200 Kwikpen, Glyxambi, and Synjardy). Mr. Conterno drove improvements in manufacturing our insulin productsdemonstrated strong leadership of Lilly Diabetes and forged strong partnerships with other functions.across the company. In 2017, he:
drove volume growth within the diabetes business unit, primarily from newer products
championed the development of new insulin delivery devices incorporating digital technology to provide patients with better diabetes control
led the company’s U.S. commercial business, which is the company's largest market, as well as the company's human pharmaceutical commercial operations in China, Japan, and Canada
served as executive sponsor of WILL (Women’s Initiative for Leading at Lilly), the company’s employee resource group focused on supporting and advancing the development of women across the company.
Daniel Skovronsky, M.D., Ph.D., Senior Vice President and Chief Scientific Officer: Dr. Skovronsky became senior vice president and chief scientific officer on June 1, 2018. Prior to this promotion, Dr. Skovronsky was senior vice president for product development. In 2017, Dr. Skovronsky led efforts including:
transformation of the company’s drug research and drug development function by creating program teams that act as small biotech companies, modifying traditional governance structures to enable agile decision making, and creating boards that oversee each program
efforts that significantly reduced the time drug candidates spend in development, leading to earlier product launch
sponsorship of an increase in Lilly’s external research efforts, including expansion of key research hubs in Boston and San Francisco
leadership and executive sponsorship of Lilly’s Japanese Network, an employee resource group focused on support and advancing people of Japanese heritage in the company.
Jeffrey Simmons, President, Chief Executive Officer and Director Elanco Animal Health, Inc.: Mr. Simmons became the President and CEO of Elanco in September 2018, after leading Lilly’s animal health business since 2008. During his tenure Elanco grew from a small business to one with more than $3 billion in annual revenue. This growth came from innovative new products providing strong organic growth and successfully integrating numerous acquired businesses, the largest being Novartis’s animal health business. Mr. Simmons' key accomplishments in 2017 included:
completion of several business development transactions, including the integration of Boehringer Ingelheim’s Vetmedica business into Elanco’s business operations
implementation of a broad productivity agenda that increased margins and operating income
co-leadership of the Elanco strategic review, ultimately leading to the Elanco initial public offering in 2018, while ensuring strong operational performance of the business
launch of new products for food animals and companion animals that are expected to drive future growth
improvements in operational performance across the Elanco business, including improving ethics and compliance processes.
2018 Target Compensation
The information in the section below reflects target total compensation at target for NEOs for 2016. The actual payouts made to the named executive officers for 2018. The actual compensation received in the form of the 2016 annual cash bonus and equity awards granted2018 is summarized below in prior years and vesting in 2016 are summarized in the next section, under "2016"2018 Compensation Payouts.Results."
Rationale for Changes to NEONamed Executive Officer Target Compensation
The committeeCompensation Committee established 20162018 target total compensation opportunities for each NEOnamed executive officer based on the NEO's 2015named executive officer's 2017 performance, internal relativity, and peer-grouppeer group data. The committee determined that an increase toFor Mr. Smiley and Dr. Lechleiter’s total compensation was appropriate given overall company resultsSkovronsky, the Compensation Committee established initial pay based on market data and his strong leadership over several years. The committee decided his increase should be delivered entirely in performance-based equity, leaving his base salary and bonus target unchanged from prior years and increasing the target value of his equity. For Dr. Lundberg, the committee believed his base salary was appropriate but increased his bonus target and equity award reflecting the strategic importance and impact of the R&D organization’s success. Messrs. Conterno, Harrington, and Rice received salary increases, aligned with the company's annual increase guidelines, and increases to their bonus targets, reflecting their contributions over time. In light of the Diabetes business's strong performance, Mr. Conterno also received an increase in his equity award.internal relativity.
Base Salary
The following table outlinesshows the approved annualized salary increases, if any,effective at the beginning of March for each named executive approvedofficer, except for Mr. Smiley, Dr. Skovronsky, and Mr. Simmons. Mr. Smiley’s salary is reflected as of January 1, 2018, when he became senior vice president and chief financial officer. Dr. Skovronsky’s salary is reflected as of June 1, 2018, when he became senior vice president and chief scientific officer. Mr. Simmons’ annual base salary was $688,118 from January 1, 2018 through September 19, 2018. When Mr. Simmons assumed his new responsibilities as the president, CEO and director of Elanco on September 20, 2018, his annual base salary was adjusted to $1,000,000 by the committee in December 2015.Elanco board of directors. Mr. Conterno’s base salary increase reflects his additional responsibility as head of Lilly USA and the importance of his leadership of the diabetes business unit and across the company. Each executive'snamed executive officer's actual base salary earned during 20162018 is reflected in the "SummarySummary Compensation Table"Table in the "Executive Compensation" section of this proxy.
| | | Name | 2015 Annual Base Salary | 2016 Annual Base Salary | Increase (effective March 1, 2016) | 2017 Annual Base Salary | 2018 Annual Base Salary | Increase (effective March 1, 2018) |
| Dr. Lechleiter | $1,500,000 | $1,500,000 | — | |
| Mr. Rice | $1,050,300 | $1,071,306 | 2% | |
| Dr. Lundberg | $1,007,855 | — | |
| Mr. Ricks | | 1,400,000 | $1,400,000 | - |
| Mr. Smiley | | N/A1 | $875,000 | - |
| Mr. Harrington | $788,000 | $835,280 | 6% | $860,300 | - |
| Mr. Conterno | $710,205 | $731,511 | 3% | $768,100 | $800,000 | 4% |
| Dr. Skovronsky | | N/A1 | $900,000 | - |
1 Mr. Smiley and Dr. Skovronsky became executive officers in 2018.
Annual Cash Bonus Targets
Based on a review of internal relativity, peer group data, and individual performance, the committeeCompensation Committee decided to increaseretain the same bonus targets for all NEOsMr. Ricks, Mr. Harrington, and Mr. Conterno as in 2016, except Dr. Lechleiter, based2017. Mr. Simmons’ bonus target was 80% from January 1, 2018 through September 19, 2018. When Mr. Simmons assumed his new responsibilities as the president, CEO, and director of Elanco on September 20, 2018, his bonus target was adjusted to 120% by the rationale described above. Elanco board of directors.Bonus targets are shown in the table below as a percentage of each named executive officer’s base salary earnings:
|
| | |
| Name | 2015 Bonus Target | 2016 Bonus Target |
| Dr. Lechleiter | 150% | 150% |
| Mr. Rice | 90% | 100% |
| Dr. Lundberg | 90% | 100% |
| Mr. Harrington | 75% | 80% |
| Mr. Conterno | 75% | 80% |
|
| | |
| Name | 2017 Bonus Target | 2018 Bonus Target |
| Mr. Ricks | 150% | 150% |
| Mr. Smiley | N/A1 | 95% |
| Mr. Harrington | 80% | 80% |
| Mr. Conterno | 80% | 80% |
| Dr. Skovronsky | N/A1 | 95% |
1 Mr. Smiley and Dr. Skovronsky became executive officers in 2018.
Equity ProgramIncentives - Target Grant Values
For 20162018 equity grants, the committeeCompensation Committee set the total target values for NEOsnamed executive officers based on internal relativity,peer group data, individual performance, and peer-group data. The committee increased the portioninternal relativity. Named executive officers, except Dr. Skovronsky, have 60 percent of totaltheir equity valuetarget allocated to shareholder value awards and 40 percent to performance awards. Because Dr. Skovronsky was not an executive officer at the SVA for all NEOs fromtime of annual grants, 50 percent of his equity target was allocated to 60shareholder value awards and 50 percent as the committee wanted more focus on shareholder return, given the operational focus of both the PA and the annual cash bonus.was allocated to performance awards. Total target values for the 20152017 and 20162018 equity grants to the NEOsnamed executive officers were as follows:
| | | Name | 2015 Total Equity | 2016 Total Equity | 2017 Annual Equity Grant | 2018 Annual Equity Grant2 |
| Dr. Lechleiter | $10,000,000 | $11,000,000 | |
| Mr. Rice | $3,800,000 | |
| Dr. Lundberg | $3,400,000 | $3,600,000 | |
| Mr. Ricks | | $8,500,000 | $9,000,000 |
| Mr. Smiley | | N/A1 | $2,300,000 |
| Mr. Harrington | $2,300,000 | $2,300,000 | $2,550,000 |
| Mr. Conterno | $2,000,000 | $2,200,000 | $2,500,000 | $2,600,000 |
| Dr. Skovronsky | | N/A1 | $2,300,000 |
| Mr. Simmons* | | N/A | $1,200,000 |
1 Mr. Smiley and Dr. Skovronsky became executive officers in 2018.
* Mr. Simmons’ 2018 annual equity grant from Lilly was $1,200,000; this amount excludes the
founders’ awards Mr. Simmons received as part of the Elanco initial public offering as described in the "Grants
of Plan-Based Awards During 2018" table below. Mr. Simmons' annual equity grants from Lilly will terminate in accordance with their teams when Lilly divests its remaining interest in Elanco.
Performance Goals for 20162018 Incentive Programs
2016 Annual Cash Bonus Goals
The Compensation Committee established the company performance targets for 2016 at the targets specified inusing the company's 20162018 corporate operating plan, which was approved by the Board of Directors in 2015.
2017. These targets are described below under "2018 Compensation Results." Management established the Elanco bonus plan performance targets, and Mr. Simmons’ bonus plan alignment, which was approved by the Compensation Committee in 2016 Compensation Payouts under2017 and later approved by the Bonus Awards for 2016 subsection.Elanco board of directors.
2018-2020 Performance Awards – 2016-2018 PAAward
In January 2016,February 2018, the committeeCompensation Committee established a cumulative, compounded two-year EPS growth target of 78.1 percent per year based on investment analysts’ EPS growth estimates for our peer group estimatescompanies at that time.
Possible payouts Payouts for the 2016-2018 PA2018-2020 performance award could range from 0 to 150 percent of the target, as illustrated in the chartshown below:
| | | | | 50% payout | | | 50% payout | |
| | | | | | | |
| | | Target | | | Target | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Payout Multiple | | 0.00 | | 0.50 | | 0.75 | | 1.00 | | 1.25 | | 1.50 | | 0.00 | | 0.50 | | 0.75 | | 1.00 | | 1.25 | | 1.50 |
| Cumulative 2-Year EPS | ≤ | $3.52 | | $6.93 | | $7.36 | | $7.80 | | $8.24 | | ≥ | $8.70+ | ≤ | $4.28 | | $8.57 | | $9.09 | | $9.63 | | $10.18 | | ≥ | $10.74 |
| EPS Annual Growth Rate | | | | (1)% | | 3% | | 7% | | 11% | | 15% | |
| EPS Growth | | | | | 0.1% | | 4.1% | | 8.1% | | 12.1% | | ≥ | 16.1% |
2018-2020 Shareholder Value Awards – 2016-2018 SVAAward
For purposes of establishing the stock price target for the SVAs,shareholder value awards, the starting price was $83.74$84.70 per share, representing the average of the closing prices of company stock price for all trading days in November and December 2015.2017. The target ending share price range was established based onusing the expected annual rate of return for large-cap companies (8 percent), less an assumed Lilly dividend yield of 2.4 percent, rounded to2.66 percent. To determine payout, the nearest $0.05. The ending price to determine payouts will be the average of the closing pricesprice of company stock for all trading days in November and December 2018.2020. The award is designed to deliver no payout to EOsexecutive officers if the shareholder return (including projected dividends) is zero or negative. The target share price growth of 5.6 percent per year is comparable to a compounded annual TSR of 8 percent over the three-year performance period. Possible payouts based on share price ranges are illustrated in the grid below.
below (and apply to all named executive officers other than Dr. Skovronsky).
| | | Ending Stock Price | Less than $77.51 | $77.51-$88.02 | $88.03-$98.54 | $98.55-$109.06 | $109.07-$119.58 | Greater than $119.58 | Less than $77.38 | $77.38 - $88.19 | $88.20 -$99.01 | $99.02-$109.83 | $109.84 -$120.65 | Greater than $120.65 |
| Compounded Annual Share Price Growth Rate (excluding dividends) | Less than(2.5%) | (2.5%)-1.7% | 1.7-5.6% | 5.6%-9.2% | 9.2%-12.6% | Greater than 12.6% | Less than (3.0%) | (3.0%)-1.4% | 1.4%-5.3% | 5.3%-9.0% | 9.1% -12.5% | Greater than 12.5% |
| Percent of Target | 0% | 50% | 75% | 100% | 125% | 150% | 0% | 50% | 75% | 100% | 125% | 150% |
EOExecutive officer awards are subject to a relative TSR modifier, which is applied to the payout indicated byas shown in the grid below. The number of shares to be paid will increase or decrease by 1 percent for every percentage point Lilly's three-year TSR deviates from our peer group's median three-year TSR, capped at 20 percent.percent (applies to all named executive officers other than Dr. Skovronsky).
2016
Because Dr. Skovronsky was not an executive officer when his award was granted, his award does not include the TSR modifier described above, and has a lower threshold stock price hurdle. Otherwise, the payout grid for his shareholder value award, as illustrated below is the same as for the other named executive officers.
|
| | | | | | |
| Ending Stock Price | Less than $42.35 | $42.35 - $88.19 | $88.20 -$99.01 | $99.02-$109.83 | $109.84 -$120.65 | Greater than $120.65 |
| Compounded Annual Share Price Growth Rate (excluding dividends) | Less than (20.6%) | (20.6%)-1.4% | 1.4%-5.3% | 5.3%-9.0% | 9.1% -12.5% | Greater than 12.5% |
| Percent of Target | 0% | 50% | 75% | 100% | 125% | 150% |
2018 Compensation PayoutsResults
The information in this section reflects the amounts paid to NEOsnamed executive officers under the Lilly bonus plan or the Elanco bonus plan, as applicable, and for the 2016 annual cash bonus and payouts from equity awards granted in prior years for which the relevant performance period ended in 2016.2018.
2016 CompanyLilly Performance - Compensation
For 2016, the companyIn 2018 we exceeded itsboth our annual revenue target with annual revenues of $21.2 billion. The company fell short of itsand EPS target, with EPS of $3.52. The companytargets. We also made significant progress on itsour pipeline, meeting or exceeding most targets forall of our pipeline progress, highlighted bytargets. Key pipeline highlights include first regulatory approval for LartruvoEmgality and Taltz, along with 19eleven other new approvals, indications, or line extensions during 2016.extensions.
Lilly Bonus Award for 2016Plan
The company's 2016 performance compared to targets for revenue, EPS, and pipeline progress, as well as the resulting Lilly bonus multiple, is illustrated below. In 2018, the Non-GAAP EPS for Lilly Bonus was adjusted by $(0.06) to eliminate the benefit of share repurchases in excess of a pre-established collar.
| | | | 2016 Corporate Target | Adjusted Results | Multiple¹ | 2018 Corporate Target | Adjusted Results* | Multiple |
| Revenue | $20.6 billion | $21.2 billion | 1.33 | $23.457 billion | $24.556 billion | 1.48 |
| EPS | $3.55 | $3.52 | 0.91 | $4.91 | $5.49 | 2.00 |
| Pipeline score | 3 | 4.08 | 1.54 | 3.00 | 3.9 | 1.45 |
| Resulting Bonus Multiple | 1.17 | |
| Lilly Bonus Multiple | | | 1.73 |
¹*See Appendix A, “Summary of Adjustments Related to the Annual Cash Bonus and Performance goal multiples are capped at 2.0.Award.”
The Science and Technology Committee assessedCommittee's assessment of the company's progress toward achieving product pipeline goals at 4.08 (on a scale of 1 to 5) including:is detailed below:
2 new molecular entity (NME) product approvals versus a goal of 2, and 19 other significant approvals versus a goal of 12.
1 NME entering into Phase 3 versus a goal of 2 entrants.P44
12 NMEs entering into Phase 1 versus a goal of 9-11 entrants.
4 new indications or line extensions (NILEX) entering into Phase 3 versus a goal of 4-5 entrants.exceeded targets for Speed to Launch: project plans across the portfolio reflected faster time to launch than industry benchmarks scoring a 4 of 5; progressed projects in the portfolio faster than planned timelines scoring a 5 of 5.
subjective assessment of the quality of the pipeline, considering many factors—awarded a score of 4 of 5, recognizing a strong year for innovation. |
| | |
| Activity | Objective | Achievement |
| Approvals | 1-2 new drug first approval 9 other approvals | 1 new drug first approvals 10 other approvals |
| Potential new drug Phase 3 starts | 2 | 3 |
| Potential new drug Phase 1 starts | 9-11 | 11 |
| Potential new indication or line extension Phase 3 starts | 3 | 5 |
| Plan Boldly | Meet industry benchmark for speed of development | Plans exceeded industry benchmark |
| Deliver to Launch | Meet planned project timelines | Delivered much faster than planned timelines |
| Qualitative Assessment | Chief scientific officer's assessment of performance against strategic objectives |
Based on the recommendation of the Science and Technology Committee, the Compensation Committee certifiedapproved a pipeline score of 4.08,3.90, resulting in a pipeline multiple of 1.54.1.45.
Combined,When combined, the revenue, EPS, and pipeline progress multiples yielded a bonus multiple of 1.17.1.73.
(0.25 x 1.33)1.48) + (0.50 x 0.91)2.00) + (0.25 x 1.54)1.45) = 1.171.73 bonus multiple
The cash bonus amounts2018 bonuses paid to NEOsthe applicable named executive officers under the Lilly bonus plan were as follows:
|
| |
| Name | 2018 Bonus ($) |
| Mr. Ricks | $3,633,000 |
| Mr. Smiley | $1,438,063 |
| Mr. Harrington | $1,190,655 |
| Mr. Conterno | $1,099,842 |
| Dr. Skovronsky | $1,376,431 |
Elanco Bonus Plan
Elanco’s performance compared to targets for 2016 are reflected inElanco revenue, Elanco operating margin, Elanco innovation progress and the "Summary Compensation Table"Lilly bonus multiple, as well as the resulting Elanco bonus multiple, is illustrated below.
|
| | | |
| | 2018 Elanco Target | 2018 Elanco Results | Multiple |
| Elanco Revenue | $3.171 billion | $3.143 billion | 0.85 |
| Elanco Operating Margin | 20.0% | 20.2% | 1.10 |
| Elanco Innovation | 3.00 | 3.60 | 1.30 |
| Lilly Company Bonus Multiple | | | 1.73 |
| Resulting Elanco Bonus Multiple | | | 1.24 |
*See Appendix A, “Summary of Adjustments Related to the Annual Cash Bonus and Performance Periods Ending in 2016Award.”
2015-2017
Elanco’s 2018 innovation target was 3.0 on a scale of 1.0 to 5.0. Elanco’s innovation multiple comprises the following factors: (i) achievement of product approvals, (ii) entrants into early and late-stage development, (iii) adherence to approval timelines, and (iv) a qualitative assessment by Elanco’s head of R&D of overall performance. Based on the weighted outcomes of these factors, Elanco achieved a 3.6 score, which correlates to a 1.30 innovation multiple for use in the Elanco bonus calculation.
When combined, the Elanco revenue, Elanco operating margin, Elanco innovation and Lilly bonus multiple yielded a 2018 Elanco bonus plan multiple of 1.24.
(0.25 x 0.85) + (0.25 x 1.10) + (0.25 x 1.30) + (0.25 x 1.73) = 1.24 bonus multiple
The 2018 bonus paid to Mr. Simmons under the Elanco bonus plan is as follows:
|
| |
| Name | 2018 Bonus ($) |
| Mr. Simmons | $907,450 |
2017-2019 Performance AwardAwards
The target cumulative EPS for the 2015-2017 PA2017-2019 performance award was set in the first quarter of 20152017 reflecting expected industry growth of 1.05.3 percent each year over the two-year performance period of 2015-2016.2017-2018. The company's actual annual EPS growth for the two-year period was 7.922.5 percent, reflectingafter an adjustment to Non-GAAP EPS of $(0.24) to eliminate the positive contributionbenefit to our effective tax rate resulting from the implementation of U.S. tax reform in 2018. The actual EPS growth over the 2017-2018 performance period was largely driven by volume growth from our newer products as we return to a period of growth.products.
The company's performance compared to target (and the resulting multiple) for the 2015-2017 PA is reflected in the charts below.
For the NEOs,named executive officers other than Mr. Smiley and Dr. Skovronsky, shares earned for the number of shares2017-2018 performance period are subject to an additional 13-month service-vesting period under the 2015-2017 PA is reflectedand are shown in the table below (this information is also includedas restricted stock units (RSUs). Mr. Smiley and Dr. Skovronsky’s 2017-2018 performance awards were paid in footnote 5 to the "Outstanding Equity Awards" table in the "Executive Compensation" section below):shares of Lilly common stock.
| | | Name | Target Shares | RSUs Earned | Target Shares | Shares Earned | RSUs Earned |
| Dr. Lechleiter | 71,083 | 106,625 | |
| Mr. Rice | 27,012 | 40,518 | |
| Dr. Lundberg | 24,168 | 36,252 | |
| Mr. Ricks | | 46,233 | N/A | 69,350 |
| Mr. Smiley | | 4,759 | 7,139 | N/A |
| Mr. Harrington | 16,349 | 24,524 | 12,510 | N/A | 18,765 |
| Mr. Conterno | 14,217 | 21,326 | 13,598 | N/A | 20,397 |
| Dr. Skovronsky | | 8,839 | 13,259 | N/A |
| Mr. Simmons | | 10,878 | N/A | 16,317 |
2014-20162016-2018 Shareholder Value Award
The target stock price range of $56.95$98.55 to $109.06 (17.7 percent to 30.2 percent total stock price growth) for the 2014-2016 SVA2016-2018 shareholder value award was set in January 20142016 based on a beginning stock price of $50.42,$83.74, which was the average closing price for Lilly stock for all trading days in November and December 2013.2015. The ending stock price of $72.15$112.38 represents stock price growth of approximately 4334.2 percent over the relevant three-year period. The company'scompany’s performance compared to target (and the resulting payout multiple) for the 2014-2016 SVAthis award is shown below.
The performance multiple of 1.25 was modified for all the named executive officers other than Mr. Smiley and Dr. Skovronsky by the relative TSR metric. The cumulative TSR median for the company’s peer group was 16.6 percent, and Lilly’s TSR over the same period was 44.9 percent as depicted in the chart below:
Given this positive relative performance, the shareholder value award payout multiple was increased by 20 percent, making the final performance multiple for these named executive officers 1.50.
The number of shares paid to NEOs during 2016each of our named executive officers for the 2014-2016 SVA2016-2018 performance period were as follows:
| | | Name | Target Shares | Shares Paid Out | Target Shares | Shares Paid Out |
| Dr. Lechleiter | 122,984 | 172,178 | |
| Mr. Rice | 51,927 | 72,698 | |
| Dr. Lundberg | 40,995 | 57,393 | |
| Mr. Ricks | | 32,109 | 48,164 |
| Mr. Smiley* | | 6,744 | 8,430 |
| Mr. Harrington | 25,963 | 36,348 | 33,568 | 50,352 |
| Mr. Conterno | 27,330 | 38,262 | 32,109 | 48,164 |
| Dr. Skovronsky* | | 12,042 | 15,053 |
| Mr. Simmons | | 29,190 | 43,785 |
*The TSR modifier did not apply to Mr. Smiley’s and Dr. Skovronky’s 2016-2018 shareholder value award payouts since neither one was an executive officer at the time of grant.
Other Compensation Practices and Information
Employee Benefits
The company offers core employee benefits coverage to:
provide our workforce with a reasonable level of financial support in the event of illness or injury;injury
provide post-retirement income; andincome
enhance productivity and job satisfaction through benefit programs that focus on overall well-being.
The benefitsbenefit programs available to executive officers are the same foroffered to all U.S. employees and include medical and dental coverage, disability insurance, and life insurance. In addition, The Lilly Employee 401(k) plan (401(k) Plan) and The Lilly Retirement Plan (the Retirement Plan) provide U.S. employees a reasonable level of retirement income reflecting employees’ careers with the company. To the extent that any employee’s retirement benefit exceeds Internal Revenue Service (IRS) limits for amounts that can be paid through a qualified plan, the company also offers a nonqualified pension plan and a nonqualified savings plan. These plans provide only the difference between the calculated benefits and the IRS limits, and the formula is the same for all U.S. employees. The cost of employee benefits is partially borne by the employee, including each EO.executive officer.
Perquisites
The company provides very limited perquisites to EOs.executive officers. The company generally does not generally allow personal use of the corporate aircraft; however the aircraft was made available for the personal use of Dr. Lechleiter, prior to his retirement, and for Mr. Ricks beginning in 2017, in veryaircraft. In rare cases when the security and efficiency benefits to the company outweigh the expense.expense, the corporate aircraft is made available to Mr. Ricks for personal use. The company did not incur any expenses for personal use of its aircraft in 20162018 by Dr. Lechleiter,Mr. Ricks, and he received nodid not receive any other perquisites. Depending on seat availability,
family members and personal guests of EOs may travelaccompany executive officers who are traveling for business on the company aircraft to accompany EOs who are traveling on business.aircraft. There is no incremental cost to the company for these trips.trips by family members and personal guests.
The Lilly Deferred Compensation Plan
Members of senior management may defer receipt of part or all of their cash compensation under The Lilly Deferred Compensation Plan (Deferred Compensation Plan), which allows executives to save for retirement in a tax-effective way at minimal cost to the company. Under this unfunded plan, 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 “Nonqualified Deferred Compensation in 2016”2018” table.
Severance Benefits
Except in the case of a change in control of the company, the company is not obligated to pay severance to EOsexecutive officers upon termination of their employment; any such payments are at the discretion of the Compensation Committee.
The company has adopted change-in-control severance pay plans for nearly all employees, including the EOs.executive officers. The plans are 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. In addition, the plans are intended to align executive and shareholder interests by enabling executives to evaluate corporate transactions that may be 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.
|
| | | |
Highlights of our change-in-control severance plans |
Ÿ | all regular employees are covered |
Ÿ | double trigger generally required |
Ÿ | no tax gross-ups |
Ÿ | up to two-year pay protection |
Ÿ | Highlights of Our Change-in-Control Severance Plans all regular employees are covered double trigger generally required no tax gross-ups up to two-year pay protection 18-month benefit continuation |
Although benefit levels may differ depending on the employee’s job level and seniority, the basic elements of the plans are comparable for all eligible employees:
Double triggertrigger: . Unlike “single trigger” plans that pay out immediately upon a change in control, our plans generally require a “double trigger”— -- a change in control followed by an involuntary loss of employment within two years thereafter.years. This is consistent with the plan's intent to provide employees with financial protection upon loss of employment. A partial exception is made for outstanding PAs, a portionWith respect to unvested equity, performance to the date of which wouldthe change in control will be paid outused to
determine the number of shares earned under an award, but vesting does not accelerate immediately upon a change in control on a pro-rated basis for time worked based oncontrol. Rather, the forecasted payout level atperformance-adjusted awards will convert to time-based restricted stock units that continue to vest with the timenew company. Shares will pay out upon the earlier of the change in control. This partial payment is appropriate because it iscompletion of the original award period; upon a covered termination; or if the successor entity does not possible to convertassume, substitute, or otherwise replace the company EPS targets into an award based on the surviving company’s EPS. Likewise, if Lilly is not the surviving entity, a portion of outstanding SVAs would be paid out on a pro-rated basis for time worked up to the change in control based on the merger price for company stock.
awards.
Covered terminationsterminations:. 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 plan. See “Executive Compensation - Payments Upon Termination or Change in Control” for a more detailed discussion, including a discussion of what constitutes a change in control.
Employees who suffer a covered termination receive up to two years of pay and 18 months of benefits protectionprotection:. These provisions assureensure employees a reasonable period of protection of their income and core employee benefits.
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 two times the then-current year’s target bonus.
Benefit continuation. Basic employee benefits such as health and life insurance would be continuedcontinue for 18 months following termination of employment, unless the individual becomes eligible for coveragewith a new employer. All employees would receive an additional two years of both age and years-of-service credit for purposes of determining eligibility for retiree medical and dental benefits.
Accelerated vesting of equity awardsawards: . Any unvested equity awards would vest at the time of a covered termination.
Excise taxtax:. In some circumstances, the payments or other benefits received by the employee in connection with a change in control could exceed limits established under Section 280G of the Internal Revenue Code. The employee would then be subject to an excise tax on top of normal federal income tax. The company does not reimburse employees for these taxes. However, the amount of change in control-related benefits will be reduced to the 280G limit if the effect would be to deliver a greater after-tax benefit than the employee would receive with an unreduced benefit.
Elanco has adopted a similar severance plan that covers Mr. Simmons.
Share Ownership and Retention Guidelines; Prohibition on Hedging and Pledging Shares
Share ownership and retention guidelines help to foster a focus on long-term growth. The CEO is required to own company stock valued at least six times annual base salary. TheDuring 2018, the holding requirement for other EOs rangesexecutive officers ranged from two to threefour times annual base salary depending on the position. Until the required number of shares is reached, the EOan executive officer must retain 50 percent of shares net of taxes received from new equity payouts. Our executives have a long history of maintaining significant levels of company stock. As of December 31, 2016, Dr. Lechleiter2018, Mr. Ricks held shares valued at approximately 5911 times his annualbase salary. Mr. Ricks will retain at least 50 percent of net shares received from future equity payouts until he satisfies these guidelines. The following table shows the share requirements for each NEO:the named executive officers:
|
| | |
| Name | Share Requirement | Owns Required SharesMeets Requirement |
Dr. LechleiterMr. Ricks | six times base salary | Yes |
Mr. RiceSmiley* | threefour times base salary
| No |
| Mr. Harrington | four times base salary | Yes |
| Mr. Conterno | four times base salary | Yes |
Dr. LundbergSkovronsky | threefour times base salary
| Yes |
Mr. HarringtonSimmons | threefour times base salary
| Yes
|
Mr. Conterno | three times base salary
| Yes |
EOs* Mr. Smiley was compliant with the annual share retention guideline as he builds
toward his ownership requirement.
Executive officers are also required to hold all shares received from equity program payouts, net of acquisition costs and taxes, for at least one year, even once share ownership requirements have been met. For PAs,performance awards awarded to executive officers, this holding requirement is met by the 13-month service-vesting period that applies after the end of the performance period.
Non-employee directors and employees, including executive officers, are not permitted to hedge their economic exposures to company stock through short sales or derivative transactions. Non-employee directors and all members of senior management (approximately 150 employees in 2018) are prohibited from pledging any company stock (i.e., using company stock as collateral for a loan or trading shares on margin).
Executive Compensation Recovery Policy
All incentive awards are subject to forfeiture upon termination of employment prior to the end of the performance or vesting period or for disciplinary reasons. In addition, the Compensation Committee has adopted an executive compensation recovery policy that gives the Compensation Committee broad discretion to claw back incentive payouts from any member of senior management (approximately 160 employees) whose misconduct results in a material violation of law or company policy that causes significant
harm to the company or who fails in his or her supervisory responsibility to prevent such misconduct by others.
Additionally, the company can recover all or a portion of any EO incentive compensation from an executive officer in the case of materially inaccurate financial statements or material errors in the performance calculation, whether or not theysuch inaccuracies or errors result in a restatement and whether or not the EOexecutive officer has engaged in wrongful conduct.
The recovery policy covers any incentive compensation awarded or paid to an employee at a time when he or she is a member of senior management.management during the last three years. Subsequent changes in status, including retirement or termination of employment, do not affect the company’s rights to recover compensation under the policy. Recoveries under the plan can extend back as far as three years.
Looking Ahead to 20172019 Compensation
Lilly's board of directors unanimously elected David A. RicksThe Compensation Committee reviewed our peer group in 2018 to assumeensure it continues to include the role of presidentcompanies that compete with us, operate in a similar business model, and chief executive officer. He became president, chief executive officer, and a director on January 1, 2017, and will become chairman of the board on June 1, 2017.
In connection with his appointment as president and chief executive officer, Mr. Ricks will receive a base salary of $1.4 million and will be eligible for an annual cash bonus with a target value of 150 percent of base salary. Mr. Ricks received an equity award in February 2017 as part of the company's annual equity incentive program with a grant value of $8.5 million. One hundred percent of this grant value was delivered in the form of performance based equity: 60 percent in SVAs and 40 percent in PAs. He does not receive any compensation for his service as a director of the company.
Beginning with 2017 grants, the treatment of performance-based equity awards (Performance Awards and Shareholder Value Awards) in the event of a change-in-control require a “double trigger” (a change-in-control occurs plus termination of employment) to pay. Accrued performance will be used to determine the number of shares earned under the award. The awards will convert to restricted stock units that continue to vestemploy people with the newunique skills required to operate an established biopharmaceutical company. They will payout uponThe Compensation Committee selected companies whose median market cap and revenues are broadly similar to Lilly. During this review, the earlier of the completion of the original award period or upon a covered termination.
Compensation Committee chose to add Allergan, Novo Nordisk and Takeda while removing Baxter and Medtronic.
Executive Compensation
Summary Compensation Table
|
| | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) 1 | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) 2 | Change in Pension Value ($) 3 | | All Other Compensation ($) 4 | Total Compensation ($) |
| John C. Lechleiter, Ph.D. | 2016 |
| $1,500,000 |
| $0 | $11,000,000 | $0 |
| $2,632,500 |
| $3,144,633 | |
| $90,000 |
|
| $18,367,133 |
|
Chairman, President, and Chief Executive Officer | 2015 |
| $1,500,000 |
| $0 | $11,350,000 | $0 |
| $3,622,500 |
| $0 | 5 |
| $90,000 |
|
| $16,562,500 |
|
| 2014 |
| $1,500,000 |
| $0 | $6,750,000 | $0 |
| $1,785,000 |
| $4,356,142 | |
| $90,000 |
|
| $14,481,142 |
|
| Derica W. Rice | 2016 |
| $1,067,805 |
| $0 | $3,800,000 | $0 |
| $1,249,332 |
| $1,739,429 | |
| $64,068 |
|
| $7,920,634 |
|
Executive Vice President, Global Services, and Chief Financial Officer | 2015 |
| $1,045,200 |
| $0 | $4,313,000 | $0 |
| $1,514,495 |
| $0 | 5 |
| $62,712 |
|
| $6,935,407 |
|
| 2014 |
| $1,019,700 |
| $0 | $2,850,000 | $0 |
| $780,071 |
| $2,023,458 | |
| $61,182 |
|
| $6,734,411 |
|
| Jan M. Lundberg, Ph.D. | 2016 |
| $1,007,855 |
| $0 | $3,600,000 | $0 |
| $1,179,190 |
| $627,381 | |
| $60,471 |
|
| $6,474,897 |
|
Executive Vice President, Science and Technology, and President, Lilly Research Laboratories | 2015 |
| $1,007,855 |
| $0 | $3,859,000 | $0 |
| $1,460,382 |
| $390,645 | 5 |
| $60,471 |
|
| $6,778,353 |
|
| 2014 |
| $1,007,855 |
| $0 | $2,250,000 | $0 |
| $771,009 |
| $517,761 | |
| $60,471 |
|
| $4,607,096 |
|
| Michael J. Harrington | 2016 |
| $827,400 |
| $0 | $2,300,000 | $0 |
| $774,446 |
| $1,441,954 | |
| $49,644 |
|
| $5,393,444 |
|
Senior Vice President and General Counsel | 2015 |
| $784,167 |
| $0 | $2,610,500 | $0 |
| $946,881 |
| $391,899 | 5 |
| $47,050 |
|
| $4,780,497 |
|
| 2014 |
| $765,000 |
| $0 | $1,425,000 | $0 |
| $487,688 |
| $1,330,586 | |
| $45,900 |
|
| $4,054,174 |
|
| Enrique A. Conterno | 2016 |
| $727,960 |
| $0 | $2,200,000 | $0 |
| $681,371 |
| $935,408 | |
| $43,678 |
|
| $4,588,417 |
|
Senior Vice President and President, Lilly Diabetes | 2015 |
| $705,653 |
| $0 | $2,270,000 | $0 |
| $852,075 |
| $0 | 5 |
| $42,339 |
|
| $3,870,067 |
|
| 2014 |
| $682,890 |
| $0 | $1,500,000 | $0 |
| $435,342 |
| $1,235,839 | |
| $40,973 |
|
| $3,895,044 |
|
|
| | | | | | | | | | | |
| Name and Principal Position | Year | Salary
($) | Bonus
($) | Stock Awards
($) 1 | | Option Awards
($) 2 | Non-Equity Incentive Plan Compensation
($) 3 | Change in
Pension Value
($) 4 | | All Other Compensation
($) 5 | Total Compensation
($) |
| David A. Ricks | 2018 | $1,400,000 | $0 | $10,584,000 | | $0 | $3,633,000 | $1,529,337 | | $84,000 | $17,230,337 |
Chairman, President, and
Chief Executive Officer | 2017 | $1,400,000 | $0 | $10,200,000 | | $0 | $2,814,000 | $1,347,991 | | $84,000 | $15,845,991 |
| 2016 | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A |
| Joshua L. Smiley | 2018 | $875,000 | $0 | $2,704,800 | | $0 | $1,438,063 | $174,980 | | $52,500 | $5,245,343 |
Senior Vice President and
Chief Financial Officer | 2017 | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A |
| 2016 | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A |
| Michael J. Harrington | 2018 | $860,300 | $0 | $2,998,800 | | $0 | $1,190,655 | $338,947 | | $51,618 | $5,440,320 |
Senior Vice President and
General Counsel | 2017 | $856,130 | $0 | $2,760,000 | | $0 | $917,771 | $1,657,718 | | $51,368 | $6,242,987 |
| 2016 | $827,400 | $0 | $2,300,000 | | $0 | $774,446 | $1,441,954 | | $49,644 | $5,393,444 |
| Enrique A. Conterno | 2018 | $794,683 | $0 | $3,057,600 | | $0 | $1,099,842 | $0 | | $47,681 | $4,999,806 |
Senior Vice President and
President, Lilly Diabetes and President, Lilly USA | 2017 | $762,002 | $0 | $6,000,000 | | $0 | $816,866 | $999,426 | | $45,720 | $8,624,014 |
| 2016 | $727,960 | $0 | $2,200,000 | | $0 | $681,371 | $935,408 | | $43,678 | $4,588,417 |
| Daniel M. Skovronsky, M.D., Ph.D. | 2018 | $837,500 | $0 | $2,806,000 | | $0 | $1,376,431 | $75,717 | | $50,250 | $5,145,898 |
| Senior Vice President and Chief Scientific Officer | 2017 | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A |
| 2016 | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A |
| Jeffrey N. Simmons | 2018 | $775,185 | $0 | $2,530,654 | 2 | $1,119,445 | $907,450 | $0 | | $46,511 | $5,379,245 |
| President, Chief Executive Officer and Director Elanco Animal Health, Inc. | 2017 | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A |
| 2016 | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A |
1 This column shows the grant date fair value of PAsperformance awards and SVAsshareholder value awards computed in accordance with FASB ASC Topic 718. ValuesSee Note 11 of the consolidated financial statements in the company’s Annual Report on Form 10-K for awards subject to performance conditions (PAs) are computedthe fiscal year ended December 31, 2018, for additional detail regarding assumptions underlying the valuation of equity awards. All values in the “Stock Awards” column were based upon the probable outcome of the performance conditionconditions as of the grant date. The PA grant values included in the "Stock Awards" column are based on the probable payout outcome anticipated at the time of grant,date, which was different from the target value in 2014 and 2015. vary year to year.
For purposes of comparison, the supplemental table below shows the total target grant values approved by the committee:Compensation Committee:
|
| | | |
| Name | 2016 Total Equity | 2017 Total Equity | 2018 Total Equity |
| Mr. Ricks | N/A | $8,500,000 | $9,000,000 |
| Mr. Smiley | N/A | N/A | $2,300,000 |
| Mr. Harrington | $2,300,000 | $2,300,000 | $2,550,000 |
| Mr. Conterno | $2,200,000 | $2,500,000 | $2,600,000 |
| Dr. Skovronsky | N/A | N/A | $2,300,000 |
| Mr. Simmons | N/A | N/A | $1,200,000 |
For Mr. Simmons, in addition to the Lilly grant values shown above, the “Stock Awards” column also includes a founders’ award for Elanco restricted stock unites for Mr. Simmons. This award was granted after the Elanco IPO on October 20, 2018, and it will vest on October 20, 2021. The grant date fair value was $1,119,454 for Mr. Simmons.
|
| | | |
| Name | 2014 Total Equity | 2015 Total Equity | 2016 Total Equity |
| Dr. Lechleiter | $9,000,000 | $10,000,000 | $11,000,000 |
| Mr. Rice | $3,800,000 | $3,800,000 | $3,800,000 |
| Dr. Lundberg | $3,000,000 | $3,400,000 | $3,600,000 |
| Mr. Harrington | $1,900,000 | $2,300,000 | $2,300,000 |
| Mr. Conterno | $2,000,000 | $2,000,000 | $2,200,000 |
The table below shows the minimum, target, and maximum payouts (using the grant date fair value) for the 2016-2018 PA grant2018-2019 performance award and the 2018-2020 performance award included in this column of the "SummarySummary Compensation Table."
| | | Name | Payout Date | Minimum Payout | Target Payout | Maximum Payout | Payout Date | Minimum Payout | Target Payout | Maximum Payout |
| Dr. Lechleiter | February 2019 | $0 | $4,400,000 | $6,600,000 | |
| Mr. Rice | February 2019 | $0 | $1,520,000 | $2,280,000 | |
| Dr. Lundberg | February 2019 | $0 | $1,440,000 | $2,160,000 | |
| Mr. Ricks | | January 2021 | $0 | $3,600,000 | $5,400,000 |
| Mr. Smiley | | January 2021 | $0 | $920,000 | $1,380,000 |
| Mr. Harrington | February 2019 | $0 | $920,000 | $1,380,000 | January 2021 | $0 | $1,020,000 | $1,530,000 |
| Mr. Conterno | February 2019 | $0 | $880,000 | $1,320,000 | January 2021 | $0 | $1,040,000 | $1,560,000 |
| Dr. Skovronsky | | January 2021 | $0 | $1,150,000 | $1,725,000 |
| Mr. Simmons | | January 2021 | $0 | $480,000 | $720,000 |
The table below shows the minimum, target, and maximum payouts (using the grant date fair value) for the 2018-2020 shareholder value award in the Summary Compensation Table. As described above in the “Performance Goals for 2018 Incentive Programs” section, since Dr. Skovronsky was not an executive officer at the time of the annual grant, his maximum payout is 150 percent, while the other named executive officers’ maximum payouts are 180 percent.
|
| | | | |
| Name | Payout Date | Minimum Payout | Target Payout | Maximum Payout |
| Mr. Ricks | January 2021 | $0 | $5,400,000 | $9,720,000 |
| Mr. Smiley | January 2021 | $0 | $1,380,000 | $2,484,000 |
| Mr. Harrington | January 2021 | $0 | $1,530,000 | $2,754,000 |
| Mr. Conterno | January 2021 | $0 | $1,560,000 | $2,808,000 |
| Dr. Skovronsky | January 2021 | $0 | $1,150,000 | $1,725,000 |
| Mr. Simmons | January 2021 | $0 | $720,000 | $1,296,000 |
2 This column shows paymentsFollowing Elanco's initial public offering, Elanco leadership received founders' awards. Mr. Simmons received Elanco stock options, which are Elanco nonqualified stock options with a three year vesting period followed by a seven year exercise period.
3 Payments under the Lilly bonus plan or, with respect to Mr. Simmons Elanco bonus plan, for performance in each of the respective years. All bonuses paid to NEOs were part of a non-equity incentive plan.years represented.
34 The amounts in this column reflect the change in pension value for each individual, calculated by our actuary, and are affected by additional service accruals and pay earned, as well as actuarial assumption changes. The changes in pension values in 20162018 were driven to a large extent by a lowerhigher discount rate that increasedwhich decreased the net present value of pensions. The design of the pension benefit plan did not change. See the Pension Benefits in 20162018 table below for information about the standard actuarial assumptions used. No NEOnamed executive officer received preferential or above-market earnings on deferred compensation. In 2018, the net present value of the pension benefits for Mr. Conterno and Mr. Simmons reflect no change from the previous year due to an increase in the discount rate over the prior year. For the other named executive officers, increases in pensionable earnings offset the impact of the 2018 increased discount rate.
45 The amounts in this column are solely company matching contributions forinto each individual's 401(k) plan and nonqualified savings plan contributions. The company does not reimburse executives for taxes outside of the limited circumstance of taxes related to employee relocation or a prior international assignment. There were no reportable perquisites or personal benefits.
5 In 2015, the net present value of the pension benefits for Mr. Conterno, Dr. Lechleiter, and Mr. Rice reflect no change from the previous year due to an increase in the discount rate over the prior year. For the other NEOs, increases in pensionable earnings along with an additional year of service partially offset the impact of the increased discount rate.
Grants of Plan-Based Awards During 20162018
The compensation plans under which the grants in the following table were made are described in the CD&A above and consist of the Lilly and Elanco bonus plan (aplans (each, a non-equity incentive plan), the Amended and theRestated 2002 Lilly Stock Plan (which provides for PAs, SVAs,performance awards, shareholder value awards, and RSUs)restricted stock units), and the 2018 Elanco Stock Plan.
To receive a payout under the performance award or the shareholder value award, a participant must remain employed with the company through the end of the relevant award period (except in the case of death, disability, retirement, or plant closing or reduction in workforce). No dividends accrue on either performance awards or shareholder value awards during the performance period. For performance awards, non-preferential dividends accrue during the 13-month service-vesting period (following the two-year performance period) and are paid upon vesting.
| | | Name | Award | Grant Date2 | Compensation Committee Action Date | Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards1 | Estimated Future
Payouts Under Equity
Incentive Plan Awards | All Other
Stock or Option Awards:
Number of
Shares of Stock,
Options, or Units | Grant Date
Fair Value
of Equity
Awards | Award | | Grant Date2 | Compensation Committee Action Date | Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards 1 | Estimated Possible and Future
Payouts Under Equity
Incentive Plan Awards | All Other
Stock or Option Awards:
Number of
Shares of Stock,
Options, or Units | Exercise or Base Price of Option Awards | Grant Date
Fair Value
of Equity
Awards |
Threshold
($) | Target
($) | Maximum
($) | Threshold
(# shares) | Target
(# shares) | Maximum
(# shares) | Threshold
($) | Target
($) | Maximum
($) | Threshold
(# shares) | Target
(# shares) | Maximum
(# shares) |
| Dr. Lechleiter | | __ | | __ | $56,250 | $2,250,000 | $4,500,000 | | | | | | |
Mr.
Ricks | | | __ | $525,000 | $2,100,000 | $4,200,000 | |
| 2016-2018 PA | 2/3/2016 | 3 | 12/14/2015 | | | 30,556 | 61,111 | 91,667 | | $4,400,000 | 2018-2020 PA | 3 | 2/9/2018 | 12/11/2017 | | 25,129 | 50,258 | 75,387 | | $5,184,000 |
| 2016-2018 SVA | 2/3/2016 | 4 | 12/14/2015 | | | 64,218 | 160,545 | 288,982 | | $6,600,000 | 2018-2020 SVA | 4 | 2/9/2018 | 12/11/2017 | | 52,414 | 131,036 | 235,865 | | $5,400,000 |
| | | | | | | | 0 | | | 0 | |
| Mr. Rice | | __ | | __ | $26,695 | $1,067,805 | $2,135,610 | | | | |
| 2016-2018 PA | 2/3/2016 | 3 | 12/14/2015 | | | 10,556 | 21,111 | 31,667 | | $1,520,000 | |
| 2016-2018 SVA | 2/3/2016 | 4 | 12/14/2015 | | | 22,185 | 55,461 | 99,830 | | $2,280,000 | |
| | | | | | | | 0 | | |
| Dr. Lundberg | | __ | | __ | $25,196 | $1,007,855 | $2,015,710 | | | | | | |
Mr.
Smiley | | | __ | $207,813 | $831,250 | $1,662,500 | |
| 2016-2018 PA | 2/3/2016 | 3 | 12/14/2015 | | | 10,000 | 20,000 | 30,000 | | $1,440,000 | 2018-2020 PA | 3 | 2/9/2018 | 12/11/2017 | | 6,422 | 12,844 | 19,266 | | $1,324,800 |
| 2016-2018 SVA | 2/3/2016 | 4 | 12/14/2015 | | | 21,017 | 52,542 | 94,576 | | $2,160,000 | 2018-2020 SVA | 4 | 2/9/2018 | 12/11/2017 | | 13,395 | 33,487 | 60,277 | | $1,380,000 |
| | | | | | | | 0 | | | 0 | |
| Mr. Harrington | | __ | | __ | $16,548 | $661,920 | $1,323,840 | | | | | | | __ | __ | $172,060 | $688,240 | $1,376,480 | | |
| 2016-2018 PA | 2/3/2016 | 3 | 12/14/2015 | | | 6,389 | 12,778 | 19,167 | | $920,000 | 2018-2020 PA | 3 | 2/9/2018 | 12/11/2017 | | 7,120 | 14,240 | 21,360 | | $1,468,800 |
| 2016-2018 SVA | 2/3/2016 | 4 | 12/14/2015 | | | 13,427 | 33,568 | 60,422 | | $1,380,000 | 2018-2020 SVA | 4 | 2/9/2018 | 12/11/2017 | | 14,851 | 37,127 | 66,829 | | $1,530,000 |
| | | | | | | | | | 0 | | | 0 | |
| Mr. Conterno | | __ | | __ | $14,559 | $582,368 | $1,164,736 | | | | | | | __ | $158,937 | $635,747 | $1,271,493 | |
| 2016-2018 PA | 2/3/2016 | 3 | 12/14/2015 | | | 6,111 | 12,222 | 18,333 | | $880,000 | 2018-2020 PA | 3 | 2/9/2018 | 12/11/2017 | | 7,260 | 14,519 | 21,779 | | $1,497,600 |
| 2016-2018 SVA | 2/3/2016 | 4 | 12/14/2015 | | | 12,844 | 32,109 | 57,797 | | $1,320,000 | 2018-2020 SVA | 4 | 2/9/2018 | 12/11/2017 | | 15,142 | 37,855 | 68,139 | | $1,560,000 |
| | | | | | | | 0 | | | 0 | |
| Dr. Skovronsky | | | __ | $198,906 | $795,625 | $1,591,250 | |
| | | 2018-2020 PA | 3 | 2/9/2018 | 12/11/2017 | | 8,028 | 16,055 | 24,083 | | $1,656,000 |
| | | 2018-2020 SVA | 4 | 2/9/2018 | 12/11/2017 | | 11,231 | 22,461 | 33,692 | | $1,150,000 |
| | | | 0 | |
| Mr. Simmons | | | __ | $182,954 | $731,815 | $1,463,629 | |
| | | 2018-2020 PA | 3 | 2/9/2018 | 12/11/2017 | | 3,351 | 6,701 | 10,052 | | $691,200 |
| | | 2018-2020 SVA | 4 | 2/9/2018 | 12/11/2017 | | 6,988 | 17,471 | 31,448 | | $720,000 |
| | | Elanco RSU | 5 | 10/20/2018 | 9/5/2018 | | 36,287 | | $1,119,454 |
| | | Elanco Option | 5 | 10/20/2018 | 9/5/2018 | | 109,642 | $31.61 | $1,119,445 |
1 These columns show the threshold, target, and maximum payouts for performance under the Lilly bonus plan or the Elanco bonus plan. Bonus payouts range from 0 to 200 percent of target. The Lilly bonus plan payment for 20162018 performance was 117 173percent of target, and is includedtarget. The Elanco bonus plan payment, for Mr. Simmons, for 2018 performance was 124 percent. Actual payouts are shown in the “SummarySummary Compensation Table”Table in the column titled “Non-Equity Incentive Plan Compensation.”
2 To assure grant timing is not manipulated for employee gain, the annual grant date is established in advance by the Compensation Committee. Equity awards to new hires and other off-cycle grants are generally effective on the first trading day of the following month.
3 This row shows the possible payouts for 2016-2018 PA grants. This PA vests in February 2019, with the number of shares2018-2020 performance awards ranging from 0 to 150 percent of target. The grant-date fair valueThis performance award will pay out in January 2021. Dr. Skovronsky was not in an executive officer position during the annual granting cycle, so he received a 2018-2019 performance award that is not subject to a 13-month service-vesting period;
accordingly, his performance award for 2018-2019 will vest in full as of the PA reflects the probable payout outcome anticipated at the time of grant, which was at target value.December 31, 2019.
4 This row shows the range of payouts for 2016-2018 SVA grants.the 2018-2020 shareholder value awards. This SVAshareholder value award will pay out in January 2019,2021, with payouts ranging from 0 to 180 percent of target. We measure the fair value of the SVAshareholder value award on the grant date using a Monte Carlo simulation model. Dr. Skovronsky was not in an executive officer position during the annual granting cycle, so he received a 2018-2020 shareholder value award which is not subject to the TSR modifier; as accordingly, his payout will range from 0 to 150 percent of target.
To receive
5 After Elanco’s initial public offering, Mr. Simmons received a payout under the PA or the SVA, a participant must remain employed with the company through the end of the relevantfounders' award period (except in the caseform of death, disability, retirement, or redundancy). No dividends accrue50 percent Elanco stock options and 50 percent Elanco restricted stock units. The Elanco stock options vest over three years, followed by a seven-year exercise period. The Elanco restricted stock units will vest on either PAs or SVAs during the performance period. For the PA, non-preferential dividends accrue during the 13-month service-vesting period (following the two-year performance period) and are paid upon vesting.October 20, 2021.
Outstanding Equity Awards at December 31, 20162018
The 20162018 closing stock price appliedused to calculate the values in the table below was $73.55.$115.72 for Lilly and $31.53 for Elanco.
| | | | Stock Awards1 | | Option Awards | Stock Awards |
| Name | Award | Number of
Shares or
Units of Stock
That Have Not
Vested (#) | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Equity Incentive
Plan Awards:
Market or
Payout Value of Unearned
Shares, Units,
or Other Rights
That Have Not
Vested ($) | Award | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price | Option Expiration Date | Number of
Shares or
Units of
Stock
That Have Not
Vested (#) | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | | Equity Incentive
Plan Awards:
Market or
Payout Value of Unearned
Shares, Units,
or Other Rights
That Have Not
Vested ($) |
| Dr. Lechleiter | 2016-2018 SVA |
|
|
|
| 96,502 |
| 2 | $7,097,722 | |
Mr.
Ricks | | 2018-2020 SVA | | | | 235,865 |
| 1 | $27,294,298 |
| | 2015-2017 SVA |
|
|
|
| 105,081 |
| 3 | $7,728,708 | 2017-2019 SVA | | | | 140,561 |
| 2 | $16,265,719 |
| | 2016-2018 PA |
|
|
|
| 45,896 |
| 4 | $3,375,651 | 2018-2020 PA | | | | 75,387 |
| 3 | $8,723,784 |
| | 2015-2017 PA | 106,625 |
| 5 | $7,842,269 |
|
|
|
| 2017-2019 PA | | | 69,350 |
| 4 | $8,025,182 | | |
| | 2014-2016 PA | 46,097 |
| 6 | $3,390,434 |
|
|
|
| 2016-2018 PA | | | 12,222 |
| 5 | $1,414,330 | | |
| Mr. Rice | 2016-2018 SVA |
|
|
| 99,830 |
| 2 | $7,342,497 | |
| | 2015-2017 SVA |
|
|
| 59,870 |
| 3 | $4,403,439 | |
| | 2016-2018 PA |
|
|
| 31,667 |
| 4 | $2,329,108 | |
| | 2015-2017 PA | 40,518 |
| 5 | $2,980,099 |
|
|
|
| |
| | 2014-2016 PA | 19,463 |
| 6 | $1,431,504 |
|
|
|
| |
| Dr. Lundberg | 2016-2018 SVA |
|
|
|
| 94,576 |
| 2 | $6,956,065 | |
| | 2015-2017 SVA |
|
|
|
| 53,567 |
| 3 | $3,939,853 | |
Mr.
Smiley | | 2018-2020 SVA | | | | 60,277 |
| 1 | $6,975,254 |
| | 2016-2018 PA |
|
|
|
| 30,000 |
| 4 | $2,206,500 | 2017-2019 SVA | | | | 7,887 |
| 2 | $912,684 |
| | 2015-2017 PA | 36,252 |
| 5 | $2,666,335 |
|
|
|
| 2018-2020 PA | | | | 19,266 |
| 3 | $2,229,462 |
| | 2014-2016 PA | 15,366 |
| 6 | $1,130,169 |
|
|
|
| 2010 RSU Award | | | 7,947 |
| 6 | $919,627 | | |
| Mr. Harrington | 2016-2018 SVA |
|
|
| 60,422 |
| 2 | $4,444,038 | 2018-2020 SVA | | | | 66,829 |
| 1 | $7,733,452 |
| | 2015-2017 SVA |
|
|
| 36,236 |
| 3 | $2,665,158 | 2017-2019 SVA | | | | 38,034 |
| 2 | $4,401,294 |
| | 2016-2018 PA |
|
|
| 19,167 |
| 4 | $1,409,733 | 2018-2020 PA | | | | 21,360 |
| 3 | $2,471,779 |
| | 2015-2017 PA | 24,524 |
| 5 | $1,803,740 |
|
|
|
| 2017-2019 PA | | | 18,765 |
| 4 | $2,171,486 | | |
| | 2014-2016 PA | 9,732 |
| 6 | $715,789 | | | 2016-2018 PA | | | 12,778 |
| 5 | $1,478,670 | | |
| Mr. Conterno | 2016-2018 SVA |
|
|
|
| 57,796 |
| 2 | $4,250,896 | 2018-2020 SVA | | | | 68,139 |
| 1 | $7,885,045 |
| | 2015-2017 SVA |
|
|
|
| 31,510 |
| 3 | $2,317,561 | 2017-2019 SVA | | | | 41,341 |
| 2 | $4,783,981 |
| | 2016-2018 PA |
|
|
| 18,333 |
| 4 | $1,348,392 | 2018-2020 PA | | | | 21,779 |
| 3 | $2,520,266 |
| | 2015-2017 PA | 21,326 |
| 5 | $1,568,527 |
|
|
|
| 2017-2019 PA | | | 20,397 |
| 4 | 2,360,341 |
| | |
| | 2014-2016 PA | 10,244 |
| 6 | $753,446 |
|
|
|
| 2016-2018 PA | | | 12,222 |
| 5 | $1,414,330 | | |
| | RSU | 20,000 |
| 7 | $1,471,000 |
|
|
|
| 2017 RSU Award | | | 34,615 |
| 7 | $4,005,648 | | |
| Dr. Skovronsky | | 2018-2020 SVA | | | | 33,692 |
| 1 | $3,898,838 |
| | | 2017-2019 SVA | | | | 14,646 |
| 2 | $1,694,835 |
| | | 2018-2019 PA | | | | 24,083 |
| 3 | $2,786,885 |
| Mr. Simmons | | 2018-2020 SVA | | | | 31,448 |
| 1 | $3,639,163 |
| | | 2017-2019 SVA | | | | 33,074 |
| 2 | $3,827,323 |
| | | 2018-2020 PA | | | | 10,052 |
| 3 | $1,163,217 |
| | | 2017-2019 PA | | | 16,317 |
| 4 |
| $1,888,203 | | |
| | | 2016-2018 PA | | | 11,111 |
| 5 | $1,285,765 | | |
| | | Elanco RSU | | | 36,287 |
| 8 | $1,144,129 | | |
| | | Elanco stock option | 109,642 |
| 9 | $31.61 | 10/20/2028 | | |
1 Shareholder value awards granted for the 2018-2020 performance period will vest on December 31, 2020. The chart no longer includesnumber of shares reported reflects the maximum payout, which will be made if the average closing stock option awards becauseprice in November and
December 2019 is over $120.65. Actual payouts may vary from 0 to 180 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the company hasperformance period ended December 31, 2018, the payout would have been at 150 percent of target. Dr. Skovronsky was not awarded stock optionsan executive officer at the time of grant, so he received a 2018-2020 shareholder value award which is not subject to employees since 2006 and there are no outstanding stock option awards.the TSR modifier. As a result, his payout will range from 0 to 150 percent of target. Had the performance period ended December 31, 2018, the payout of Dr. Skovronsky's award would have been at 125 percent of target.
2SVAs Shareholder value awards granted for the 2016-20182017-2019 performance period will vest on December 31, 2018.2019. The number of shares reported reflects the maximum payout, which will be made if the average closing stock price in November and December
2018 2019 is over $119.58.$101.79. Actual payouts may vary from 0 to 180 percent of target. Net shares from any payout must be held by EOsexecutive officers for a minimum of one year. Had the performance period ended December 31, 2016, there2018, the payout would not have been 180 percent of target. Mr. Smiley and Dr. Skovronsky were not executive officers at the time of grant, so they received a payout.
3 SVAs granted for2017-2019 shareholder value award which is not subject to the 2015-2017 performance periodTSR modifier. As a result, their payouts will vest December 31, 2017. The number of shares reported reflects the maximum payout, which will be made if the average closing stock price in November and December 2017 is over $92.04. Actual payouts may varyrange from 0 to 140150 percent of target. Net shares from any payout must be held by EOs for a minimum of one year. Had the performance period ended December 31, 2016,2018, the payout of Mr. Smiley’s and Dr. Skovronsky’s awards would have been 60at 150 percent of target.
43 This number represents the thresholdmaximum value of PAperformance award shares that could pay out for 2016-2017the 2018-2019 performance period, provided performance goals are met. Once the combined cumulative EPS result and associated payout level isare determined at the end of the performance period, the associated number of shares arewill be granted as restricted stock units, vesting in February 2021. Because Dr. Skovronsky was not an executive officer at the time of the annual award cycle, he received a performance award in 2018 that does not include the 13-month vesting period; accordingly, his performance award for 2018-2019 will vest in full as of December 31, 2019. Actual payouts may vary from 0 to 150 percent of target. The number of shares recorded in the table reflects the payout if the combined cumulative EPS for 20162018 and 20172019 is $8.70.at least $10.74.
4 The performance period ended December 31, 2018 for the 2017-2019 performance award resulting in the issuance of restricted stock units for 150 percent of target shares for Mr. Ricks, Mr. Harrington, Mr. Conterno, and Mr. Simmons. These restricted stock units will vest in February 2020. Mr. Smiley and Dr. Skovronsky were not executive officers at the time of grant and are not subject to the 13-month service-vesting holding period; their awards will payout in Lilly stock in February 2019.
5 TheRestricted stock units vested from the 2016-2018 performance period ending 2016 for the 2015-2017 PA resulted in a RSU for 150 percent of target shares. The RSU will vestaward in February 2018.2019.
6 RSUs vested February 2017 from the 2014-2016 PA.
7 This grant was made in 2008 outside of the normal annual cycle in 2010, before Mr. Smiley became an executive officer, and will vest on MayOctober 1, 2018.2020.
7 This grant was made in 2017 and will vest on December 11, 2021.
8 Elanco restricted stock units granted on October 20, 2018 to Mr. Simmons as a founders’ award shortly after Elanco’s initial public offering.
9 Elanco stock options granted on October 20, 2018 to Mr. Simmons as a founders’ award shortly after Elanco’s initial public offering.
Options Exercised and Stock Vested in 20162018
| | | | Option Awards1 | | Stock Awards | Option Awards | | Stock Awards | |
| Name | Number of Shares
Acquired on Exercise (#) | Value Realized
on Exercise ($) | | Number of Shares
Acquired on Vesting (#) | Value Realized
on Vesting ($) 2 | Number of Shares
Acquired on Exercise (#) | Value Realized
on Exercise ($) | | Number of Shares
Acquired on Vesting (#) | Value Realized
on Vesting ($)1 | |
| Dr. Lechleiter | 0 | $0 |
| 46,623 |
| 3 | $3,687,879 | |
| 172,178 |
| 4 | td2,978,778 | |
| Mr. Rice | 0 | $0 |
| 19,685 |
| 3 | td,557,084 | |
| 72,698 |
| 4 | $5,479,975 | |
| Dr. Lundberg | 0 | $0 |
| 15,541 |
| 3 | td,229,293 | |
| 57,393 |
| 4 | $4,326,284 | |
| Mr. Ricks | | 0 | $0 | | 21,326 |
| 2 | td,737,003 | |
| | 48,164 |
| 3 | $5,787,868 | |
| Mr. Smiley | | $0 | 0 | | 8,430 |
| 3 | td,013,033 | |
| | 7,139 |
| 4 | $857,894 | |
| Mr. Harrington | 0 | $0 |
| 9,066 |
| 3 | $717,121 | 0 | $0 | | 24,524 |
| 2 | td,997,480 | |
| 36,348 |
| 4 | td,739,912 | | 50,352 |
| 3 | $6,050,800 | |
| Mr. Conterno | 0 | $0 |
| 10,360 |
| 3 | $819,476 | 0 | $0 | | 21,326 |
| 2 | td,737,003 | |
| 38,262 |
| 4 | td,884,190 | | 48,164 |
| 3 | $5,787,868 | |
| Mr. Conterno | | | 20,000 |
| 5 | td,621,400 | |
| 0 | $0 | | 15,053 |
| 3 | td,808,919 | |
| | 13,259 |
| 4 | td,593,334 | |
| Mr. Simmons | | 0 | $0 | | 21,326 |
| 2 | td,737,003 | |
| | 43,785 |
| 3 | $5,261,643 | |
| | 20,000 |
| 6 | td,621,400 | |
1 The chart no longer includes stock option awards because the company has not awarded stock options to employees since 2006 and there are no outstanding stock option awards.
2 Amounts reflect the market value of theLilly stock on the day the stock vested.
32 RSUsRestricted stock units resulting from the 2013-2015 PA2015-2017 performance award that vested in February 2016.2018.
3 Payout of the 2016-2018 shareholder value award at 125 percent of target, adjusted by Lilly’s three-year cumulative TSR (44.9 percent) relative to its peer companies’ median cumulative TSR of 16.6 percent, resulting in a maximum TSR modifier of 20 percent and a final payout of 150 percent of target. Since Dr. Skovronsky and Mr. Smiley were not executive officers when the 2016-2018 shareholder value award was granted, their awards were not subject to the TSR modifier. As a result, their payout multiple was 125 percent of target.
4 Payout of the 2014-2016 SVA2017-2018 performance award at 140 percenttarget for Mr. Smiley and Dr. Skovronsky. Neither were executive officers in 2017 at time of target.grant; therefore, no additional 13-month service-vesting period applied.
5 This grant was made in 2008 before Mr. Conterno became an executive officer.
6 This grant was made in 2008 before Mr. Simmons became an executive officer.
Retirement Benefits
We provide retirement income to eligible U.S. employees, including EOs,executive officers, through the following plans:
The 401(k) Plan, a defined contribution plan qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. Participants may elect to contribute a portion of their base salary to the plan, and the company provides matching contributions on employees’ contributions up to 6 percent of base salary up to IRS limits. The employee contributions, company contributions, and earnings thereon are paid out in accordance with elections made by the participant. See the "All Other Compensation" column in the “SummarySummary Compensation
Table” Table for information about company contributions under the 401(k) Plan for the named executive officers.
The Retirement Plan, a tax-qualified defined benefit plan that provides monthly benefits to retirees. See the “PensionPension Benefits in 2016”2018 table below for additional information about the value of these pension benefits.
Sections 401 and 415 of the Internal Revenue Code generally limit the amount of annual pension that can be paid from a tax-qualified plan ($265,000275,000 in 20162018 and $270,000$280,000 in 2017)2019) as well as the amount of annual earnings that can be used to calculate a pension benefit. However, since 1975 the company has maintained a nonqualified pension plan that pays retirees the difference between the amount payable under the Retirement Plan and the amount they would have received without the Internal Revenue Code limits. The nonqualified pension plan is unfunded and subject to forfeiture in the event of bankruptcy. Likewise the company maintains a nonqualified savings plan that allows participants to contribute up to 6 percent of base salary exceeding the IRS limit. The company matches these contributions in the same manner as described forin the 401(k) Plan. For more information, see footnote 3 to the Nonqualified Deferred Compensation in 20162018 table.
The following table shows benefits that the named executive officers have accrued under the Retirement Plan and the nonqualified pension plan.
Pension Benefits in 20162018
| | | Name | | Plan | Number of Years of
Credited Service | Present Value of
Accumulated Benefit ($) 1 | Payments During
Last Fiscal Year ($) | Plan | Number of Years of Credited Service | Present Value of
Accumulated Benefit ($) 1 | Payments During
Last Fiscal Year ($) |
| Dr. Lechleiter | 2 | retirement plan (pre-2010) | 30 | $1,511,207 |
| |
| Mr. Ricks | | retirement plan (pre-2010) | 14 | $527,812 | |
| | | retirement plan (post-2009) | 7 | $256,136 |
| retirement plan (post-2009) | 9 | $207,040 | |
| | | nonqualified plan (pre-2010) | 30 | $29,302,586 |
| nonqualified plan (pre-2010) | 14 | $3,853,382 | |
| | | nonqualified plan (post-2009) | 7 | $4,550,732 |
| nonqualified plan (post-2009) | 9 | $1,512,159 | |
| | | total |
| $35,620,661 |
| $0 | total | | $6,100,393 | $0 |
| Mr. Rice | | retirement plan (pre-2010) | 20 | $839,198 |
| |
| Mr. Smiley | | retirement plan (pre-2010) | 14 | $559,569 | |
| | | retirement plan (post-2009) | 7 | $157,831 |
| retirement plan (post-2009) | 9 | $181,324 | |
| | | nonqualified plan (pre-2010) | 20 | $7,474,950 |
| retirement plan (post-2009) | 14 | $1,285,869 | |
| | | nonqualified plan (post-2009) | 7 | $1,332,456 |
| |
| | | total |
| $9,804,435 |
| $0 | |
| Dr. Lundberg | | retirement plan (post-2009) | 7 | $267,662 |
| |
| | | nonqualified plan (post-2009) | 7 | $2,118,618 |
| nonqualified plan (post-2009) | 9 | $407,780 | |
| | | total |
| $2,386,280 |
| $0 | total | | $2,434,542 | $0 |
| Mr. Harrington | | retirement plan (pre-2010) | 18 | $797,055 |
|
| retirement plan (pre-2010) | 18 | $890,707 | |
| | | retirement plan (post-2009) | 7 | $172,355 |
|
| retirement plan (post-2009) | 9 | $247,087 | |
| | | nonqualified plan (pre-2010) | 18 | $3,454,679 |
|
| nonqualified plan (pre-2010) | 18 | $4,737,581 | |
| | | nonqualified plan (post-2009) | 7 | $725,032 |
|
| nonqualified plan (post-2009) | 9 | $1,270,411 | |
| | | total |
| $5,149,121 |
| $0 | total | | $7,145,786 | $0 |
| Mr. Conterno | | retirement plan (pre-2010) | 17 | $714,937 |
| retirement plan (pre-2010) | 17 | $798,663 | |
| | | retirement plan (post-2009) | 7 | $151,035 |
| retirement plan (post-2009) | 9 | $216,397 | |
| | | nonqualified plan (pre-2010) | 17 | $3,520,850 |
| nonqualified plan (pre-2010) | 17 | $3,933,824 | |
| | | nonqualified plan (post-2009) | 7 | $715,055 |
|
| nonqualified plan (post-2009) | 9 | $1,018,051 | |
| | | total |
| $5,101,877 |
| $0 | total | | $5,966,935 | $0 |
| Dr. Skovronsky | | retirement plan (post-2009) | 6 | $111,749 | |
| | | nonqualified plan (post-2009) | 6 | $318,896 | |
| | | total | | $430,645 | $0 |
| Mr. Simmons | | retirement plan (pre-2010) | 21 | $1,019,096 | |
| | | retirement plan (post-2009) | 9 | $207,040 | |
| | | nonqualified plan (pre-2010) | 21 | $4,344,461 | |
| | | nonqualified plan (post-2009) | 9 | $849,148 | |
| | | total | | $6,419,745 | $0 |
1 The following standard actuarial assumptions were used to calculate the present value of each individual’s accumulated pension benefit:
|
| |
| Discount rate: | 4.504.52 percent for the qualified plan and 4.194.36 percent for the non-qualified plan |
| Mortality (post-retirement decrement only): | RP2006 with generational projection using Scale MP2016MP2018 |
| Pre-2010 joint and survivor benefit (% of pension): | 50% until age 62; 25% thereafter |
| Post-2009 benefit payment form: | life annuity |
2 Dr. Lechleiter retired with full retirement benefits under the old plan formula (pre-2010 benefits) and qualified for early retirement under the new plan formula (post-2009 benefits) as described below.
The Retirement Plan benefits shown in the table are net present values. The benefits are not payable as a lump sum; they are generally paid as a monthly annuity for the life of the retiree and, if elected, any qualifying survivor. The annual benefit under the retirement plan is calculated using years of service and the average of the annual earnings (salary plus bonus) for the highest five out of the last 10 calendar years of service (final average earnings).
Post-2009 Plan Information:Information: Following amendment of our Retirement Plan formulae,formulas, employees hired on or after February 1, 2008, have accrued retirement benefits only under the new plan formula. Employees hired before that date have accrued benefits under both the old and new plan formulae.formulas. All eligible employees, including those hired on or after February 1, 2008, can retire at age 65 with at least five years of service and receive an unreduced benefit. The annual benefit under the new plan formula is equal to 1.2 percent of final average earnings multiplied by years of service. Early
retirement benefits under this plan formula are reduced 6 percent for each year under age 65. Transition benefits were afforded to employees with 50 points (age plus service) or more as of December 31, 2009. These benefits were intended to ease the transition to the new retirement formula for those employees who were closer to retirement or had been with the company longer at the time the plan was changed. For the transition group, early retirement benefits are reduced 3 percent for each year from age 65 to age 60 and 6 percent for each year under age 60. All named executive officers except Dr. LundbergSkovronsky are in this transition group.
Pre-2010 Plan Information:Information: Employees hired prior to February 1, 2008, accrued benefits under both plan formulae.formulas. For these employees, benefits that accrued before January 1, 2010, were calculated under the old plan formula. The amount of the benefit is calculated using actual years of service through December 31, 2009, while total years of service is used to determine eligibility and early retirement reductions. The benefit amount is increased (but not decreased) proportionately, based on final average earnings at termination compared to final average earnings at December 31, 2009. Full retirement benefits are earned by employees with 90 or more points (the sum of his or her age plus years of service). Employees electing early retirement receive reduced benefits as described below:
The benefit for employees with between 80 and 90 points is reduced by 3 percent for each year under 90 points or age 62.
The benefit for employees who have lessfewer than 80 points, but who reached age 55 and have at least 10 years of service, is reduced as described above and is further reduced by 6 percent for each year under 80 points or age 65.
Nonqualified Deferred Compensation in 20162018
| | | Name | Plan | Executive
Contributions in
Last Fiscal Year
($) 1 | Registrant
Contributions in
Last Fiscal Year
($) 2 | Aggregate
Earnings in
Last Fiscal Year
($) | Aggregate Withdrawals/ Distributions in Last Fiscal Year
($) | Aggregate
Balance at Last
Fiscal Year End
($) 3 | Plan | Executive
Contributions in
Last Fiscal Year
($)1 | Registrant
Contributions in
Last Fiscal Year
($)2 | Aggregate Earnings in Last Fiscal Year ($) | Aggregate Withdrawals/ Distributions in Last Fiscal Year ($) | Aggregate
Balance at Last
Fiscal Year End
($)3 |
| Dr. Lechleiter | nonqualified savings |
| $74,100 |
|
| $74,100 |
| $29,286 |
|
| $0 |
| $3,644,437 |
|
| |
| Mr. Ricks | | nonqualified savings | $67,500 | | $67,500 | $215,811 | | $0 | $972,448 | |
| | deferred compensation |
| $905,625 |
|
|
| $455,090 |
|
|
|
| $15,103,882 |
|
| deferred compensation | $0 | | $0 | | $0 | |
| | total |
| $979,725 |
|
| $74,100 |
| $484,376 |
|
| $0 |
| $18,748,319 |
|
| total | $67,500 | | $67,500 | $215,811 | | $0 | $972,448 | |
| Mr. Rice | nonqualified savings |
| $48,168 |
|
| $48,168 |
| ($37,232 | ) |
| $0 |
| $1,496,604 |
|
| |
| | deferred compensation |
| $0 |
|
|
| $0 |
|
|
|
| $0 |
|
| |
| | total |
| $48,168 |
|
| $48,168 |
| ($37,232 | ) |
| $0 |
| $1,496,604 |
|
| |
| Dr. Lundberg | nonqualified savings |
| $44,571 |
|
| $44,571 |
| ($16,968 | ) |
| $0 |
| $770,282 |
|
| |
| Mr. Smiley | | nonqualified savings | $36,000 | | $36,000 | ($2,151) | | $0 | $278,829 | |
| | deferred compensation |
| $0 |
|
|
| $0 |
|
|
|
| $0 |
|
| deferred compensation | $0 | | $0 | | $0 | |
| | total |
| $44,571 |
|
| $44,571 |
| ($16,968 | ) |
| $0 |
| $770,282 |
|
| total | $36,000 | | $36,000 | ($2,151) | | $0 | $278,829 | |
| Mr. Harrington | nonqualified savings |
| $33,744 |
|
| $33,744 |
| $19,400 |
|
| $0 |
| $383,119 |
|
| nonqualified savings | $35,118 | | $35,118 | ($24,042) | | $0 | $565,716 | |
| | deferred compensation |
| $25,000 |
|
|
| $5,196 |
|
|
|
| $174,973 |
|
| deferred compensation | $25,000 | | $6,274 | | $211,951 | |
| | total |
| $58,744 |
|
| $33,744 |
| $24,596 |
|
| $0 |
| $558,092 |
|
| total | $60,118 | | $35,118 | ($17,768) | | $0 | $777,667 | |
| Mr. Conterno | nonqualified savings |
| $27,778 |
|
| $27,778 |
| $6,444 |
|
| $0 |
| $710,313 |
|
| nonqualified savings | $31,181 | | $31,181 | $53,012 | | $0 | $1,018,044 | |
| | deferred compensation |
| $100,000 |
|
|
| $34,512 |
|
|
|
| $1,150,774 |
|
| deferred compensation | $100,000 | | $42,826 | | $1,433,769 | |
| | total |
| $127,778 |
|
| $27,778 |
| $40,956 |
|
| $0 |
| $1,861,087 |
|
| total | $131,181 | | $31,181 | $95,838 | | $0 | $2,451,813 | |
| Dr. Skovronsky | | nonqualified savings | $33,750 | | $33,750 | ($19,029) | | $0 | $294,714 | |
| | | deferred compensation | $0 | | $0 | | $0 | |
| | | total | $33,750 | | $33,750 | ($19,029) | | $0 | $294,714 | |
| Mr. Simmons | | nonqualified savings | $30,011 | | $30,011 | $21,215 | | $0 | $803,403 | |
| | | deferred compensation | $0 | | $54,151 | | $1,789,759 | |
| | | total | $30,011 | | $30,011 | $75,366 | | $0 | $2,593,162 | |
1 The amounts in this column are also included in the “SummarySummary Compensation Table,” in the “Salary” column (nonqualified savings) or the “Non-Equity Incentive Plan Compensation” column (deferred compensation).
2 The amounts in this column are also included in the “SummarySummary Compensation Table,” in the “All Other Compensation” column as a portion of the savings plan match.
3 Of the totals in this column, the following amounts have previously been reported in the “SummarySummary Compensation Table”Table for this year and for previous years:
| | | Name | 2016 ($) | Previous Years ($) | Total ($) | 2018 ($) | Previous Years ($) | Total ($) |
| Dr. Lechleiter | $1,053,825 |
| $12,029,531 |
| $13,083,356 |
| |
| Mr. Rice | $96,336 |
| $798,962 |
| $895,298 |
| |
| Dr. Lundberg | $89,142 |
| $527,677 |
| $616,819 |
| |
| Mr. Ricks | | $135,000 | 135,600 | $270,600 |
| Mr. Smiley | | $72,000 | N/A | $72,000 |
| Mr. Harrington | $92,488 |
| $184,100 |
| $276,588 |
| $95,236 | $346,924 | $442,160 |
| Mr. Conterno | $155,556 |
| $605,044 |
| $760,600 |
| $162,362 | $919,640 | $1,082,002 |
| Dr. Skovronsky | | $67,500 | N/A | $67,500 |
| Mr. Simmons | | $60,022 | $50,174 | $110,196 |
The "NonqualifiedNonqualified Deferred Compensation in 2016"2018 table above shows information about two company programs: the nonqualified savings plan and the Deferred Compensation Plan. The nonqualified savings plan is designed to allow each employee to contribute up to 6 percent of his or her base salary and receive a company match, beyond the contribution limits prescribed by the IRS with regard to 401(k) plans. This plan is administered in the same manner as the 401(k) Plan, with the same participation and investment elections. EOsExecutive officers and other U.S. executives may also defer receipt of all or part of their cash compensation under the Deferred Compensation Plan. Amounts deferred by executives under this plan are credited with interest at 120 percent of the applicable federal long-term rate as established the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code with monthly compounding, which was 3.1 percent for 20162018 and is 2.73.9 percent for 2017.2019. Participants may elect to receive the funds in a lump sum or in up to 10 annual installments following termination of employment, but may not make withdrawals while employed by the company, except in the event of hardship as approved by the Compensation Committee. All deferral elections and associated distribution schedules are irrevocable. Both plans are unfunded and subject to forfeiture in the event of bankruptcy.
Payments Upon Termination or Change in Control (as of December 31, 2016)2018)
The following table describes the potential payments and benefits under the company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment. Except for certain terminations following a change in control of the company, as described below, there are no agreements, arrangements, or plans that entitle named executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment. Any agreement to provide such payments or benefits to a terminating EOexecutive officer (other than following a change in control) would be at the discretion of the Compensation Committee.
| | | | | Cash
Severance
Payment 1 | Continuation
of Medical /
Welfare
Benefits
(present
value) 2 | Value of
Acceleration
of Equity
Awards | Total
Termination
Benefits | | Cash Severance Payment 1 | Continuation of Medical / Welfare Benefits
(present value) 2 | Acceleration and Continuation of Equity Awards (unamortized expense as of 12/31/18) | | Total Termination Benefits |
| Dr. Lechleiter |
|
| |
| Mr. Ricks | | Mr. Ricks | |
| • | Voluntary retirement | $0 | $0 | $0 | $0 | Involuntary retirement or termination | $0 | $9,439,454 | | $9,439,454 |
| • | Involuntary retirement or termination | $0 | $0 | $0 | $0 | Involuntary or good reason termination after change in control | $7,000,000 | $41,386 | $57,174,093 | | $64,215,479 |
| • | Involuntary or good reason termination after change in control | $7,500,000 | $18,916 | $6,509,535 | $14,028,451 | |
| Mr. Rice |
|
| |
| • | Voluntary termination | $0 | $0 | $0 | |
| • | Involuntary retirement or termination | $0 | $0 | $0 | |
| • | Involuntary or good reason termination after change in control | $4,285,224 | $285,135 | $2,403,739 | $6,974,098 | |
| Dr. Lundberg |
|
| |
| • | Voluntary retirement | $0 | $0 | $0 | |
| Mr. Smiley | | Mr. Smiley | |
| • | Involuntary retirement or termination | $0 | $0 | $0 | Involuntary retirement or termination | $0 | $919,627 | | $919,627 |
| • | Involuntary or good reason termination after change in control | $4,031,420 | $61,519 | $2,186,665 | $6,279,604 | Involuntary or good reason termination after change in control | $3,412,500 | $47,892 | $9,874,445 | | $13,334,837 |
| Mr. Harrington | Mr. Harrington |
|
|
| Mr. Harrington | |
| • | Voluntary retirement | $0 | $0 | $0 | Involuntary retirement or termination | $0 | $3,650,156 | 3 | $3,650,156 |
| • | Involuntary retirement or termination | $0 | $0 | $0 | Involuntary or good reason termination after change in control | $3,097,080 | $35,919 | $16,967,734 | | $20,100,733 |
| • | Involuntary or good reason termination after change in control | $3,007,008 | $262,477 | $1,453,266 | $4,722,751 | |
| Mr. Conterno | Mr. Conterno |
|
| Mr. Conterno | |
| • | Voluntary termination | $0 | $0 | $0 | Involuntary retirement or termination | $0 | $7,780,318 | | $7,780,318 |
| • | Involuntary retirement or termination | $0 | $0 | $0 | Involuntary or good reason termination after change in control | $2,880,000 | $268,226 | $21,655,332 | | $24,803,558 |
| Dr. Skovronsky | | Dr. Skovronsky | |
| • | Involuntary or good reason termination after change in control | $2,633,440 | $37,832 | $1,555,410 | $4,226,682 | Involuntary retirement or termination | $0 | | $0 |
| • | | Involuntary or good reason termination after change in control | $3,510,000 | $41,386 | $8,719,409 | | $12,270,795 |
| Mr. Simmons | | Mr. Simmons | |
| • | | Involuntary retirement or termination | $0 | $4,318,097 | 3 | $4,318,097 |
| • | | Involuntary or good reason termination after change in control | $4,400,000 | $47,892 | $12,341,104 | | $16,788,996 |
1 See “Change-in-Control Severance Pay Plan—Cash Severance Payment” below.
2 See “Accrued Pay and Regular Retirement Benefits” and “Change-in-Control Severance Pay Plan—Continuation of medical and welfare benefits” below.
3 Mr. Harrington and Mr. Simmons were retirement eligible at December 31, 2018, and therefore, would be entitled to payouts of their 2016-2018 performance awards vesting February 1, 2019, and their 2017-2019 performance awards vesting February 1, 2020, without any acceleration resulting from an involuntary retirement or termination. The value of those awards included in this amount using the December 31, 2018, closing price of $115.72 of $3,650,156 for Mr. Harrington and $3,173,968 for Mr. Simmons.
Accrued Pay and Regular Retirement Benefits.Benefits: The amounts shown in the table above do not include certain payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include:
accrued salary and vacation pay.
regular pension benefits under the Retirement Plan and the nonqualified pension plan. See “Retirement Benefits” above.
welfare benefits provided to all U.S. retirees, including retiree medical and dental insurance. The amounts shown in the table above as “Continuation of Medical / Welfare Benefits” are explained below.
distributions of plan balances under the 401(k) Plan, the nonqualified savings plan, and the Deferred Compensation Plan. See the narrative following the “NonqualifiedNonqualified Deferred Compensation in 2016”2018 table for information about these plans.
Deferred Compensation.Compensation: The amounts shown in the table do not include distributions of plan balances under the deferred compensation plan. Those balances are shown in the “NonqualifiedNonqualified Deferred Compensation in 2016”2018 table.
Death and Disability.Disability: A termination of employment due to death or disability does not entitle named executive officers to any payments or benefits that are not available to U.S. salaried employees generally.
Termination for Cause.Cause: Executives terminated for cause receive no severance or enhanced benefits and forfeit any unvested equity grants.
Change-in-Control Severance Pay Plan.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 for executive officers 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 percent 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 terminationsterminations.. 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, 2016.2018. 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 EOexecutive 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 EOexecutive 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 paymentpayment.. The cash severance payment amounts to two times the EO'sexecutive officer's annual base salary plus two times the EO’sexecutive officer’s bonus target for that year under the bonus plan.
Continuation of medical and welfare benefitsbenefits.. 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 awardsawards. . Upon a covered termination, any unvested equity awards would convert into restricted stock units of the new company, with the number of shares earned under the awards based on accrued performance at the time of the transaction. The restricted stock units will continue to vest and a partial payment of outstanding PAs would be made, reduced to reflectpay out upon the portionearlier 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 portioncompletion of the three-year performance period elapsed.original award period; upon a covered termination; or if the successor entity does not assume, substitute, or otherwise replace the award. 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 athad a qualifying termination occurred on December 31, 2016.2018.
Excise taxestaxes.. Upon a change in control, employees may be subject to certain excise taxes under Section 280G of the Internal Revenue Code. The company does not reimburse the affected employees for those excise taxes or any income taxes payable by the employee. To reduce the employee's exposure to excise taxes, the employee’s change-in-control benefit may be decreased to maximize the after-tax benefit to the individual.
Elanco has adopted a similar change-in-control severance plan that covers Mr. Simmons.
Payments Upon Change in Control Alone.In general, the change-in-control plan is a “double trigger” plan, meaning payments are made only if the employee suffers a covered termination of employment within two years following the change in control. There are limited exceptions for pro-rata portions of PAs and SVAs, based on performance tocontrol, or in the date of the change in control, as noted above under "Accelerationcase of equity awards, if the successor entity does not assume, substitute, or otherwise replace the awards."
Compensation Committee Matters
Background
Role of the Independent Consultant in assessingAssessing Executive Compensation
The Compensation Committee has retained Cimi B. Silverberg of Frederic W. Cook & Co., Inc., as its independent compensation consultant. Ms. Silverberg reports directly to the committee.Compensation Committee. Neither she nor her firm is permitted to have any business or personal relationship with management or the members of the committee.Compensation Committee. The consultant’s responsibilities are to:
review the company’s total compensation philosophy, peer group, and target competitive positioning for reasonableness and appropriateness;appropriateness
review the company’s executive compensation program and advise the committeeCompensation Committee of evolving best practices;practices
provide independent analyses and recommendations to the committeeCompensation Committee on the CEO’s pay;pay
review draft CD&A and related tables for the proxy statement;statement
proactively advise the committeeCompensation Committee on best practices for board governance of executive compensation; andcompensation
undertake special projects at the request of the committeeCompensation Committee chair.
Ms. Silverberg interacts directly with members of company management only on matters under the committee’sCompensation Committee’s oversight and with the knowledge and permission of the committeeCompensation Committee chair.
Role of EOsExecutive Officers and Management in assessingAssessing Executive Compensation
With the oversight of the CEO and the senior vice president of human resources and diversity, the company’s global compensation group formulates recommendations on compensation philosophy, plan design, and compensation for EOsexecutive officers (other than the CEO, as noted below). The CEO provides the committeeCompensation Committee with a performance assessment and compensation recommendation for each of the other EOs.executive officers. The committeeCompensation Committee considers those recommendations with the assistance of its compensation consultant. The CEO and the senior vice president of human resources and diversity attend committeeCompensation Committee meetings; they are not present for executive sessions or any discussion of their own compensation. Only non-employee directors and the committee’sCompensation Committee’s consultant attend executive sessions.
The CEO does not participate in the formulation or discussion of his pay recommendations. He has no prior knowledge of the recommendations that the consultant makes to the committee.Compensation Committee.
Risk Assessment Process
As a part of the company's overall enterprise risk management program, in 20162018 the committeeCompensation Committee reviewed the company’s compensation policies and practices and concluded that the programs and practices are not reasonably likely to have a material adverse effect on the company. The committeeCompensation Committee noted numerous policy and design
features of the company’s compensation programs and governance structure that reduce the likelihood of inappropriate risk-taking, including, but not limited to:
The committee is comprised ofOnly independent directors only.serve on the committee
The committeeCompensation Committee engages its own independent compensation consultant.consultant
The committeeCompensation Committee has downward discretion to lower compensation plan payouts.payouts
The committeeCompensation Committee approves all adjustments to financial results that affect compensation calculations.calculations
Different measures and metrics are used across multiple incentive plans that appropriately balance cash/stock, fixed/variable pay, and short-term/long-term incentives.incentives
Incentive plans have predetermined maximum payouts.payouts
Performance objectives are challenging but achievable.achievable
Programs with operational metrics have a continuum of payout multiples based upon achievement of performance milestones, rather than "cliffs" that might encourage sub-optimalsuboptimal or improper behavior.behavior
A compensation recovery policy is in place for all members of senior management; negative compensation consequences can be appliedresult in cases ofinvolving serious compliance violations.violations
Meaningful share ownership and retention requirements are in place for all members of senior management and the board.
Compensation Committee Report
The Compensation Committee evaluates and establishes compensation for EOsexecutive officers and oversees the deferred compensation plan, the company’s management stock plans, and other management incentive and benefit programs. Management has the primary responsibility for the company’s financial statements and reporting process, including the disclosure of executive compensation. With this in mind, the Compensation Committee has reviewed and discussed with management the CD&A above. The committeeCompensation Committee recommended to the Board of Directors that the CD&A be included in this proxy statement for filing with the SEC.
Compensation Committee
Ralph Alvarez, Chair
Michael L. Eskew
Ellen R. Marram
Kathi P. Seifert
CEO Pay Ratio
Lilly’s compensation and benefits philosophy and the overall structure of our compensation and benefit programs are broadly similar across the organization to encourage and reward all employees who contribute to our success. We strive to ensure the pay of every Lilly employee reflects the level of their job impact and responsibilities and is competitive within our peer group. Compensation rates are benchmarked and set to be market-competitive in the country in which the jobs are performed. Lilly’s ongoing commitment to pay equity is critical to our success in supporting a diverse workforce with opportunities for all employees to grow, develop, and contribute. As of November 1, 2018, Lilly employed approximately 40,000 people, with approximately 17,000 members of our workforce located in the U.S. and approximately 23,000 members of our workforce located outside of the U.S.
Under rules adopted pursuant to the Dodd-Frank Act of 2010, Lilly must calculate and disclose the total compensation paid to its median paid employee, as well as the ratio of the total compensation paid to the median employee as compared to the total compensation paid to Lilly’s CEO. The paragraphs that follow describe our methodology and the resulting CEO pay ratio.
Measurement Date
We identified the median employee using our employee population on November 1, 2018.
Consistently Applied Compensation Measure (CACM)
Under the relevant rules, we identified the median employee by use of a “consistently applied compensation measure,” or CACM. We chose a CACM that closely approximates the annual total direct compensation of our employees. Specifically, we identified the median employee by looking at annual base pay, bonus opportunity at target, and the grant date fair value for standard equity awards. We did not adjust the compensation paid to part-time employees to calculate what they would have been paid on a full-time basis.
De Minimis Exception
Lilly has employees in 87 countries. In identifying the median employee, we excluded workers in 9 countries totaling 447 workers (approximately 1.1 percent of our workforce). We excluded these employees because they are affiliated with joint ventures or third-party distributors, and Lilly does not set their compensation philosophy. We excluded the following number of workers from the following countries in the identification of the median employee:
|
| |
| Countries Excluded | Workers Excluded |
| Bahrain | 2 |
| Greece | 233 |
| Indonesia | 24 |
| Kuwait | 15 |
| Oman | 1 |
| Pakistan | 30 |
| Qatar | 7 |
| United Arab Emirates | 102 |
| Vietnam | 33 |
| Total | 447 |
Methodology and Pay Ratio
After applying our CACM and excluding the employees listed above, we identified the median paid employee. Once the median paid employee was identified, we calculated the median paid employee’s total annual compensation in accordance with the requirements of the Summary Compensation Table.
Our median employee compensation as calculated using Summary Compensation Table requirements was $91,246. Our CEO’s compensation as reported in the Summary Compensation Table was $17,230,337. Therefore, our CEO to median employee pay ratio is 189:1.
Item 3. Advisory Vote on Frequency of Future Advisory Votes on Named Executive Officer Compensation
In accordance with federal legislation enacted in 2010 requiring advisory shareholder votes on executive compensation, we are required this year to ask shareholders, on an advisory basis, whether they would prefer advisory named executive officer compensation votes every year, every two years, or every three years. Your proxy or voting instruction card allows you to choose the frequency you prefer.
Shareholders should consider the value of having the opportunity every year to voice their opinion on the company’s named executive officer compensation through an advisory vote, weighing that against the additional burden and expense to the company and shareholders of preparing and responding to proposals annually, as well as the other means available to shareholders to provide input on executive compensation.
On balance, we support advisory votes on named executive officer compensation every year, and they are currently occurring annually. We welcome shareholder input and believe that the value of an annual vote outweighs the burden of preparing annual proposals. We also believe annual advisory votes on named executive officer compensation provide a meaningful way to continue dialogue with shareholders regarding this issue.
The board is not bound by this advisory shareholder vote; however, it will give significant weight to shareholder preferences on this matter.
Board Recommendation on Item 3
The Board of Directors recommends that you vote FOR an ANNUAL advisory vote on the compensation of the company's named executive officers as disclosed in its proxy statements.
Audit Matters
Audit Matters
Item 4.3. Ratification of the Appointment of Principal Independent Auditor
Audit Committee Oversight of Independent Auditor
The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the independent auditor, and oversees the process for selecting, reviewing, and evaluating the lead audit partner. Further information regarding the committee's oversight of the independent auditor can be found in the Audit Committee charter, available online at https://www.lilly.com/lilly.com/who-we-are/governance or upon request to the company's corporate secretary.
In connection with the decision regarding whether to reappoint the independent auditor each year (subject to shareholder ratification), the committee assesses the independent auditor's performance. This assessment examines three primary criteria: (1) the independent auditor's qualifications and experience; (2) the communication and interactions with the auditor over the course of the year; and (3) the auditor's independence, objectivity, and professional skepticism. These criteria are assessed against an internal and an external scorecard, and are discussed with management during a private session, as well as in executive session. The committee also periodically considers whether a rotation of the company's independent auditor is advisable.
Ernst & Young LLP (EY) has served as the principal independent auditor for the company in 2016.since 1940. Based on this year'sthe Audit Committee’s assessment of EY's performance during 2018, the Audit Committee believes that the continued retention of EY to serve as the company's principal independent auditor is in the best interests of the company and its shareholders, and has therefore reappointed the firm of EY as the company’s principal independent auditor for 2019. In addition to this year's favorable assessment of EY's performance, we recognize that there are several benefits of retaining a longer-tenured independent auditor. EY has gained institutional knowledge and expertise regarding the company's global operations, accounting policies and practices, and internal controls over financial reporting. Audit and other fees are also competitive with peer companies because of EY's familiarity with the company for 2017.and its operations. In accordance with the bylaws, this appointment is being submitted to the shareholders for ratification.
Representatives of EY are expected to be present at the 2019 annual meeting and will be available to respond to questions. Those representatives will have the opportunity to make a statement if they wish to do so.
Board Recommendation on Item 43
The Boardboard recommends that you vote FOR ratifying the appointment of Ernst & Young LLP as principal independent auditor for 2017.2019.
Audit Committee Report
The Audit Committee reviews the company’s financial reporting process on behalf of the Board.board. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls and disclosure controls. In this context, the committeeAudit Committee has met and held discussions with management and the independent auditor. Management represented to the committeeAudit Committee that the company’s consolidated financial statements for the year ended December 31, 2018 were prepared in accordance with generally accepted accounting principles (GAAP), and the committee has reviewed and discussed the audited financial statements and related disclosures with management and the independent auditor, including a review of the significant management judgments underlying the financial statements and disclosures.
The independent auditor reports to the Audit Committee, which has sole authority to appoint and to replace the independent auditor (subject to shareholder ratification).
The committeeAudit Committee has discussed with the independent auditor matters required to be discussed with the Audit Committee by the standards of the Public Company Accounting Oversight Board (PCAOB) and the NYSE, including the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. In addition, the committeeAudit Committee has received the written disclosures and the letter from the independent auditor required by applicable requirements of the PCAOB rules regarding communications with the Audit Committee concerning independence, and has discussed with the independent auditor the auditor’s independence from the company and its management. In concluding that the auditor is independent, the committeeAudit Committee determined, among other things, that the nonaudit services provided by EY (as described below) were compatible with its independence. Consistent with the requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), the committeeAudit Committee has adopted policies to ensure the independence of the independent auditor, such as prior committee approval of nonauditnon-audit services and required audit partner rotation.
The committeeAudit Committee discussed with the company’s internal and independent auditors the overall scope and plans for their respective audits, including internal control testing under Section 404 of the Sarbanes-Oxley Act. The committeeAudit Committee periodically meets with the internal and independent auditors, with and without management present, and in private sessions with members of senior management (such as the chief financial officer and the chief accounting officer) to discuss the results of their examinations, their evaluations of the company’s internal controls, and the overall quality of the company’s financial reporting. The committeeAudit Committee also periodically meets in executive session.
In reliance on the reviews and discussions referred to above, the committee recommended to the Boardboard (and the Boardboard subsequently approved the recommendation) that the audited consolidated financial statements be included in the company’s annual report on Form 10-K for the year ended December 31, 2016,2018, for filing with the SEC. The committeeAudit Committee has also appointed EY as the company’s independent auditor, subject to shareholder ratification, for 2017.2019.
Audit Committee
Michael L. Eskew, Chair
Katherine Baicker, Ph.D.
Jamere Jackson
Kathi P. Seifert
Jackson P. Tai
Karen Walker
Services Performed by the Independent Auditor
The Audit Committee preapprovespre-approves all services performed by the independent auditor, in part to assess whether the provision of such services might impair the auditor’s independence. The committee’sAudit Committee’s policy and procedures are as follows:
Audit services: The committeeAudit Committee approves the annual audit services engagement and, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope, company structure, or other matters. Audit services include internal controls attestation work under Section 404 of the Sarbanes-Oxley Act. The committeeAudit Committee may also preapprovepre-approve other audit services, which are those services that only the independent auditor reasonably can provide.
Audit-related services:Audit-related services are assurance and related services that are reasonably related to the performance of the audit or reviews of the financial statements, and that are traditionally performed by the independent auditor. The committeeAudit Committee believes that the provision of these services does not impair the independence of the auditor.
Tax services:The committeeAudit Committee believes that, in appropriate cases, the independent auditor can provide tax compliance services, tax planning, and tax advice without impairing the auditor’s independence.
Other services: The committeeAudit Committee may approve other services to be provided by the independent auditor if (i) the services are permissible under SEC and PCAOB rules, (ii) the committeeAudit Committee believes the provision of the services would not impair the independence of the auditor, and (iii) management believes that the auditor is the best choice to provide the services.
Approval process:At the beginning of each audit year, management requests prior committee approvalpre-approval from the Audit Committee of the annual audit, statutory audits, and quarterly reviews for the upcoming audit year as well as any other services known at that time. Management will also present at that time an estimate of all fees for the upcoming audit year.year and known services. As specific engagements are identified thereafter that were not initially approved, they are brought forward to the committeeAudit Committee for approval. To the extent approvals are required between regularly scheduled committeeAudit Committee meetings, preapprovalpre-approval authority is delegated to the committee chair.
For each engagement, management provides the committeeAudit Committee with information about the services and fees, sufficiently detailed to allow the committee to make an informed judgment about the nature and scope of the services and the potential for the services to impair the independence of the auditor.
After the end of the audit year, management provides the committee with a summary of the actual fees incurred for the completed audit year.
Independent Auditor Fees
The following table shows the fees incurred for services rendered on a worldwide basis by EY in 20162018 and 2015.2017. All such services were pre-approved by the committeeAudit Committee in accordance with the pre-approval policy.
| | | | | 2016 ($ millions) | 2015 ($ millions) | | 2018 ($ millions) | 2017 ($ millions) |
| Audit Fees | | | $12.8 | $13.1 | | $28.7 | $14.8 |
| | Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation | | Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation, as well as the 2018 audit of consolidated Elanco financial statements for its initial public offering | |
| | Reviews of quarterly financial statements | | Reviews of quarterly financial statements | |
| | Other services normally provided by the auditor in connection with statutory and regulatory filings | | Other services normally provided by the auditor in connection with statutory and regulatory filings | |
| Audit-Related Fees | Audit-Related Fees | | $0.6 | $0.7 | Audit-Related Fees | | $0.9 | $0.5 |
| | Primarily related to assurance and related services reasonably related to the performance of the audit or reviews of the financial statements primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential acquisitions | | Primarily related to assurance and related services reasonably related to the performance of the audit or reviews of the financial statements primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential acquisitions | |
| | | | | |
| Tax Fees | | $6.7 | $5.6 | | $3.0 | $4.8 |
| | Primarily related to consulting and compliance services | |
Tax compliance services, tax planning, tax advice Primarily related to consulting and compliance services | |
| All Other Fees | | | $— | $0.1 | |
| | 2015: primarily related to consulting and compliance services | | |
| Total | | | $20.2 | $19.5 | | | $32.6 | $20.1 |
*Numbers may not add due to rounding
| | |
Numbers may not add due to rounding
| | Numbers may not add due to rounding
| |
Directors' Deferral PlanManagement Proposals
Item 4. Proposal to Amend the Company’s Articles of Incorporation to Eliminate the Classified Board Structure
The company’s articles of incorporation provide that the board is divided into three classes, with each class elected every three years. On the recommendation of the Directors and Corporate Governance Committee, the board has approved, and recommends that the shareholders approve, amendments to eliminate the classified board structure in order to provide for the annual election of all directors. This proposal was brought before shareholders at each of the company’s annual meetings from 2007 through 2012 and in 2018, receiving the vote of a strong majority of the outstanding shares at each meeting; however, the proposal requires the vote of 80 percent of the outstanding shares to pass.
If approved, this proposal would become effective upon the filing of amended and restated articles of incorporation with the Secretary of State of Indiana, which the company would do promptly after shareholder approval is obtained. Directors elected prior to the effectiveness of the amendments would stand for election for one-year terms once their then-current terms expire. This means that directors whose terms expire at the 2020 and 2021 annual meetings of shareholders would be elected for one-year terms, and beginning with the 2022 annual meeting, all directors would be elected for one-year terms at each annual meeting. In the case of any vacancy on the board occurring after the 2019 annual meeting created by an increase in the number of directors, the vacancy would be filled through an interim election by the board with the new director to serve a term ending at the next annual meeting. Vacancies created by resignation, removal or death would be filled by election by the board of a new director to serve until the end of the term of the director being replaced. This proposal would not change the present number of directors or the board’s authority to change that number and to fill any vacancies or newly created directorships.
Background of Proposal
As part of its ongoing review of corporate governance matters, the board, assisted by the Directors and Corporate Governance Committee, considered the advantages and disadvantages of maintaining the classified board structure and eliminating the supermajority voting provisions of the articles of incorporation (see Item 5 below). The board considered the view of certain shareholders who believe that classified boards have the effect of reducing the accountability of directors to shareholders because shareholders are unable to evaluate and elect all directors on an annual basis. The board gave considerable weight to the approval at the 2006 annual meeting of a shareholder proposal requesting that the board take all necessary steps to elect the directors annually, and to the favorable votes of a strong majority of the outstanding shares for management’s proposals in the following six years and again in 2018.
The board also considered benefits of retaining the classified board structure, which has a long history in corporate law. A classified structure may provide continuity and stability in the management of the business and affairs of the company because a majority of directors always has prior experience as directors of the company. In some circumstances classified boards may enhance shareholder value by forcing an entity seeking control of the company to initiate discussions at arm’s-length with the board of the company, because the entity cannot replace the entire board in a single election. The board also considered that even without a classified board (and without the supermajority voting requirements, which the board also recommends eliminating), the company has defenses that work together to discourage a would-be acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding to such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws as well as certain provisions of Indiana corporation law.
The board believes it is important to maintain appropriate defenses to inadequate takeover bids, but also important to retain shareholder confidence by demonstrating that it is accountable and responsive to shareholders. After balancing these interests, the board has decided to resubmit this proposal to eliminate the classified board structure.
Text of Amendments
Article 9(b) of the company’s articles of incorporation contains the provisions that will be affected if this proposal is adopted. This article, set forth in Appendix B to this proxy statement, shows the proposed changes, with deletions indicated by strike-outs and additions indicated by underlining. The board has also adopted conforming amendments to the company’s bylaws, to be effective immediately upon the effectiveness of the amendments to the articles of incorporation.
Vote Required
The affirmative vote of at least 80 percent of the outstanding shares of common stock is needed to pass this proposal.
Board Recommendation on Item 4
The board recommends that you vote FOR amending the company's articles of incorporation to eliminate the classified board structure.
Item 5. Proposal to Amend the Lilly Directors' Deferral Plan
The Lilly Directors’ Deferral Plan provides an ownership position in the company that aligns directors with shareholder interests. The plan was last approved by shareholders in 2003.Company’s Articles of Incorporation to Eliminate All Supermajority Voting Provisions
Under the plan,company’s articles of incorporation, nearly all matters submitted to a portionvote of directors' annual compensation is awarded in deferred shares:
all shares must be held until the second January following the director's departure from board service
no stock optionsshareholders can be issued underadopted by a majority of the plan.
Changesvotes cast. However, our articles require a few fundamental corporate actions to be approved by the plan include:
authorizing an additional 750,000holders of 80 percent of the outstanding shares (the same amount approved in 2003)
a cap on non-employee directors’ compensation.
of common stock (a “supermajority vote”). Those actions are:
We summarize the principal features
amending certain provisions of the plan below, subjectarticles of incorporation that relate to the full textnumber and terms of office of directors:
-the company’s classified board structure (as described under Item 4)
-a provision that the number of directors shall be specified solely by resolution of the plan,board
removing directors prior to the end of their elected term
entering into mergers, consolidations, recapitalizations, or certain other business combinations with a “related person”—a party who has acquired at least 5 percent of the company’s stock (other than the Endowment or a company benefit plan) without the prior approval of the board
modifying or eliminating any of the above supermajority voting requirements.
Background of Proposal
This proposal is the result of the board’s ongoing review of corporate governance matters. From 2007 through 2009, shareholder proposals requesting that the board take action to eliminate the supermajority voting provisions were supported by a majority of votes cast. From 2010 through 2012 and in 2018, the board submitted proposals seeking shareholder approval to eliminate these supermajority provisions. In all four years, the proposal received a strong majority of the outstanding shares, but fell short of the required 80 percent vote.
Assisted by the Directors and Corporate Governance Committee, the board considered the advantages and disadvantages of maintaining the supermajority voting requirements. The board considered that under certain circumstances, supermajority voting provisions can provide benefits to the company. The provisions can make it more difficult for one or a few large shareholders to take over or restructure the company without negotiating with the board. In the event of an unsolicited bid to take over or restructure the company, supermajority voting provisions may encourage bidders to negotiate with the board and increase the board’s negotiating leverage on behalf of the shareholders. They can also give the board time to consider alternatives that might provide greater value for all shareholders.
The board also considered the potential adverse consequences of opposing elimination of the supermajority voting requirements. While it is important to the company’s long-term success for the board to maintain appropriate defenses against inadequate takeover bids, it is also important for the board to maintain shareholder confidence by demonstrating that it is responsive and accountable to shareholders and committed to strong corporate governance. This requires the board to carefully balance sometimes competing interests. In this regard, the board gave considerable weight to the fact that a substantial majority of shares voted have supported eliminating the supermajority voting provisions. Many shareholders believe that supermajority voting provisions impede accountability to shareholders and contribute to board and management entrenchment.
The board also considered that even without the supermajority vote (and without the classified board, which the board also recommends eliminating), the company has defenses that work together to discourage a would-be acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding to such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws as well as certain provisions of Indiana corporation law.
Therefore, the board believes the balance of interests is attachedbest served by recommending to shareholders that the articles of incorporation be amended to eliminate the supermajority voting provisions. By recommending these amendments, the board is demonstrating its accountability and willingness to take steps that address shareholder-expressed concerns.
Text of Amendments
Articles 9(c), 9(d), and 13 of the company’s articles of incorporation contain the provisions that will be affected if this proposal is adopted. These articles, set forth in Appendix B to this proxy statement,
as Appendix B. |
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Eligible Participants | | The plan is available only to non-salaried directors, as further defined in the plan document. There are currently 17 eligible directors, 13 active and 4 retired. |
Plan Administration | | The plan is administered by the directors and corporate governance committee of the board. |
Shares Authorized | | A total of 1,500,000 shares of Lilly stock may be issued or transferred under the restated plan. For the period April 29, 2003, through December 31, 2016, the aggregate number of authorized shares was 750,000. As of February 17, 2017, 300,685 shares have been paid out under the plan and 457,071 shares were credited to participants’ accounts (including retired directors), and those shares would be counted against the share limit. |
Recent Stock Price | | The closing price of Lilly stock on the New York Stock Exchange on February 17, 2017, was $80.39.
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Elective Deferrals | | Prior to the beginning of each year, a director may irrevocably elect to defer all or a portion of his or her retainer and meeting fees for the year. The director can choose to have the funds credited to either of two accounts:
• Deferred Compensation Account. Funds are credited monthly and earn interest equal to 120 percent of the applicable long-term federal rate with monthly compounding, as posted by the Internal Revenue Service annually. The interest rate is adjusted each December. Payments from this account are made in cash.
• Deferred Stock Account. This account allows the director, in effect, to invest cash compensation in Lilly stock, with receipt deferred until the second January following the end of board service. Deferred funds are credited monthly, and the annual share award described below is credited annually, as hypothetical shares of Lilly stock, based on the market price of the stock on a monthly valuation date. Hypothetical dividends are reinvested in additional share units based on the market price of the stock on the date that common stock dividends are paid. Payments from this account are made in shares of Lilly stock. No shares are issued or transferred until the second January following the director's departure from board service or the director dies.
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Compensation Limits | | Each eligible director receives an annual credit to his or her deferred stock account of the number of hypothetical shares of Lilly stock equal to $160,000 on a valuation date specified in the plan (or such other number as the board may establish by resolution). The annual share award may not exceed the lesser of 7,500 shares or an amount equal to $800,000 minus the director’s total cash compensation (including compensation deferred into the plan) for the relevant plan year. In 2016, each independent director was credited with 2,088 shares. The amount of stock compensation is prorated for months of service and may not be adjusted by the board more than once every calendar year. |
Payment Options | | At the time of the election to defer, the director chooses one of two payment options:
• lump sum on the second January following the director's departure from board service
• from two to ten annual installments beginning on the second January following the director's departure from board service.
The plan includes alternate payment provisions that call for accelerated payment in the case of death of the participant or an unexpected emergency causing a severe financial hardship that cannot be relieved through other available funds (as determined by the committee).
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Adjustments for Capital Changes | | In the event of stock split, stock dividend, spinoff or other relevant change affecting Lilly stock, the committee will adjust existing account balances in the deferred stock account and will also adjust the total number of shares available under the plan and the maximum annual award amount. |
Termination and Amendment of Plan | | The plan remains effective until terminated by the board. The board may amend or terminate the plan in its discretion, subject to certain limitations, including that shareholder approval is required for any material amendments to the extent required by applicable NYSE listing standards. |
Other Information | | The amount of future benefits to be paid under the plan cannot be determined at this time. In 2016, the 17 participants received in the aggregate the following amounts in their accounts:
• Deferred compensation accounts: $124,379 of interest credited
• Deferred stock accounts: 41,779 shares credited
• 97,815 shares paid out to retired participants.
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show the proposed changes with deletions indicated by strike-outs and additions indicated by underlining.
Vote Required
Equity Compensation Plan Information
The following table presents information asaffirmative vote of December 31, 2016, about our other compensation plans under whichat least 80 percent of the outstanding shares of Lillycommon stock have been authorized.
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Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants, and rights | (b) Weighted- issuance under equity average exercise price of outstanding, options, warrants, and rights | (c) Number of
securities remaining available for future compensation plans(excluding securities reflected in column (a))
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Equity compensation plans approved by
security holders
| — |
| $ | — |
| 99,568,453 |
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Equity compensation plan not approved by security holders | — |
| — |
| — |
|
Total | — |
| — |
| 99,568,453 |
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is needed to pass this proposal.
Board Recommendation on Item 5
The Board of Directorsboard recommends athat you vote FOR amending the proposal.company's articles of incorporation to eliminate all supermajority voting provisions.
Shareholder Proposals
Shareholder Proposals
Item 6. Shareholder Proposal: Report Regarding Direct and Indirect Political Contributions
The ComptrollerProposal Requesting Implementation of a Policy to Not Fund, Conduct or Commission the Use of the StateForced Swim Test
People for the Ethical Treatment of New York, Thomas P. DiNapoli, trustee of the New York State Common Retirement Fund and the administrative head of the New York State and Local Retirement System,Animals (PETA), 1536 16th Street N.W., Washington, D.C., beneficial owner of 2,954,39056 shares of our common stock, has submitted the following proposal:
Reduce Animal Suffering in Eli Lilly Experiments Proposal
RESOLVED, given the animal suffering inherent in the “Forced Swim Test” (FST), its questionable scientific validity, and the fact that the majority of Americans object to the use of animals in experiments,1 our Board should implement a policy that it will not fund, conduct, or commission use of this test.
Supporting Statement
In the FST, animals are dropped into a container of water. Terrified that they will drown, they swim frantically trying to find an escape. Eventually they become exhausted and stop struggling. It causes substantial distress and is not required by the government to be conducted.
Eli Lilly-affiliated authors have described the FST as a model or test of behavioral despair.2 Our Company uses the FST to purportedly test the antidepressant qualities of compounds3 on the assumption that the sooner the animal stops swimming, the more depressed the animal is. However, there is evidence that floating is an adaptive behavior that saves energy and benefits survival, not a sign of depression.4
The FST’s ability to accurately predict human antidepressants is further undermined by the fact that it yields positive results for compounds that are not prescribed as human antidepressants, like caffeine,5 and negative results for compounds that are.6 Therefore, useful antidepressant compounds may be abandoned if they do not produce desired results in the FST. Indeed, the applicability of the FST to human depression has been substantially refuted by experts.7
According to our Company’s records none of the compounds tested by Eli Lilly since 1993 using the FST are currently approved to treat human depression, which means that the test did not lead to marketing these compounds as medications.
We need to develop new therapeutics to treat human depression, but experts cite the use of such animal experiments as a major reason for lack of progress.8
Our Company should include an assurance in its animal welfare policy9 that it will not fund, conduct, or commission use of the FST.
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1 Strauss (2018) https://tinyurl.com/ydbgts8z
2 Benvenga (1993) https://doi.org/10.1016/0014-2999(93)91005-8; O’Neill (2001) https://doi.org/10.1177/026988110101500104;
Li (2001) https://doi.org/10.1016/S0028-3908(00)00194-5; Skolnick (2003) https://patents.google.com/patent/US7973043B2/ko; Li (2003) https://link.springer.com/article/10.1023/A:1023648923447; Li (2006) https://doi.org/10.1124/jpet.106.103143; Benito Collado (2010) https://patents.google.com/patent/WO2011060035A1
3 Bai (2001) https://doi.org/10.1016/S0091-3057(01)00599-8; Li (2003); Witkin (2014) https://doi.org/10.1124/jpet.114.216804;
Chappell (2016) https://pubs.acs.org/doi/10.1021/acs.jmedchem.6b01119; Dressman (2016)
https://doi.org/10.1016/j.bmcl.2016.10.067; Bruns (2018) https://doi.org/10.1016/j.neuropharm.2017.10.032; Witkin (2018) https://doi.org/10.1016/j.bcp.2018.06.022
4 Molendijk (2015) https://doi.org/10.1016/j.psyneuen.2015.08.028
5 Schechter (1979) https://doi.org/10.1016/0014-2999(79)90212-7
6 Suman (2018) Failure to detect the action of antidepressants in the forced swim test in Swiss mice. https://doi.org/10.1017/neu.2017.33; Cryan (2002) https://doi.org/10.1016/S0165-6147(02)02017-5 7 Hendrie (2013) The failure of the antidepressant drug discovery process is systemic.
https://doi.org/10.1177%2F0269881112466185; Garner (2014) The significance of meaning: Why do over 90% of behavioral neuroscience results fail to translate to humans, and what can we do to fix it? https://doi.org/10.1093/ilar/ilu047; Molendijk (2015); Commons (2017) The rodent forced swim test measures stress-coping strategy, not depression-like behavior. https://pubs.acs.org/doi/10.1021/acschemneuro.7b00042
8 Hendrie (2013); Garner (2014)
9 https://www.lilly.com/animal-care-and-use
Statement in Opposition to the Shareholder Proposal Requesting Implementation of a Policy to Not Fund, Conduct or Commission the Use of the Forced Swim Test
The Public Policy and Compliance Committee has reviewed this proposal and recommends a vote against it. We share the proponent's concerns about the care and welfare of laboratory animals, and accordingly, have implemented detailed processes and procedures to ensure the humane treatment of animals. If adopted, in certain circumstances the proponent’s policy could impede our ability to conduct the pre-clinical testing required to ensure that our pharmaceutical products are safe and effective for human use. As a result, and for the reasons set forth below, the policy requested by the proponent is unnecessary and not in the best interests of the company and its shareholders.
We are a worldwide and industry leader in the discovery, development, manufacturing, and marketing of human pharmaceutical products. Our continued success depends to a great extent on our ability to continue to discover, develop and bring to market innovative new medicines. This process of development requires a deep investment to research and development activities to establish the safety and effectiveness of our human pharmaceutical products. In the course of developing new products in support of our mission, we are required to evaluate and support the safety of our pharmaceutical products prior to human clinical trials and use. U.S. and foreign regulatory agencies have mandated that a defined amount of this research be performed in animals.
We do not condone, in any form, the mistreatment of research animals, and we recognize our fundamental ethical and scientific obligation to ensure the appropriate treatment of animals used in research. Where animal research is required, we seek to take every reasonable measure to reduce the number of animals used. We have processes and procedures in place to ensure humane treatment of animals, including programs for oversight by an internal corporate Animal Welfare Board, Institutional Animal Care and Use Committees, or an equivalent ethical review board, as well as veterinary oversight at our research-animal sites and at contract laboratories. We are committed to the responsible use of animals in medical research and the use of alternatives to animal testing whenever such methods are feasible, scientifically valid and appropriate.
We also are committed to adhere to standards set forth in the U.S. Animal Welfare Act and have been accredited for more than 35 years by the AAALAC, formerly known as the Association for Assessment and Accreditation of Laboratory Animal Care. AAALAC accreditation is a voluntary process that includes a detailed, comprehensive review of our research-animal program, including animal care and use policies and procedures, animal environment, housing and management, veterinary medical care, and physical plant operations. We currently publish information detailing our commitment to responsible animal research as well as an overview of our policies and procedures on our website https://www.lilly.com/animal-care-and-use.
Accordingly, our board believes that the policy requested by the proponent is unnecessary and not in the best interests of the company or our shareholders.
Board Recommendation on Item 6
The board recommends that you vote AGAINST this proposal.
Item 7. Proposal Requesting a Report Regarding Direct and Indirect Political Expenditures
National Center for Public Policy Research (NCPPR), 20 F Street, NW, Suite 700, Washington, D.C., beneficial owner of 62 shares of our common stock, has submitted the following proposal:
Whereas, we believe in full disclosure of Eli Lilly'sour Company's direct and indirect lobbying activities and expenditures to assess whether Eli Lilly's lobbying is consistent with Eli Lilly'sthe Company's expressed goals and in the best interestsinterest of shareholders.shareowners.
Resolved, RESOLVED, the shareholdersshareowners of Eli Lilly and Company ("Eli Lilly") request the preparation of a report, updated annually, disclosing:
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| 1. | Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications. |
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| 2. | Payments by Eli Lilly used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient. |
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| 3. | Eli Lilly’sLilly's membership in and payments to any tax-exempt organization that writes andand/or endorses model legislation. |
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| 4. | Description of management's and the decision makingBoard's decision-making process and oversight by management and the Board for making payments described in sectionsections 2 and 3 above. |
For purposes of this proposal, a "grassroots lobbying communication" is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. "Indirect lobbying" is lobbying engaged in by a trade association or other organization of which ElyEli Lilly is a member.
Both "direct and indirect lobbying”lobbying" and "grassroots lobbying communications" include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or otherall relevant oversight committees and posted on Eli Lilly's website.
Supporting Statement
We encourage transparencyThe Company lobbies on a broad array of issues and works with groups that do the same. That's a good thing as the Company is rightfully exercising free speech. As such, the Company has become a target for anti-free speech activists. These activists are working to defund pro-business organizations by attacking their corporate members.
The Company should take an active role in the usecombating this narrative and attacks on its freedom of corporate funds to influence legislation and regulation, both directly and indirectly. Eli Lilly spent over $15.3 millionassociation rights.
The Company should be proud of its memberships in 2014 and 2015 on federal lobbying (opensecrets.org). This figure does not include lobbying expenditures to influence legislation in states, where Eli Lilly also lobbies in 48 states ("Amid Federal Gridlock, Lobbying Rises in the States," Center for Public Integrity, February 11, 2016), but disclosure is uneven or absent.
Eli Lilly belongs to the Chamber of Commerce, which has spent over $1.2 billion on lobbying since 1998. Eli Lilly does not disclose its payments to trade associations or the amounts used for lobbying. Transparent reporting would reveal whether company assets are being used for objectives contrary to Eli Lilly’s long-term interests. and non-profit groups that promote pro-business, pro-growth initiatives.
For example, Lilly supports smoking cessation, yet the Chamber works to block global smoking laws (“U.S. Chamber Works Globally to Fight Antismoking Measures,” New York Times, June 30, 2015). And Eli Lilly recognizes the risks posed by climate change, yet the Chamber has sued the EPA to block the Clean Power Plan.
And Eli Lilly does not disclose its contributions to tax-exempt organizations that write and endorse model legislation,Company's relationships with groups such as its serving on the Health and Human Services Task Force of the American Legislative Exchange Council (ALEC). ALEC promotes legislation against state regulations addressing climate change. Over 100 companies have publicly left ALEC, including Allergan, Amgen, AstraZeneca, GlaxoSmithKline, Johnson & Johnson, Medtronic and Merk.PhRMA should be applauded and endorsed by shareholders. These groups advance initiatives that are designed to unburden corporations such as Eli Lilly, allowing them the freedom to create jobs and economic prosperity in the United States.
Rather than letting outside agitators set the message that these relationships are somehow nefarious, the Company should explain the benefits of its involvement with groups that advocate for smaller government, lower taxes, and free-market reforms. The Company should show how these relationships benefit shareholders, increase jobs and wages, help local communities, and generally advance the Company's interests.
The proponent supports the Company's free speech rights and freedom to associate with groups that advance economic liberty. The Company should stand up for those rights.
Statement in oppositionOpposition to the Shareholder Proposal RegardingRequesting Report on the Company’sRegarding Direct and Indirect Political Contributions
ExpendituresThe public policyPublic Policy and compliance committee of the boardCompliance Committee has reviewed this proposal and recommends a vote against it, as we currently publish mosta substantial amount of the information requested by the shareholder. The additional reporting requirements are unnecessary, as the information requested is publicly available and this reporting would place an undue administrative burden on the company.
Beginning inSince 2005, the company has published the following information on our website (www.lilly.com)(lilly.com/LillyPAC) for both direct company contributions and employee political action committee (PAC) contributions to support candidates for political office, political parties, officials, or committees in the United States:U.S.:
policies and procedures for company and PAC contributions
contributions to candidates, including information about the candidate's office (for example, state, local, or federal; House or Senate), party affiliation, state, and districtstate
contributions to political organizations and Section 527 organizations reported by state.
This information is updated annually. In addition to the information available on our website, detailed corporate contributions, PAC contribution data, and the company’s direct lobbying expenses are available to the public on the Federal Election Committee website (http://www.fec.gov/disclosure.shtml)(fec.gov/data/) and through individual state agencies. The company’s direct lobbying expenses are also available to the public on the Lobbying Disclosure page of the U.S. House website (disclosures.house.gov/ld/ldsearch.aspx) and through individual state agencies.
In addition to direct political contributions, Lilly maintains memberships in certain 501(c)(6)s—trade associations that report lobbying activity to the U.S. government. We maintain memberships in trade associations and other tax-exempt organizations specific to business and pharmaceutical industry interests, such as PhRMA (Pharmaceutical Research and Manufacturers Association), BIO (Biotechnology Association), Healthcare Leadership Conference, and the National Association of Manufacturers. We support organizations that champion public policies that contribute to pharmaceutical innovation, healthy patients, and a healthy business climate.
The “Lilly Report of Political Financial Support” notes ourInformation relating to Lilly’s memberships in trade associations that report lobbying activity to the U.S. government and to which we contribute $50,000 per year or more. Organizationsmore, and any such organizations where Lilly has a board seat are also noted.
can be found on our website.
These tax exempttax-exempt organizations are also required to disclose their lobbying expenditures under the Lobbying Act of 1995:1995; they report their lobbying expenditures to the United StatesU.S. Senate.
As we do not control thewhat portion of the organization’s budget is spent on lobbying, it is the fact of company membership in and support for the trade association, and the trade association’s total lobbying expenditure, that reveals the most about Lilly's political activities. As a result, the board does not believe any value provided by the requested additional disclosures merits the resources required to produce such a report.
Board Recommendation on Item 67
The Board of Directorsboard recommends athat you vote AGAINST thethis proposal.
Other Information
Meeting and Voting Logistics
Additional itemsItems of businessBusiness
We do not expect any items of business other than those set forth above because the deadline for shareholder proposals and nominations has passed. Nonetheless, if necessary, the accompanying proxy gives discretionary authority to the persons named on the proxy with respect to any other matters that might be brought before the meeting. Those persons intend to vote that proxy in accordance with their best judgment.
Voting
Shareholders as of the close of business on February 24, 201726, 2019 (the record date) may vote at the 2019 annual meeting. You have one vote for each share of common stock you held on the record date, including shares:
held directly in your name as the shareholder of record
held for you in an account with a broker, bank, or other nominee
attributed to your account in the company's 401(k) plan.
You may vote your shares in person at the meeting. However, we encourage you to vote by mail, by telephone, or on the Internetonline even if you plan to attend the meeting.
Required voteVote
Below are the vote requirements for the various proposals:
The fivefour nominees for director will be elected if the votes cast for the nominee exceed the votes cast against the nominee. Abstentions will not count as votes cast either for or against a nominee.
The following items of business will be approved if the votes cast for the proposal exceed those cast against the proposal:
advisory approval of executive compensation;
advisory vote on frequency of vote on named executive officer compensation with the option receiving the highest number of votes to be given due consideration by the board when determining frequency of such votes;
ratification of the appointment of principal independent auditor;auditor
amend the directors' deferral plan; and
onetwo shareholder proposal.
proposals.
Abstentions will not be counted either for or against these proposals.
The proposals to amend the articles of incorporation to eliminate the classified board structure and to eliminate supermajority voting provisions require the vote of 80 percent of the outstanding shares of our common stock. For these items, abstentions and broker non-votes have the same effect as a vote against the proposals.
Quorum
A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the annual meeting. As of the record date, 1,103,354,357February 26, 2019, XXXXXXXXXXXXX shares of company common stock were issued and outstanding.
Voting by proxyProxy
If you are a shareholder of record, you may vote your proxy by any one of the following methods:
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8 | On the InternetOnline. . You may vote online at www.proxyvote.com.proxyvote.com. Follow the instructions on your proxy card or notice. If you received these materials electronically, follow the instructions in the e-mail message that notified you of their availability. Voting on the Internetonline has the same effect as voting by mail. If you vote on the Internet,online, do not return your proxy card.
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) | By telephonetelephone.. Shareholders in the U.S., Puerto Rico, and Canada may vote by telephone by following the instructions on your proxy card or notice. If you received these materials electronically, follow the instructions in the e-mail message that notified you of their availability. Voting by telephone has the same effect as voting by mail. If you vote by telephone, do not return your proxy card. |
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* | By mail. Sign and date each proxy card you receive and return it in the prepaid envelope. Sign your name exactly as it appears on the proxy. If you are signing in a representative capacity (for example, as an attorney-in-fact, executor, administrator, guardian, trustee, or the officer or agent of a corporation or partnership), please indicate your name and your title or capacity. If the stock is held in custody for a minor (for example, under the Uniform Transfers to Minors Act), the custodian should sign, not the minor. If the stock is held in joint ownership, one owner may sign on behalf of all owners. If you return your signed proxy but do not indicate your voting preferences, wethe proxy holder will vote on your behalf withbased upon the board’s recommendations. |
If you did not receive a proxy card in the materials you received from the company and you wish to vote by mail rather than by telephone or on the Internet, you may request a paper copy of these materials and a proxy card by calling 855-731-6026 (toll free) or 317-433-5112. If you received a notice or an e-mail message notifying you of the electronic availability of these materials, please provide the control number, along with your name and mailing address.
You have the right to revoke your proxy at any time before the meeting by (i) notifying the company’s secretary in writing, or (ii) delivering a later-dated proxy via the Internet,online, by mail, or by telephone. If you are a shareholder of record, you may also revoke your proxy by voting in person at the meeting.
Voting shares heldShares Held by a brokerBroker
If your shares are held by a broker, the broker will ask you how you want your shares to be voted. You may instruct your broker or other nominee to vote your shares by following instructions that the broker or nominee provides to you. Most brokers offer voting by mail, by telephone, and on the Internet.online.
If you give the broker instructions, your shares will be voted as you direct. If you do not give instructions, one of two things can happen, depending on the type of proposal. For the ratification of the principal independent auditor, the broker may vote your shares in its discretion. For all other proposals, the broker may not vote your shares at all.
Voting shares heldShares Held in the Company 401(k) planPlan
You may instruct the plan trustee on how to vote your shares in the 401(k) plan via the Internet,online, by mail, or by telephone as described above, except that, if you vote by mail, the card that you use will be a voting instruction form rather than a proxy card.
In addition, unless you decline, your vote will apply to a proportionate number of other shares held by participants in the 401(k) plan for which voting directions are not received (except for a small number of shares from a prior stock ownership plan, which can be voted only on the directions of the participants to whose accounts the shares are credited).
All participants are named fiduciaries under the terms of the 401(k) plan and under the Employee Retirement Income Security Act (ERISA) for the limited purpose of voting shares credited to their accounts and the portion of undirected shares to which their vote applies. Under ERISA, fiduciaries are required to act prudently in making voting decisions.
If you do not want to have your vote applied to the undirected shares, you must so indicate when you vote. Otherwise, the trustee will automatically apply your voting preferences to the undirected shares proportionally with
all other participants who elected to have their votes applied in this manner.
If you do not vote, your shares will be voted by other plan participants who have elected to have their voting preferences applied proportionally to all shares for which voting instructions are not otherwise received.
Proxy cardsCards and noticesNotices
If you received more than one proxy card, notice, or e-mail related to proxy materials, you hold shares in more than one account. To ensure that all your shares are voted, sign and return each card. Alternatively, if you vote by telephone or on the Internet,online, you will need to cast a vote once for each proxy card, notice, or e-mail you receive. If you do not receive a proxy card, you may have elected to receive your proxy statement electronically, in which case you should have received an e-mail with directions on how to access the proxy statement and how to vote your shares. If you wish to request a paper copy of these materials and a proxy card, please call 855-731-6026 (toll free) or 317-433-5112.800-579-1639.
Vote tabulationTabulation
Votes are tabulated by an independent inspector of election, IVS Associates,Broadridge Financial Solutions, Inc.
Attending the annual meetingAnnual Meeting -*New Admission Procedure*
Attendance at the meeting will be limited to shareholders of record, those holding proxies from shareholders of record, and invited guests from the media and financial community. All shareholders of record as of the record date may attend by presenting the admission ticket that appears at the end of this proxy statement. Please fill it out and bring it with you to the meeting. The meeting will be held at the Lilly Center Auditorium. Please useAuditorium at Lilly Corporate Center.
All shareholders as of close of business on February 26, 2019 may attend the Lilly Center entranceannual meeting. To gain admission, you must request an admission ticket as described below and present it along with valid, government-issued photo identification, such as a driver’s license or passport. Your request for an admission ticket must be received before 5:00 p.m. EDT on April 30, 2019.
Admission tickets are available for registered and beneficial shareholders and for one guest accompanying each shareholder. If you are attending the meeting as a proxy for or qualified representative of a shareholder, you will need your legal proxy or authorization letter in addition to your admission ticket and photo identification.
To obtain an admission ticket for you and your guest online, please access “Register for Meeting” at proxyvote.com and follow the south of the fountain at the intersection of Delaware and McCarty streets.instructions provided. You will need to pass through security, includingenter your 16-digit voting control number found in your proxy materials. You must print a metal detector. Presentticket for you and your guest and bring each ticket to the meeting. Each person attending must provide the admission ticket and photo identification. If you are unable to print the ticket, please call Shareholder Meeting Support, Broadridge Financial Solutions, Inc. at 844-318-0137 for assistance. Failure to follow these admission procedures may delay your entry into, or prevent you from being admitted to, our annual meeting.
You can also register to attend the meeting by calling Shareholder Meeting Support, Broadridge Financial Solutions, Inc. at 844-318-0137. When registering via phone, you will be placed on the attendee list but will not receive an usher atadmission ticket. You will need to present photo identification to enter the meeting.
To ensure your safety, all attendees and their belongings will pass through a metal detector upon arrival at the annual meeting. Attendees may also be subject to further security inspections. No photography, videography, or audio recording is allowed inside Lilly buildings.
Parking will be available on a first-come, first-served basis in the garage indicated on the map at the end of this report. If you have questions about admittance or parking, you mayplease call 855-731-6026 (toll free) or 317-433-5112 (prior to the annual meeting).
The 2018 annual meeting2020 Annual Meeting
The company’s 20182020 annual meeting is currently scheduled for May 7, 2018.4, 2020.
Other Matters
Householding
We have adopted a procedure approved by the SEC called "householding." Under the householding procedure, certain shareholders, whether they own registered shares or shares in street name, who have the same address will receive only one set of proxy materials, unless one or more of the shareholders at that address has previously notified us that they want to receive separate copies. Each 401(k) Plan participant will continue to receive a copy of all of the proxy materials. Regardless of how you own your shares, if you received a single set of proxy materials as a result of householding, and one or more shareholders at your address would like to have separate copies of these materials with respect to the 20172019 annual meeting or in the future, please contact Broadridge Financial Solutions, Inc. at 1-866-540-7095.866-540-7095.
Other information regardingInformation Regarding the company’s proxy solicitationCompany’s Proxy Solicitation
The board of directors is soliciting proxies for the 20172019 annual meeting. We will pay all expenses in connection with our solicitation of proxies. We will pay brokers, nominees, fiduciaries, or other custodians their reasonable expenses for sending proxy material to and obtaining instructions from persons for whom they hold stock of the company. We expect to solicit proxies primarily by mail and email, but directors, officers, and other employees of the company may also solicit in person or by telephone, fax, or email. We have retained Georgeson LLC to assist in the distribution and solicitation of proxies. Georgeson may solicit proxies by personal interview, telephone, fax, mail, and email. We expect that the fee for those services will not exceed $17,500 plus reimbursement of customary out-of-pocket expenses.
Section 16(a) beneficial ownership reporting complianceBeneficial Ownership Reporting Compliance
Under SEC rules, our directors and EOsexecutive officers are required to file with the SEC reports of holdings and changes in beneficial ownership of company stock. We have reviewed copies of reports provided to the company, as well as other records and information. Based on that review, we concluded that all reports were timely filed, except that, due to administrative errors, Jackson TaiAarti Shah amended her Form 3 on January 17, 2018, to reflect her ownership of additional shares of company stock that were inadvertently excluded in the original filing. Myles O’Neill was late in reporting two stock purchasesderivative shares beneficially owned by his spouse on his original Form 3 filed on January 10, 2018, and Fionnuala Walsh was late in reporting a stock sale.the vesting of two equity awards of his spouse, filed on September 24, 2018. Each filing was made promptly after the issue was discovered.
By order of the Board of Directors,
Bronwen L. Mantlo
Secretary
March 20, 201722, 2019
Appendix A - Summary of Adjustments Related to the Annual Cash Bonus and Performance Award
Consistent with past practice, the Compensation Committee adjusted the reported financial results on which the 20162018, annual cash bonus and the 2015-2017 Performance Awards2017-2019 PAs were determined to eliminate the distorting effect of certain unusual items on incentive compensation performance measures. The adjustments are intended to:
align award payments with the underlying performance of the core business.business
avoid volatile, artificial inflation or deflation of awards due to unusual items in the award year, and, where relevant, the previous (comparator) year.year
eliminate certain counterproductive short-term incentives—for example, incentives to refrain from acquiring new technologies, to defer disposing of underutilized assets, or to defer settling legacy legal proceedings to protect current bonus payments.payments
facilitate comparisons with peer companies.
To assureensure the integrity of the adjustments, the Compensation Committee establishes adjustment guidelines in the first 90 days of the performance period. These guidelines are generally consistent with the company guidelines for reporting non-GAAP financial measuremeasures to the investment community, which are reviewed by the Audit Committee. The adjustments apply equally to income and expense items. The Compensation Committee reviews all adjustments and retains downward discretion, i.e., discretion to reduce compensation below the amounts that are yielded by the adjustment guidelines.
Adjustments for 20162018 Bonus Plan
For the 20162018 bonus calculations, the Compensation Committee made the following adjustments to reported EPS consistent with our external reporting of non-GAAP financial measures:
Eliminated the impact of the charge related to the Venezuelan financial crisis, including the significant deterioration of the bolivar.
Eliminated the impact of the charge recognized for acquired in-process research and development.development
Eliminated the impact of amortization of certain intangible assets
Eliminated the impact of asset impairments, restructuring, and other special charges.charges
Eliminated the impact of amortizationcertain income tax items, including adjustments for the 2017 Toll Tax (and related adjustments made during 2018) and other matters related to U.S. tax reform, as well as tax associated with the separation of certain intangible assets.the Elanco animal health business
Eliminated the impact of other specified items
In addition to the adjustments consistent with our reporting of non-GAAP financial measures, the Compensation Committee made one additional adjustment to reported EPS when calculating adjusted non-GAAP EPS for the bonus plan, as follows:
When the Compensation Committee set 2018 bonus targets, the EPS goal was set assuming a lower amount of share repurchases than were actually executed during 2018. The Compensation Committee neutralized the impact of the additional share repurchases on EPS results for the amount that exceeded one percent of the EPS goal.
Reconciliations of these adjustments to our reported EPS are below.below:
|
| | |
| | 20162018 |
|
| EPS as reported | $2.583.13 |
Eliminate impact of the Venezuelan financial crisis | $0.19 |
Eliminate acquired in processin-process research and development chargecharges
| $0.021.83 |
Eliminate amortization of certain intangible assets
| $0.43 |
| Eliminate asset impairments, restructuring and other special charges | $0.290.41 |
Eliminate amortization of certain intangible assetsincome tax items | (0.25 | ) |
| Eliminate other specified items | $0.440.01 |
| Non-GAAP EPS | $3.525.55 |
| Share repurchase adjustment | (0.06 | ) |
| Adjusted Non-GAAP EPS | $5.49 |
*Numbers may not add due to rounding
Adjustments for 2015-2017 PA2017-2019 Performance Award
For the 2015-2017 PA2017-2019 performance award payout calculations, the Compensation Committee made the following adjustments to reported EPS consistent with our reporting of non-GAAP financial measures:
2016: Eliminated the impact of the Venezuelan financial crisis.
2016, 20152018, 2017 and 2014:2016: Eliminated the impact of the charges recognized for acquired in-process research and development.development
2016, 20152018, 2017 and 2014:2016: Eliminated the impact of amortization of certain intangible assets
2018, 2017 and 2016: Eliminated the impact of asset impairments, restructuring, and other special charges.charges
20162018 and 2015:2017: Eliminated the impact of amortizationcertain income tax items, including the 2017 Toll Tax (and related adjustments made during 2018) and other matters related to U.S. tax reform, as well as taxes associated with the separation of certain intangible assets.the Elanco animal health business
2015:2018 and 2017: Eliminated the impact of other specified items
2016: Eliminated the impact of the debt extinguishment loss.
2015: Eliminated the impact of inventory step-up for Novartis Animal Health.
2014: Eliminated the impact of the charge for an extra year of the U.S. Branded Prescription Drug Fee.
2014: Eliminated the impact of gain related to transfer of our linagliptin and empagliflozin commercial rights in certain countries to Boehringer Ingelheim.Venezuelan financial crisis
In addition to the adjustments consistent with our reporting of non-GAAP financial measures, the Compensation Committee made the following other adjustments:
When the Compensation Committee set 2015-2017 PA targets, the transfer of the commercialization rights for Erbitux® in North America to Lilly (which occurred in October 2015) was not contemplated. Accordingly, the committee adjusted the 2016 and 2015 results to neutralize the expected EPS impact of the transfer of commercialization rights.
When the Compensation Committee set 2015-2017 PA2017-2019 performance award targets, the EPS goals were set assuming a higher effective tax rate prior to the acquisitionenactment of Novartis Animal Health (which occurred in January 2015). Accordingly, the committee adjusted the base year 2014 results to include the results of Novartis Animal Health as if the acquisition and financing had occurred as of January 1, 2014.
When theU.S. tax reform. The Compensation Committee set 2015-2017 PA targets, the company began excluding amortization of certain intangible assets from non-GAAP financial measures in 2015. To make effective comparisons, the committee adjusted the 2014 non-GAAP results to excludeneutralized the impact of amortization of certain intangible assets.the reduction in our effective tax rate resulting from U.S. tax reform.
Reconciliations of these adjustments to our reported EPS are below.below:
|
| | | | | |
| | 2016 | 2015 | % Growth 2016 vs. 2015 | 2014 | % Growth 2015 vs. 2014 |
| EPS as reported | $2.58 | $2.26 | 14.2% | $2.23 | 1.3% |
| Eliminate impact of the Venezuelan financial crisis | $0.19 | — | | — | |
| Eliminate acquired in process research and development charges | $0.02 | $0.33 | | $0.12 | |
| Eliminate asset impairments, restructuring and other special charges | $0.29 | $0.25 | | $0.38 | |
| Eliminate amortization of certain intangible assets | $0.44 | $0.39 | | — | |
| Eliminate debt extinguishment loss | — | $0.09 | | — | |
| Eliminate inventory step-up for Novartis Animal Health | — | $0.10 | | — | |
| Eliminate additional U.S. Drug Fee | — | — | | $0.11 | |
| Eliminate gain related to transfer of commercial rights to Boehringer Ingelheim | — | — | | $(0.06) | |
| Non-GAAP EPS | $3.52 | $3.43 | 2.6% | $2.78 | 23.4% |
| Transfer of Erbitux commercialization rights adjustment | $(0.14) | $(0.01) | | — | |
| Novartis Animal Health acquisition adjustment | — | — | | $(0.07) | |
| Amortization of certain intangible assets | — | — | | $0.32 | |
| Adjusted Non-GAAP EPS | $3.38 | $3.42 | (1.2)% | $3.03 | 12.9% |
| *Numbers may not add due to rounding | | | | | |
|
| | | | | |
| | 2018 | 2017 | % Growth 2018 vs. 2017 | 2016 | % Growth 2017 vs. 2016 |
| EPS as reported | $3.13 | $(0.19) | NM | $2.58 | NM |
| Eliminate acquired in-process research and development charges | $1.83 | 0.97 | | $0.02 | |
| Eliminate amortization of certain intangible assets | $0.43 | 0.44 | | $0.44 | |
| Eliminate asset impairments, restructuring and other special charges | 0.41 | $1.23 | | $0.29 | |
| Eliminate certain income tax items | $(0.25) | $1.81 | | — | |
| Eliminate other specified items | $0.01 | $0.03 | | — | |
| Eliminate impact of the Venezuelan financial crisis | — | — | | $0.19 | |
| Non-GAAP EPS | $5.55 | $4.28 | 29.7% | $3.52 | 21.6% |
| U.S. tax reform adjustment | $(0.24) | — | | — | |
| Adjusted Non-GAAP EPS | $5.31 | $4.28 | 24.1% | $3.52 | 21.6% |
| *Numbers may not add due to rounding | | | | | |
Appendix B - The Lilly Directors' Deferral Plan (As Amended and Restated Effective January 1, 2017)
Proposed Amendments to the Company's Articles of Incorporation
ELI LILLY AND COMPANYProposed changes to the company’s articles of incorporation are shown below related to Items 4 and 5, “Items of Business To Be Acted Upon at the Meeting.” The changes shown to Article 9(b) will be effective if Item 4, "Proposal to Amend the Company’s Articles of Incorporation to Eliminate the Classified Board Structure,” receives the vote of at least 80 percent of the outstanding shares. The changes to Articles 9(c), 9(d), and 13 will be effective if Item 5, "Proposal to Amend the Company’s Articles of Incorporation to Eliminate Supermajority Voting Provisions,” receives the vote of at least 80 percent of the outstanding shares. Additions are indicated by underlining and deletions are indicated by strike-outs. The full text of the company's Articles of Incorporation can be found on our website at: https://www.lilly.com/who-we-are/governance.
. . . . .
9. The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and it is expressly provided that the same are intended to be in furtherance and not in limitation or exclusion of the powers conferred by statute:
THE LILLY DIRECTORS' DEFERRAL PLAN(a) The number of directors of the Corporation, exclusive of directors who may be elected by the
(as Amended and Restated on October 19, 2009 Effective January 1, 2017)holders of any one or more series of Preferred Stock pursuant to Article 7(b) (the "Preferred Stock
Directors"), shall not be less than nine, the exact number to be fixed from time to time solely by
resolution of the Board of Directors, acting by not less than a majority of the directors then in office.
(b) Prior to the 2020 annual meeting of directors, the Board of Directors (exclusive of Preferred
PreambleStock Directors) shall be divided into three classes, with the term of office of one class expiring each
The Lilly Directors’ Deferral Planyear. At the annual meeting of shareholders in 1985, five directors of the first class shall be elected to
hold office for a term expiring at the 1986 annual meeting, five directors of the second class shall be
elected to hold office for a term expiring at the 1987 annual meeting, and six directors of the third class
shall be elected to hold office for a term expiring at the 1988 annual meeting. Commencing with the
annual meeting of shareholders in 19862020, each class of directors whose term shall then expire shall
be elected to hold office for a threeone-year term expiring at the next annual meeting of shareholders. In
the case of any vacancy on the Board of Directors including a vacancy created by an increase in the
number of Directors, the vacancy shall be filled by election of the Board of Directors with the director so
elected to serve for the remainder of the term of the director being replaced or, in the case of an
additional director, for the remainder of the term of the class to which the director has been establishedassinged.
until the next annual meeting of shareholders. All directors shall continue in office until the election and
qualification of their respective successors in office. When the number of directors is changed, any newly
created directorships or any decrease in directorships shall be so assigned among the classes by a
majority of the directors then in office, though less than a quorum, as to make all classes as nearly equal
in number as possible. No decrease in the number of directors shall have the effect of shortening the
term of any incumbent director. Election of directors need not be by written ballot unless the By-laws so
provide.
(c) Any director or directors (exclusive of Preferred Stock Directors) may be removed from office at
any time, but only for cause and only by the Company foraffirmative vote of at least 80%a majority of the votes entitled
to becast by the holders of all the purposeoutstanding shared of providing an opportunity for Directors of the Company who are not salaried employees of the Company to voluntarily defer receipt of some or all of their meeting fees and retainer and to shareVoting Stock (as defined in the long-term growth of the Company by acquiring, onArticle 13 hereof),
voting together as a deferred basis, an ownership interest in the Company. Subject to adjustment as provided in Section 5(f), and contingent upon receiving approval of the Company’s shareholders, effective January 1, 2017, the aggregate number of shares of Eli Lilly and Company common stock that may be issued or transferred under this Plan afteris 1,500,000. For the period beginning April 2829, 2003, isand ending December 31, 2016, the aggregate number of authorized shares was 750,000. The sharesShares issued under the Plan may be authorized and unissued shares or treasury shares.single class.
The Plan constitutes a plan of unfunded deferred compensation and is intended to comply with the requirements of Section 409A. (d) Notwithstanding any other provision of this Plan, this Planthese Amended Articles of Incorporation or of law which
might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of
any particular class of Voting Stock required by law or these Amended Articles of Incorporation, the
affirmative vote of at least 80% of the votes entitled to be cast by holders of all the outstanding shares of
Voting Stock, voting together as a single class, shall be interpreted, operated and administered in a manner consistent with these intentions.
For the rules that applyrequired to the distribution of amounts that were earned and vested (within the meaning of Section 409A) under the Plan prior to 2005 (and earnings thereon) and are exempt from the requirements of Section 409A, see Appendix A.
This amendment and restatement of the Plan is effective January 1, 2017, contingent upon approval of the Company’s shareholders at the Company’s 2017 annual meeting.
| |
Section 1. | Definition of Terms |
The following terms used in the Plan shall have the meanings set forth below:
(a) “Account” means onealter, amend or more deferred compensation accounts maintained for each Participant under the Plan. A Participant’s Account shall consist of a Deferred Compensation Account and the Deferred Stock Account as described in Section 5 hereof.
(b) “Annual Allocation Date” means the last Business Day in November of each calendar year, or such other annual date, not earlier than the third Monday in February, established by the Plan Administrator as the date as of which the annual allocation of Shares are allocateddescribed in Section 5(c) is credited to eachthe Deferred Stock Account in accordance with Section 5, which shall be as soon as administratively feasible after the Annual Valuation Date, but in no event later than the last Business Day in November of the applicable Plan Year.
(c) “Annual Valuation Date” means the Valuation Date in November of each Plan Year, on which the annual allocation of Shares referenced in Section 5(c) is valued.
(d) “Beneficiary” means the person or persons who are designated by the Participant or are otherwise entitled to receive benefits under the Plan in the event of the Participant’s death, as provided in Section 6(d) hereof.
(e) “Board” means the Board of Directors of the Company.repeal this Article 9.
13. In addition to all other requirements imposed by law and these Amended Articles and except as otherwise
P72expressly provided in paragraph (c) of this Article 13, none of the actions or transactions listed in paragraph (a)
below shall be effected by the Corporation, or approved by the Corporation as a shareholder of any majority-
owned subsidiary of the Corporation if, as of the record date for the determination of the shareholders entitled to
vote thereon, any Related Person (as hereinafter defined) exists, unless the applicable requirements of
paragraphs (b), (c), (d), (e), and (fe) of this Article 13 are satisfied.
(a) The actions or transactions within the scope of this Article 13 are as follows:
(i) any merger or consolidation of the Corporation or any of its subsidiaries into or with such
Related Person;
(ii) any sale, lease, exchange, or other disposition of all or any substantial part of the assets of
the Corporation or any of its majority-owned subsidiaries to or with such Related Person;
(iii) the issuance or delivery of any Voting Stock (as hereinafter defined) or of voting securities of
any of the Corporation's majority-owned subsidiaries to such Related Person in exchange for
cash, other assets or securities, or a combination thereof;
(iv) any voluntary dissolution or liquidation of the Corporation;
(v) any reclassification of securities (including any reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation with any of its subsidiaries, or
any other transaction (whether or not with or otherwise involving a Related Person) that has the
effect, directly or indirectly, of increasing the proportionate share of any class or series of capital
stock of the Corporation, or any securities convertible into capital stock of the Corporation or
into equity securities of any subsidiary, that is beneficially owned by any Related Person; or
(vi) any agreement, contract, or other arrangement providing for any one or more of the actions
specified in the foregoing clauses (i) through (v).
(b) The actions and transactions described in paragraph (a) of this Article 13 shall have been authorized by
(f) “the affirmative vote of Business Dayat least 80% of all” means a daymajority of the votes entitled to be cast by holders of all the
outstanding shares of Voting Stock, voting together as a single class.
(c) Notwithstanding paragraph (b) of this Article 13, the 80% voting requirement shall not be applicable if
any action or transaction specified in paragraph (a) is approved by the Corporation's Board of Directors and
by a majority of the Continuing Directors (as hereinafter defined).
(d(c) Unless approved by a majority of the Continuing Directors, after becoming a Related Person and
prior to consummation of such action or transaction.:
(i) the Related Person shall not have acquired from the Corporation or any of its subsidiaries any
newly issued or treasury shares of capital stock or any newly issued securities convertible into
capital stock of the Corporation or any of its majority-owned subsidiaries, directly or indirectly
(except upon conversion of convertible securities acquired by it prior to becoming a Related Person
or as a result of a pro rata stock dividend or stock split or other distribution of stock to all
shareholders pro rata);
(ii) such Related Person shall not have received the benefit directly or indirectly (except
proportionately as a shareholder) of any loans, advances, guarantees, pledges, or other financial
assistance or tax credits provided by the Corporation or any of its majority-owned subsidiaries, or
made any major changes in the Corporation's or any of its majority-owned subsidiaries' businesses
or Corporation's capital stock below the rate in effect immediately prior to the time such Related
Person became a Related Person; and
(iii) such Related Person shall have taken all required actions within its power to ensure that the
Corporation's Board of Directors included representation by Continuing Directors at least
proportionate to the voting power of the shareholdings of Voting Stock of the Corporation's
Remaining Public Shareholders (as hereinafter defined), with a Continuing Director to occupy an
additional Board position if a fractional right to a director results and, in any event, with at least one
Continuing Director to serve on the Board so long as there are any Remaining Public Shareholders.
(ed) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended,
whether or not the Corporation is then subject to such requirements, shall be mailed to the shareholders of
the Corporation for the purpose of soliciting shareholder approval of such action or transaction and shall
contain at the front thereof, in a prominent place, any recommendations as to the advisability or
inadvisability of the action or transaction which the Company’s corporate headquartersContinuing Directors may choose to state and, if
deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm
selected by a majority of the Continuing Directors as to the fairness (or not) of the terms of the action or
transaction from a financial point of view to the Remaining Public Shareholders, such investment banking
firm to be paid a reasonable fee for its services by the Corporation. The requirements of this paragraph (ed)
shall not apply to any such action or transaction which is approved by a majority of the Continuing
Directors.
(fe) For the purpose of this Article 13
(i) the term "Related Person" shall mean any other corporation, person, or entity which beneficially owns
or controls, directly or indirectly, 5% or more of the outstanding shares of Voting Stock, and any Affiliate
or Associate (as those terms are open for regular business.defined in the General Rules and Regulations under the Securities
(g) “Code” means the Internal Revenue CodeExchange Act of 1986, as amended.
(h) “Company” means Eli Lilly and Company, an Indiana corporation.
(i) “Deferral Amount” means the amount1934) of a Participant’s Monthly CompensationRelated Person; provided, however, that is elected by a Participant for deferral under the Plan.term Related Person shall not
(j) “Deferred Compensation Account” meansinclude (a) the bookkeeping account describedCorporation or any of its subsidiaries, (b) any profit-sharing, employee stock ownership or
other employee benefit plan of the Corporation or any subsidiary of the Corporation or any trustee of or
fiduciary with respect to any such plan when acting in Section 5(a)(i). A sub-accountsuch capacity, or (c) Lilly Endowment, Inc.; and
further provided, that no corporation, person, or entity shall be established within the Deferred Compensation Account for each Plan Year in whichdeemed to be a Deferred Stock Participant elects to defer compensation into the Deferred Compensation Account in accordance with Section 4(a).Related Person solely by
(k) “Deferred Stock Account” means the bookkeeping account described in Section 5(a)reason of being an Affiliate or Associate of Lilly Endowment, Inc.;
(ii). A sub-account a Related Person shall be established withindeemed to own or control, directly or indirectly, any outstanding shares of
Voting Stock owned by it or any Affiliate or Associate of record or beneficially, including without limitation
shares
a. which it has the Deferredright to acquire pursuant to any agreement, or upon exercise of conversion
rights, warrants, or options, or otherwise or
b. which are beneficially owned, directly or indirectly (including shares deemed owned through
application of clause a. above), by any other corporation, person, or other entity with which it or
its Affiliate or Associate has any agreement, arrangement, or understanding for the purpose of
acquiring, holding, voting, or disposing of Voting Stock, Account for each Plan Yearor which is its Affiliate (other than the
Corporation) or Associate (other than the Corporation);
(iii) the term "Voting Stock" shall mean all shares of any class of capital stock of the Corporation which
are entitled to vote generally in whichthe election of directors;
(iv) the term "Continuing Director" shall mean a Deferred Stock Participant elects to defer compensation into the Deferred Stock Account in accordance with Section 4(a) or receives allocations of Shares under Section 5, to hold the Shares allocated during such Plan Year.
(l) “Deferred Stock Participant” means a Directordirector who is not, an Affiliate or Associate or
representative of a Related Person and for the preceding 12 months has not been, a salaried employee of the Company.
(m) “Director” meanswho was a member of the Board of Directors of the Company.Corporation
immediately prior to the time that any Related Person involved in the proposed action or transaction
became a Related Person or a director who is not an Affiliate or Associate or representative of a Related
Person and who was nominated by a majority of the remaining Continuing Directors; and
(v) the term "Remaining Public Shareholders" shall mean the holders of the Corporation's capital stock
other than the Related Person.
(gf) A majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the
(n) “Dividend Payment Date” meanspurposes of this Article 13, on the date asbasis of whichinformation then known to the Company paysContinuing Directors, whether (i) any
Related Person exists or is an Affiliate or an Associate of another and (ii) any proposed sale, lease, exchange, or
other disposition of part of the assets of the Corporation or any majority-owned subsidiary involves a cash dividend on Shares.substantial
(o) “Dividend Record Date” meanspart of the date establishedassets of the Corporation or any of its subsidiaries. Any such determination by the BoardContinuing
Directors shall be conclusive and binding for all purposes.
(hg) Nothing contained in this Article 13 shall be construed to relieve any Related Person or any Affiliate or
Associate of Directors asany Related Person from any fiduciary obligation imposed by law.
(ih) The fact that any action or transaction complies with the record date for determining shareholders entitled to the dividend with respect to any Dividend Payment Date.
(p) “Election Form” means the written or electronic form or forms approved by the Plan Administrator and completed by the Participant specifying the Participant’s election to defer Monthly Compensation pursuant to Section 4 and setting forth the Participant’s Beneficiary designation and the terms of distribution of the Participant’s Deferred Compensation Account and/or Deferred Stock Account pursuant to Section 6.
(q) “Monthly Compensation” means the monthly retainer and the aggregate of all other fees and retainers, including, but not limited to, meeting fees, committee fees and committee chairperson fees to which a Director is entitled for services rendered to the Company as a Director during the month, as established from time to time by resolution of the Board of Directors. For avoidance of doubt, Monthly Compensation does not include stock options granted to Directors or the Shares allocated pursuant to Section 5provisions of this Plan.Article 13 shall not be construed to
(r) “Monthly Deferral Participant” means a Director who is not, and for the preceding 12 months has not been, a salaried employeewaive or satisfy any other requirement of the Company and who electslaw or these Amended Articles of Incorporation or to defer allimpose any
fiduciary duty, obligation, or part of his or her Monthly Compensation pursuant to the Plan in accordance with Section 4 hereof.
(s) “Participant” means any current or former Director with an outstanding Account balance in the Plan.
(t) “Plan” means The Lilly Directors’ Deferral Plan, as amended and restated herein.
(u) “Plan Administrator” means the Directors and Corporate Governance Committee ofresponsibility on the Board of Directors or any successor committeemember thereof, to approve such
action or transaction or recommend its adoption or approval to the shareholders of the Corporation, nor shall
such compliance limit, prohibit, or otherwise restrict in any manner the Board of Directors, that is charged with matters relating to the compensation of non-employee directors. Exceptor any member
thereof, with respect to Section 5(f)evaluations of this Plan, the Plan Administrator may at its discretion delegate any of its responsibilities to one or more individuals provided that such delegation is in accordance with applicable laws.
(v) “Plan Year” means the calendar year from January 1 through December 31actions and responses taken with respect to which compensation eligible for deferral under the Plan is earned.
(w) “Section 409A” means section 409A of the Code and the Treasury regulations and other official guidance promulgated thereunder.
(x) “Separation from Service” means a “separation from service” within the meaning of Section 409A.
(y) “Share” means a share of common stock of the Company.
(z) “Unforeseeable Emergency” means a severe financial hardship of a Participant resulting from an illness or accident of such Participant or Beneficiary, such Participant’s spouse or a dependent (as defined in section 152(a) of the Code) of such Participant, loss of such Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of such Participant, each as determined in the manner consistent with Section 409A, and any other event or circumstance within the meaning of the term “unforeseeable emergency” under Section 409A.
(aa) “Valuation Date” means for any month, the third Monday of the month, or if Shares are not traded on the New York Stock Exchange on such third Monday, the next day on which Shares are traded on the New York Stock Exchange.
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Section 2. | Plan Administrator |
(a) Authority. The Plan Administrator shall have full authority to administer the Plan in accordance with its terms and to exercise all responsibilities and authorities as provided herein, including the discretionary authorities to determine the terms and conditions of deferrals of compensation under the Plan, to determine the terms and conditions of crediting to and distributing from Accounts under the terms of the Plan, and to adopt such rules and regulations for administering the Plan as it may deem necessary or appropriate. The Plan Administrator has the discretionary authority to interpret and construe all provisions of the Plan, to remedy possible ambiguities, inconsistencies, or omissions under the Plan, and to resolve all questions of fact arising under the Plan. The decisions of the Plan Administrator shall be final, binding and conclusive on all parties. No member of the Board, the Plan Administrator nor any officers of the Company shall have any liability for any action or determination taken under the Plan.transaction.
(b) Delegation; Expenses. The appropriate officer(s) of the Company as designated by the Plan Administrator are authorized to act on behalf of the Plan Administrator for the day-to-day administration of the Plan, subject to the authority of the Plan Administrator. Expenses of the administration of the Plan may be borne by the Company or may be deducted from Participants’ Accounts at the sole discretion of the Plan Administrator.
The Plan Administrator may require a Participant to comply with such terms and conditions as the Plan Administrator may specify in order for the Participant to participate in the Plan.
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Section 4. | Elections to Participate |
(a) Deferral Elections. A Monthly Deferral Participant in the Plan may file an Election Form with the Plan Administrator on or before the date specified in accordance with Section 4(c) hereof. The Election Form shall permit the Monthly Deferral Participant to specify the Deferral Amount, subject to a minimum annual Deferral Amount of five thousand dollars ($5,000), for the deferral of Monthly Compensation, or such amounts as may be specified by the Plan Administrator in its sole discretion, and whether such Deferral Amount shall be credited in cash to his or her Deferred Compensation Account or in Shares to his or her Deferred Stock Account, pursuant to Section 5(a) hereof. The Election Form shall also set forth the terms of distribution of the Participant’s Account in accordance with Section 6 hereof and the Participant’s Beneficiary designation. All elections to defer compensation under the Plan are irrevocable, and no changes to any Election Form delivered to the Plan Administrator shall be permitted, except as specifically provided under the terms of the Plan.
(b) Maximum Deferrals. A Monthly Deferral Participant may elect a Deferral Amount of up to 100% of the Participant’s Monthly Compensation for a Plan Year. One hundred percent (100%) of any annual allocation of Shares earned pursuant to Section 5(c) will be automatically credited to a Deferred Stock Participant’s Deferred Stock Account.
(c) Timing and Effect of Elections. Unless otherwise specified by the Plan Administrator in accordance with the requirements of Section 409A, deferral elections on an Election Form shall be made:
(i) In the case of Monthly Compensation or an annual Share allocation not qualifying as “performance-based compensation” within the meaning of Section 409A, prior to the beginning of the Plan Year with respect to which the compensation is earned; and
(ii) In the case of Monthly Compensation or an annual Share allocation which the Plan Administrator has determined qualifies as “performance-based compensation” within the meaning of Section 409A, no later than June 30th of the applicable Plan Year with respect to which the compensation is earned.
Deferral elections shall apply to Monthly Compensation and annual Share allocations with respect to the Plan Year for which the elections are made. Participants will be required to make deferral elections for future Plan Years at such times to be specified by the Plan Administrator in accordance with the foregoing. If a Participant does not file an Election Form with the Plan Administrator on or before the deadline established by the Plan Administrator for deferral elections for a Plan Year, a Participant will be deemed not to have elected to defer Monthly Compensation for such Plan Year, as applicable. Notwithstanding the foregoing, in the first year in which an individual who is newly elected or appointed to serve as a Director becomes eligible to participate in the Plan, such individual may, not later than thirty (30) days after the date he or she becomes eligible to participate in the Plan, elect in accordance with the preceding provisions of this Section 4, to defer the receipt of Monthly Compensation and set forth the terms of distribution of the individual's Account with respect to services to be performed after the filing of the election with the Company.
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Section 5. | Accounts and Interest Credits |
(a) Participant Accounts. Accounts shall be maintained for each Participant under the Plan:
(i) Deferred Compensation Account – The Company shall maintain a Deferred Compensation Account in the name of each Monthly Deferral Participant who elects to have a Deferral Amount credited in cash pursuant to Section 4 hereof for a given Plan Year. The Deferred Compensation Account shall be denominated in U.S. dollars, rounded to the nearest whole cent. For each month, Deferral Amounts allocated to a Deferred Compensation Account shall be credited to the Deferred Compensation Account as of the last Business Day of the month.
(ii) Deferred Stock Account – The Company shall maintain a Deferred Stock Account for each Deferred Stock Participant and for each Monthly Deferral Participant who elects to have a Deferral Amount credited in Shares. The Deferred Stock Account shall be denominated in Shares and maintained in fractions rounded to three (3) decimal places. Deferral Amounts intended to be allocated to a Deferred Stock Account shall be credited toon a monthly basis, as soon as administratively feasible following the Deferred Stock Account as ofValuation Date for the applicable month, but in no event later than the last Business Day of the monthsuch month. The annual allocations of Shares for Deferred Stock Participants described in section (c) below shall be credited to the applicable Deferred Stock Account on the Annual Allocation Date. Shares and, if necessary, fractional Shares, shall be credited based upon the closing price of Shares on the New York Stock Exchange on the Valuation Date for that month. Notwithstanding any other provision of the Plan, Shares allocated to each Sharea Deferred Stock Account shall be hypothetical and not issued or transferred by the Company until payment is made pursuant to Section 6 hereof.
A Participant’s Account shall consist of book entries only and shall not constitute a separate cash or Share fund or other asset held in trust or as security for the Company’s obligation to pay the amount of the Account to the Participant. The balance of a Participant’s Account shall be adjusted pursuant to this Section 5 and reduced by the amount of applicable tax withholding,distributions and expenses. A Participant’s Account may include sub-accounts as the Company considers necessary or advisable for purposes of maintaining a proper accounting of amounts credited or debited for a Participant under the Plan. A Participant shall receive or have on-line access to a statement of such Participant’s Account no less frequently than once a year following the end of each Plan Year.
(b) Crediting of Deferral Amount. A Participant who has filed an Election Form with the Plan Administrator for the deferral of Monthly Compensation with respect to a Plan Year shall have the Deferral Amount
deducted from the applicable compensation and credited to the Participant’s appropriate Account under the Plan. The Deferral Amount so credited shall be reduced by applicable tax withholding, distributions and expenses.
(c) Annual Share Allocation. As ofOn the Annual Allocation Date of each Plan Year, there shall be allocated to the Deferred Stock Account of each person who (i) is a Deferred Stock Participant on the Annual Valuation Date of that datePlan Year or (ii) was a Deferred Stock Participant at any time subsequent to the last Annual AllocationValuation Date, as part of his or her compensation for service on the Board of Directors, up to 7,500the number of Shares, as may be specified from time to time by resolution of the Board of Directors. This allocation shall in no event be more than the lesser of (i) 7,500 Shares or (ii) the number of Shares equal in value to $800,000 minus the director’s total cash compensation for the Plan Year (including for this purpose, but not limited to, any cash compensation deferred into this Plan pursuant to an election under Section 4(a) above), as of the Annual Valuation Date.
(d) Interest Credits. The Deferred Compensation Accounts of Participants shall be credited with interest computed each Plan Year or portion thereof at a rate equal to 120% of the long-term applicable federal rate, with monthly compounding (as prescribed under section 1274(d) of the Code), as in effect for the month of December for the immediately preceding Plan Year. Such interest shall accrue on all Deferral Amounts and prior earnings thereon of Deferred Compensation Accounts and be credited daily to such accounts.
(e) Cash Dividends. Cash dividends paid on Shares shall be deemed to have been paid on the Shares allocated to each Participant’s Deferred Stock Account as if the allocated Shares were actual Shares issued and outstanding on the Dividend Record Date. An amount equal to the amount of such dividends shall be credited in Shares to each Deferred Stock Account as of the last Business Day of each month in which a Dividend Payment Date occurs, based upon the closing price for Shares on the New York Stock Exchange on the Valuation Date for that month.
(f) Capital Adjustments. The number of Shares referred to in the Preamble and Section 5 hereof and the number of Shares allocated to each Deferred Stock Account shall be adjusted by the Plan Administrator, in the event of any subdivision or combination of Shares or any stock dividend, stock split, reorganization, recapitalization, or consolidation or merger with the Company as the surviving corporation, or if additional shares or new or different shares or other securities of the Company or any other issuer are distributed with respect to Shares through a spin-off or other extraordinary distribution.
(g) Vesting of Accounts. A Participant is fully vested in his or her entire Account balance.
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Section 6. | Distribution of Accounts |
(a) Distribution upon Separation from Service. A Participant shall specify on an Election Form the manner in which the amounts deferred in the Deferred Compensation Account and the Deferred Stock Account, as applicable, for a Plan Year (and earnings thereon) shall be distributed from the Participant’s Account upon the Participant’s Separation from Service. All elections are irrevocable, and no changes shall be permitted to any Election Form delivered to the Plan Administrator, except as specifically provided under the terms of the Plan. A Participant may elect, to the extent permitted by the Plan Administrator and set forth on the Election Form, that such portion of the Account be distributed upon a Participant’s Separation from Service either in:
(i) Lump Sum payment in January of the second Plan Year following the Plan Year in which the Participant's Separation from Service occurs; or
(ii) Annual Installment payments over a period of two (2) to ten (10) years commencing in January of the second Plan Year following the Plan Year in which the Participant's Separation from Service occurs, with subsequent installment payments to be made in each January within the applicable period.
If a Participant fails to make a timely payment election on the Election Form for a Plan Year, the amounts deferred in the Deferred Compensation Account and the Deferred Stock Account, as applicable, for such Plan Year (and earnings thereon) shall be distributed in a lump sum in accordance with Section 6(a)(i) hereof.
(b) Form of Distributions. All distributions of a Participant’s Deferred Compensation Account under the Plan shall be made in cash. Except as provided in Section 6(f), all distributions of a Participant’s
Deferred Stock Account shall be paid in Shares, at which time the Shares shall be issued or transferred from the books of the Company to the Participant. All Shares to be issued or transferred hereunder may be newly issued or treasury shares. Fractional Shares shall not be issued or transferred to a Participant, provided that in the case of a final payment under the Plan with respect to a Participant, any fraction remaining in the Participant’s Deferred Stock Account shall be rounded up to the next whole Share and that number of whole Shares shall be issued or transferred. The value of the Deferred Stock Account is calculated with reference to the closing price of Shares on the last trading day of the prior Plan Year.
(c) Distribution of Account. The Company shall distribute amounts from the Participant’s Deferred Compensation Account and the Deferred Stock Account in the manner and on the date(s) applicable under this Section 6. If the payment option described in Section 6(a)(i) hereof is applicable, the amount of the lump sum shall be calculated using the valuation of the applicable portion of the Participant’s Account as of the December 31 preceding the date of the payment. If the payment option described in Section 6(a)(ii) hereof is applicable, the amount of each installment shall be calculated using the valuation of the applicable portion of the Participant’s Account as of the December 31 preceding the date of the installment payment divided by the number of installment payments that have not yet been made.
(d) Distribution upon Death. Notwithstanding any election made by a Participant or any other provision of this Section 6 to the contrary, if a Participant dies before full distribution of his or her Account balance, any remaining balance shall be distributed to the Participant’s Beneficiary in a lump sum within 90 days following the date of the Participant’s death. The amount of such lump sum distribution shall be calculated using the valuation of the Participant's Account as of the date preceding the date of distribution.Any payment required to be made to a Participant under the Plan that cannot be made due to the Participant’s death shall be made to the Participant’s Beneficiary, subject to applicable law. Each Participant shall have the right to designate one or more Beneficiaries, and to change a Beneficiary designation, from time to time by filing a written notice with the Plan Administrator. In the event that a Beneficiary does not survive the Participant and no successor Beneficiary is selected, or in the event no valid Beneficiary designation has been made, the Participant’s Beneficiary shall be the Participant’s estate.
(e) Unforeseeable Emergency. Upon the written request of a Participant, the Plan Administrator may permit the Participant to withdraw some or all of the Participant’s Account for the purpose of enabling the Participant to meet the immediate needs created by an Unforeseeable Emergency. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but in any case, the amounts distributed with respect to an Unforeseeable Emergency shall not exceed the amounts necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant’s assets, to the extent that the liquidation of such assets would not itself cause severe financial hardship, or by cessation of deferrals under the Plan.
(f) Payment of Cash in Lieu of Shares. If at any time the Plan Administrator determines that payment of Shares to a Participant (or a Participant’s Beneficiary) or the ownership or subsequent disposition of such Shares by such Participant or Beneficiary may violate or conflict with any applicable law or regulation, the Plan Administrator shall pay all or a portion of the Participant’s Deferred Stock Account in cash.
(g) Withholding Taxes. All distributions of a Participant’s Account under the Plan shall be subject to income tax and other withholdings that the Plan Administrator deems necessary or appropriate, and the Plan Administrator may reduce the amount credited to any Participant’s Account to the extent it deems necessary to satisfy tax withholding requirements. Participants or Beneficiaries receiving distributions under the Plan shall bear all taxes on amounts paid under the Plan to the extent that taxes are not withheld thereon, irrespective of whether withholding is required.
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Section 7. | Administrative Matters
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(a) Claims Procedure. Any person making a claim for benefits hereunder shall submit the claim in writing to the Plan Administrator. If the Plan Administrator denies the claim in whole or in part, it shall issue to the claimant a written notice explaining the reason for the denial and identifying any additional information or documentation that might enable the claimant to perfect the claim. The claimant may, within sixty (60) days of receiving a written notice of denial, submit a written request for reconsideration to the Plan Administrator, together
with a written explanation of the basis of the request. The Plan Administrator shall consider any such request and shall provide the claimant with a written decision together with a written explanation thereof. No legal action may be commenced or maintained against the Plan more than one year after the Plan Administrator wholly or partially denies, or is deemed to have wholly or patially denied, a claim for Plan benefits. All interpretations, determinations, and decisions of the Plan Administrator in respect of any claim shall be final, binding and conclusive.
(b) Incapacity. If the Plan Administrator determines that any person entitled to benefits under the Plan is unable to care for his or her affairs because of illness, accident or other physical and mental incapacity, any payment due (unless a duly qualified guardian or other legal representative has been appointed) may be paid consistent with the terms described herein for the benefit of such person to such person’s spouse, parent, brother, sister, adult child or other party deemed by the Plan Administrator in its sole discretion to ensure proper care for such person.
(c) Inability to Locate. If the Plan Administrator is unable to locate a person to whom a payment is due under the Plan for a period of twelve (12) months, commencing with the first day of the month as of which the payment becomes payable, the total amount payable to such person shall be forfeited.
(d) Liability. Any decision made or action taken by the Board of Directors, the Plan Administrator, or any employee of the Company or any of its subsidiaries, arising out of or in connection with the construction, administration, interpretation, or effect of the Plan, shall be absolutely discretionary, and shall be conclusive and binding on all parties. Neither the Plan Administrator nor a member of the Board of Directors and no employee of the Company or any of its subsidiaries shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving bad faith, for anything done or omitted to be done.
(e) Notices. No notice, election or communication in connection with the Plan made or submitted by any Participant, claimant or other person shall be effective unless duly executed and filed with the Plan Administrator (including any of its representatives, agents, or delegates) in the form and manner required by the Plan Administrator.
(f) Waiver. No term, condition, or provision of the Plan shall be deemed waived unless the purported waiver is in writing signed by the Plan Administrator. No waiver signed by the Plan Administrator shall be deemed a continuing waiver unless so specifically stated in the writing, and any such waiver shall operate only for the stated period and only as to the specific term, condition, or provision waived, and shall apply only to the individual or individuals seeking the waiver.
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Section 8. | Unfunded Status |
All Accounts and all rights of Participants to benefits under the Plan are unfunded obligations of the Company. Plan benefits shall be paid from the general assets of the Company, and Participants shall have the status of an unsecured general creditor of the Company with respect to all interests under the Plan. The Plan is a plan of unfunded deferred compensation. Notwithstanding the foregoing, the Company may, but shall not be required to, establish a trust or other funding vehicle under the Plan that does not affect the Plan’s status as a Plan of unfunded deferred compensation.
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Section 9. | Nontransferability; Successors |
No interest of any person in, or right to receive a distribution under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a distribution be taken, either voluntarily or involuntarily for the satisfaction of the debts of, or other obligations or claims against, such person.
The obligations of the Company under the Plan will be binding upon the Company’s successors, transferees and assigns.
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Section 10. | Limitation of Rights |
Nothing in the Plan shall confer upon any Participant the right to continue to serve as a Director of the Company or to serve in the capacity in which the Participant is employed by the Company. Nothing in the Plan shall be interpreted as creating a right of a Participant to receive any compensation or benefit from the Company. A Participant shall have no rights as a shareholder of the Company with respect to any Shares until the Shares are issued or transferred to the Participant on the books of the Company.
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Section 11. | Enforceability and Governing Law |
To the extent not preempted by federal law, the Plan shall be construed, administered and enforced in accordance with the laws of the State of Indiana, regardless of the law that might otherwise govern under applicable principles or provisions of choice or conflict of law doctrines. To the extent that any provision of the Plan or portion thereof shall be found to be invalid or unenforceable, itsuch provision or portion of the Plan shall be considered deleted herefrom and the remainder of such provision and the Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. In addition, the remainder of the Plan shall be unaffected and shall continue in full force and effect.
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Section 12. | Forum Selection |
To the fullest extent permitted by law, any action brought in whole or in part relating to the Plan the lawfulness of any Plan provision, the administration of the Plan, or the performance or non-performance of the Plan’s administrators and fiduciaries, shall be filed in one of the following jurisdictions: (i) the jurisdiction in which the Plan is principally administered, which is currently the United States District Court for the Southern District of Indiana; or (ii) in the case of a putative class action, the jurisdiction in which the largest number of putative class members resides (or if that jurisdiction cannot be determined, the jurisdiction in which the largest number of class members is reasonably believed to reside).
If any action is filed in a jurisdiction other than one of those described above, then the Plan, all parties to such action that are related to the Plan (such as a Plan fiduciary, administrator or party in interest) and all alleged Plan Participants and Beneficiaries shall take all necessary steps to have the action removed to, transferred to or re-filed in a jurisdiction described above. Such steps may include, but are not limited to, (i) a joint motion to transfer the action; or (ii) a joint motion to dismiss the action without prejudice to its re-filing in a jurisdiction described above, with any applicable time limits or statutes of limitations applied as if the suit or class action allegation had originally been filed or asserted in a jurisdiction described above at the same time that it was filed or asserted in a jurisdiction not described therein.
This forum selection provision is waived, with respect to an action, if no party invokes it within 120 days of the filing of an action. This provision does not relieve any claimant from any obligation existing under the Plan or by law to exhaust administrative remedies before initiating litigation.
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Section 13. | Scrivener’s Errors |
The Plan shall be applied and interpreted without regard to any scrivener's error in this instrument. The determination whether a scrivener's error has occurred shall be made by the Plan Administrator in the exercise of the Plan Administrator’s best judgment and sole discretion, based on the Plan Administrator’s understanding of the intent of the Company as settlor of the Plan, and taking into account such evidence, written or oral, as the Plan Administrator deems appropriate or helpful. The Plan Administrator is authorized to correct any scrivener's errors the Plan Administrator discovers in this instrument, retroactively or prospectively.
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Section 14. | Rules of Construction |
For purposes of the Plan, unless the contrary is clearly indicated by the context:
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(a) | the use of the masculine gender in this Plan shall also include within its meaning the feminine gender and vice versa; |
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(b) | the use of the singular shall also include within its meaning the plural and vice versa; |
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(c) | the word "include" shall mean to include, but not to be limited to;
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(d) | any reference to a statute or section of a statute shall further be a reference to any successor or amended statute or section, and any regulations or other guidance of general applicability issued thereunder;
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(e) | the title of an officer, employee, or entity used in this Plan means the respective officer, employee, or entity of Eli Lilly and Company and means any successor title to such position as such title may be changed from time to time; |
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(f) | references to the Plan Administrator, or other named fiduciary, officer or employee of the Company, or other person or entity with responsibility or authority under the Plan shall include delegates (if any) of such entity or person, with respect to such entity's or person's delegated responsibilities; and |
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(g) | the captions and headings of each article, section, paragraph, and other provision of the Plan are for convenience and reference only and are not to be considered in interpreting the terms and conditions of the Plan. |
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Section 15. | Effective Date; Amendment and Termination |
The Plan, as amended and restated, shall become effective for the 2009deferrals on and after January 1, 2017, and for each Plan Year (except as to the share limit specified in Section 5(c), which shall become effective October 20, 2008) and for future Plan Yearsthereafter until terminated by the Board, contingent upon receiving the approval of the Company’s shareholders at the Company’s 2017 annual meeting. The Board may amend or terminate the Plan at any time and in any manner; provided that no amendment or termination shall reduce the amount credited to a Participant’s Account at the time of any such amendment or termination, and no amendment shall be effective that shall cause the Plan to fail to meet the requirements of Section 409A. Upon termination of the Plan in accordance with the requirements of Section 409A, (i) all future deferrals of compensation will cease, (ii) all Plan Accounts will continue to receive interest credits (or be invested) as permitted under the Plan, and (iii) all Plan Accounts will be distributed in accordance with the Participant’s elections under the provisions of the Plan, unless the Company determines in its sole discretion that all such amounts shall be distributed upon termination in accordance with the requirements of Section 409A.
APPENDIX A
GRANDFATHERED AMOUNTS
Distribution of amounts that were earned and vested (within the meaning of Section 409A) under the Plan prior to 2005 (and earnings thereon) and are exempt from the requirements of Section 409A shall be made in accordance with the Plan terms as in effect on January 1, 2004, as attached below.
THE LILLY DIRECTORS' DEFERRAL PLAN
(As amended and restated through January 1, 2004)
Section 1. Establishment of the Plan and Shares Available.
1.1. Establishment of Plan. This Plan was established effective January 1, 1996, to permit Directors of the Company who are not salaried employees of the Company to voluntarily defer receipt of some or all of their meeting fees and retainer and to share in the long-term growth of the Company by acquiring, on a deferred basis, an ownership interest in the Company. This amended and restated Plan is effective January 1, 2004.
1.2. Shares Available. Subject to adjustment as provided in Section 7.5, the aggregate number of shares of Eli Lilly and Company common stock that may be issued or transferred under this Plan after April 28, 2003, is 750,000. The shares may be authorized and unissued shares or treasury shares.
Section 2. Definitions.
The following terms shall have the definitions set forth in this Section 2:
2.1. Annual Allocation Date. The last Business Day in November of each calendar year, or such other annual date, not earlier than the third Monday in February, established by the Committee as the date as of which Shares are allocated to each Share Account in accordance with Section 6.
2.2. Beneficiary. The beneficiary or beneficiaries (including any contingent beneficiary or beneficiaries) designated pursuant to subsection 8.3 hereof.
2.3 Business Day. A day on which the Company’s corporate headquarters are open for regular business.
2.4. Board of Directors. The Board of Directors of the Company.Corporation, when evaluating any actions or transactions described in paragraph (a)
2.5. Committee. The Directors and Corporate Governance Committee of this Article 13, shall, in connection with the Boardexercise of Directors, or any successor committee of the Board of Directors thatits judgment in determining what is charged with matters relating to the compensation of non-employee directors.
2.6. Company. Eli Lilly and Company.
2.7. Company Credit. For any calendar year or part thereof, an amount computed, and credited annually to a Participant's Deferred Compensation Account at an annual rate that is equal to one hundred twenty percent (120%) of the applicable federal long-term rate, with compounding (as prescribed under Section 1274(d) of the Internal Revenue Code) that was in effect for the month of December immediately preceding the calendar year.
2.8. Deferred Amount. The amount of a Monthly Deferral Participant's Monthly Compensation that the Participant elects to defer in accordance with Section 4 hereof.
2.9. Deferred Stock Participant. A Director who is not, and for the preceding 12 months has not been, a salaried employee of the Company and who becomes a Participant in the Plan in accordance with Section 3 hereof.
2.10. Director. A member of the Board of Directors.
2.11. Dividend Payment Date. The date as of which the Company pays a cash dividend on Shares.
best interests
2.12. Dividend Record Date. With respectof the Corporation and its shareholders, give due consideration to any Dividend Payment Date, all relevant factors, including without limitation
the date established bysocial and economic effects on the Boardemployees, customers, suppliers, and other constituents of Directors asthe
Corporation and its subsidiaries and on the record date for determining shareholders entitled tocommunities in which the dividend.Corporation and its subsidiaries operate or
are located.
2.13. Individual Accounts or Accounts. The separate accounts (the Deferred Compensation Account and the Share Account) described in Section 7 hereof. When used in the singular, the term shall refer to one(j) Notwithstanding any other provision of these two accounts, asAmended Articles of Incorporation or of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the context requires.holders of any particular
class of Voting Stock required by law or these Amended Articles of Incorporation, the affirmative vote of the
2.14. Monthly Compensation. For any month,holders of at least 80% of the monthly retainer and the aggregatevotes entitled to be cast by holders of all meeting fees, committee fees and committee chairperson fees to which a Director is entitled for services rendered to the Companyoutstanding shares of Voting Stock,
voting together as a Director during the month, as established from timesingle class, shall be required to time by resolution of the Board of Directors. For avoidance of doubt, Monthly Compensation does not include stock options granted to Directorsalter, amend, or the Shares allocated pursuant to Section 6 ofrepeal this Plan.
2.15. Monthly Deferral Participant. A Director who is not a salaried employee of the Company and who has elected to defer all or part of his or her Compensation pursuant to the Plan in accordance with Section 4 hereof.
2.16. Participant. A Director who is a Deferred Stock Participant, a Monthly Deferral Participant, or both.
2.17. Plan. The Lilly Directors' Deferral Plan, as set forth herein and as it may be amended from time to time.
2.18. Share. A share of common stock of the Company.
2.19. Valuation Date. For any month, the third Monday of the month, or if Shares are not traded on the New York Stock Exchange on such third Monday, the next day on which Shares are traded on the New York Stock Exchange.Article 13.
Section 3. Deferred Stock Participants.
Each Director who participated in The Lilly Non-Employee Directors' Deferred Stock Plan immediately before the effective date of this Plan shall continue as a Deferred Stock Participant on such effective date, and all elections in effect under The Lilly Non-Employee Directors' Deferred Stock Plan shall remain in effect under this Plan, unless and until amended in accordance with this Plan. Thereafter, each person who becomes a Director, and who is not, and for the preceding 12 months has not been, a salaried employee of the Company, shall become a Deferred Stock Participant.
Section 4. Monthly Deferral Participants.
Each Director who participated in The Lilly Directors' Deferred Compensation Plan immediately before the effective date of the Plan shall continue as a Monthly Deferral Participant on such effective date, and all elections in effect under The Lilly Directors' Deferred Compensation Plan shall remain in effect under this Plan, unless and until amended in accordance with this Plan. Prior to the beginning of each calendar year, any Director who is not a salaried employee of the Company may defer the receipt of Monthly Compensation to be earned by the Director during such year by filing with the Company a written election that:
(i) defers payment of a designated amount (of one Thousand Dollars ($1,000) or more) or percentage of his or her Monthly Compensation for services attributable to the following calendar year or portion thereof (the "Deferred Amount");
(ii) specifies the payment option selected by the Participant pursuant to subsection 8.2 hereof for such Deferred Amount; and
(iii) specifies the option selected by the Participant pursuant to Section 5 hereof for such Deferred Amount.
The amount deferred may not exceed the Director's aggregate Monthly Compensation for the calendar year. Notwithstanding the foregoing, any individual who is newly elected or appointed to serve as a Director may, not later than thirty (30) days after his election or appointment becomes effective, elect in accordance with the preceding
provisions of this Section 4, to defer the receipt of Monthly Compensation earned during the portion of the current calendar year that follows the filing of the election with the Company. Except as provided in subsections 8.2 and 8.4 hereof, any elections made pursuant to this Section 4 with respect to a calendar year shall be irrevocable when made. If a Participant fails to make an election under section 5 with respect to his or her Deferred Amount for a future calendar year, the Participant's previous election shall remain in effect, provided that the Participant may amend his or her election with regard to a future calendar year at any time.
Section 5. Form of Deferred Compensation Credits.
5.1. Deferred Compensation Account. Except with respect to Deferred Amounts which a Monthly Deferral Participant elects to have credited in Shares in accordance with subsection 5.2 hereof, the Deferred Amount shall be denominated in U.S. dollars and credited to the Participant's Deferred Compensation Account pursuant to subsection 7.1 hereof.
5.2. Shares. Prior to the beginning of each calendar year, a Monthly Deferral Participant may elect to have all or a percentage of the Deferred Amount for the following calendar year credited in Shares and allocated to the Participant's Share Account pursuant to subsection 7.2 hereof.
Section 6. Annual Allocations to Share Accounts.
6.1. Annual Allocation of Shares. As of the Annual Allocation Date of each calendar year, there shall be allocated to the Share Account (as described in Section 7.2 below) of each Deferred Stock Participant who is a Director on that date, as part of his or her compensation for service on the Board of Directors, seven hundred (700) Shares or such other number of Shares, not to exceed 3,000 shares, as may be specified from time to time by resolution of the Board of Directors.
Section 7. Individual Accounts.
The Company shall maintain Individual Accounts for Participants as follows:
7.1. Deferred Compensation Account. The Company shall maintain a Deferred Compensation Account in the name of each Monthly Deferral Participant who elects to defer the receipt of Monthly Compensation pursuant to Section 4 hereof for a calendar year and does not elect to have the Deferred Amount for such calendar year credited in Shares pursuant to subsection 5.2 hereof. The Deferred Compensation Account shall be denominated in U.S. dollars, rounded to the nearest whole cent. For each month, Deferred Amounts allocated to a Deferred Compensation Account pursuant to subsection 5.1 hereof shall be credited to the Deferred Compensation Account as of the last Business Day of the month.
7.2. Share Account. The Company shall maintain a Share Account for each Deferred Stock Participant and for each Monthly Deferral Participant who elects to have a Deferred Amount credited in Shares pursuant to subsection 5.2 hereof. The Share Account shall be denominated in Shares and maintained in fractions rounded to three (3) decimal places. Shares allocated to each Share Account shall be hypothetical and not issued or transferred by the Company until payment is made pursuant to Section 8 hereof.
For each month, Deferred Amounts allocated to a Share Account pursuant to subsection 5.2 hereof shall be credited to the Share Account as of the last Business Day of the month. Shares and, if necessary, fractional Shares, shall be credited based upon the average of the high and low price of Shares on the New York Stock Exchange on the Valuation Date for that month.
7.3. Accrual of Company Credit. The Treasurer of the Company shall determine the annual rate of Company Credit on or before December 31 of each calendar year. This rate shall be effective for the following calendar year. The Company Credit shall accrue monthly, at one-twelfth of the applicable annual rate, on all amounts credited to a Participant's Deferred Compensation Account, including the Company Credits for prior years. The Company Credit shall not accrue on any amount distributed to a Participant (or to the Participant's Beneficiary) during the month for which the accrual is determined, except where an amount is distributed to a Beneficiary in the month of the Participant's death. The Company Credit for each year shall be credited to each Deferred Compensation Account as of December 31 of that year and shall be compounded monthly.
7.4. Cash Dividends. Cash dividends paid on Shares shall be deemed to have been paid on the Shares allocated to each Participant's Share Account as if the allocated Shares were actual Shares issued and outstanding on the Dividend Record Date. An amount equal to the amount of such dividends shall be credited in Shares to each Share Account as of the last Business Day of each month in which a Dividend Payment Date occurs, based upon the average of the high and low prices for Shares on the New York Stock Exchange on the Valuation Date for that month.
7.5. Capital Adjustments. The number of Shares referred to in Sections 1.2 and 6 hereof and the number of Shares allocated to each Share Account shall be adjusted by the Committee, as it deems appropriate in its discretion, in the event of any subdivision or combination of Shares or any stock dividend, stock split, reorganization, recapitalization, or consolidation or merger with Eli Lilly and Company as the surviving corporation, or if additional shares or new or different shares or other securities of the Company or any other issuer are distributed with respect to Shares through a spin-off or other extraordinary distribution.
7.6. Account Statements. Within a reasonable time following the end of each calendar year, the Company shall render an annual statement to each Participant. The annual statement shall report the number of Shares credited to the Participant's Share Account as of December 31 of that year and the dollar amount, if any, credited to the Participant's Deferred Compensation Account as of December 31 of that year.
Section 8. Payment Provisions.
8.l. Method of Payment. All payments to a Participant (or to a Participant's Beneficiary) with respect to the Participant's Deferred Compensation Account shall be paid in cash. Except as provided in Section 8.5, all payments to a Participant (or to a Participant's Beneficiary) with respect to the Participant's Share Account shall be paid in Shares, at which time the Shares shall be issued or transferred on the books of the Company. All Shares to be issued or transferred hereunder may be newly issued or treasury shares. Fractional Shares shall not be issued or transferred to a Participant, provided that in the case of a final payment under the Plan with respect to a Participant, any fraction remaining in the Participant's Share Account shall be rounded up to the next whole Share and that number of whole Shares shall be issued or transferred. If Shares are not traded on the New York Stock Exchange on any day on which a payment of Shares is to be made under the Plan, then that payment shall be made on the next day on which Shares are traded on the New York Stock Exchange.
8.2. Payment Options. Prior to each calendar year, or within 30 days after becoming a Participant, the Participant shall select a payment election with respect to the payment of one or both of the Participant's Individual Accounts from the following payment elections:
(i) a lump sum in January of the calendar year immediately following the calendar year in which the Participant ceases to be a Director;
(ii) a lump sum in January of the second calendar year following the calendar year in which the Participant ceases to be a Director;
(iii) annual (or, in the case of the Deferred Compensation Account only, monthly) installments over a period of two to ten years commencing in January of the calendar year following the calendar year during which the Participant ceases to be a Director; or
(iv) annual (or in the case of the Deferred Compensation Account only, monthly) installments over a period of two to ten years commencing in January of the second calendar year following the calendar year in which the Participant ceases to be a director.
If a payment option described in paragraphs (i) or (ii), above, has been elected, the amount of the lump sum with respect to the Participant's Deferred Compensation Account shall be equal to the amount credited to the Participant's Deferred Compensation Account as of the December 31 immediately preceding the date of the payment, and the amount of the lump sum with respect to the Participant's Share Account shall be equal to the number of Shares credited to the Share Account as of the December 31 immediately preceding the date of payment. If a payment option described in paragraphs (iii) or (iv), above, has been elected, the amount of each installment with respect to the Participant's Deferred Compensation Account shall be equal to the amount credited to the Participant's Deferred Compensation Account as of the last day of the month immediately preceding the date of a monthly installment payment, or the December 31 immediately preceding the date of an annual installment
payment, divided by the number of installment payments that have not yet been made. The amount of each installment with respect to the Participant's Share Account shall be equal to the number of Shares credited to the Participant's Share Account as of the December 31 immediately preceding the date of an annual installment payment, divided by the number of installment payments that have not yet been made.
A Participant may elect that his or her final payment election may control over all prior payment elections. If the Participant fails to elect a payment option, the amount credited to the Participant's Individual Account shall be distributed in a lump sum in accordance with the payment option described in paragraph (i) above. At the time of any scheduled payment, if the amount credited to a Participant's Deferred Compensation Account or the value of Shares credited to a Participant's Share Account is less than $25,000, the Committee, in its sole discretion, may pay out the Account in a lump sum.
8.3. Payment Upon Death. Within a reasonable period of time following the death of a Participant, the amount credited to the Participant's Deferred Compensation Account and the Shares credited to the Participant's Share Account shall be paid by the Company in a lump sum to the Participant's Beneficiary. For purposes of this subsection 8.3, the amount credited to the Participant's Deferred Compensation Account and the number of Shares credited to the Participant's Share Account shall be determined as of the later of the date of death or the last Business Day of the month prior to the month in which the payment occurs.
A Participant may designate the Beneficiary, in writing, in a form acceptable to the Committee before the Participant's death. A Participant may revoke a prior designation of Beneficiary and may also designate a new Beneficiary without the consent of the previously designated Beneficiary, provided that such revocation and new designation (if any) are in writing, in a form acceptable to the Committee, and filed with the Committee before the Participant's death. If the Participant does not designate a Beneficiary, or if no designated Beneficiary survives the Participant, any amount not distributed to the Participant during the Participant's life shall be paid to the Participant's estate in a lump sum in accordance with this subsection 8.3.
8.4. Payment on Unforeseeable Emergency. The Committee may, in its sole discretion, direct payment to a Participant of all or of any portion of the Participant's Individual Account balance, notwithstanding an election under subsection 8.2 above, at any time that it determines that such Participant has an unforeseeable emergency, and then only to the extent reasonably necessary to meet the emergency. For purposes of this section, "unforeseeable emergency" means severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is, or may be, relieved --
(i) through reimbursement or compensation by insurance or otherwise;
(ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or
(iii) by cessation of deferrals under the Plan.
Examples of what are not considered to be unforeseeable emergencies include the need to send a Participant's child to college or the desire to purchase a home.
8.5. Payment of Cash in Lieu of Shares. If at any time the Committee shall determine that payment of Shares to a Participant (or a Participant’s Beneficiary) or the ownership or subsequent disposition of such Shares by such Participant or Beneficiary may violate or conflict with any applicable law or regulation, the Committee may, in its discretion, pay all or a portion of the Participant’s Share Account in cash. In this case, the amount of cash shall be determined with reference to the average of the high and low trading price for Shares on the December 31 next preceding the date of payment, or if Shares are not traded on that day, the next preceding trading day.
Section 9. Ownership of Shares.
A Participant shall have no rights as a shareholder of the Company with respect to any Shares until the Shares are issued or transferred to the Participant on the books of the Company.
Section 10. Prohibition Against Transfer.
The right of a Participant to receive payments of Shares and cash under the Plan may not be transferred except by will or applicable laws of descent and distribution. A Participant may not assign, sell, pledge, or otherwise transfer Shares or cash to which he is entitled hereunder prior to transfer or payment thereof to the Participant, and any such attempted assignment, sale, pledge or transfer shall be void.
Section 11. General Provisions.
11.1. Director's Rights Unsecured. The Plan is unfunded. The right of any Participant to receive payments of cash or Shares under the provisions of the Plan shall be an unsecured claim against the general assets of the Company.
11.2. Administration. Except as otherwise provided in the Plan, the Plan shall be administered by the Committee, which shall have the final authority to adopt rules and regulations for carrying out the Plan, and to interpret, construe, and implement the provisions of the Plan.
11.3. Legal Opinions. The Committee may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations and duties under the Plan, or with respect to any action, proceeding, or any questions of law, and shall not be liable with respect to any action taken, or omitted, by it in good faith pursuant to the advice of such counsel.
11.4. Liability. Any decision made or action taken by the Board of Directors, the Committee, or any employee of the Company or any of its subsidiaries, arising out of or in connection with the construction, administration, interpretation, or effect of the Plan, shall be absolutely discretionary, and shall be conclusive and binding on all parties. Neither the Committee nor a member of the Board of Directors and no employee of the Company or any of its subsidiaries shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving bad faith, for anything done or omitted to be done.
11.5. Withholding. The Company shall have the right to deduct from all payments hereunder any taxes required by law to be withheld from such payments. The recipients of such payments shall bear all taxes on amounts paid under the Plan to the extent that no taxes are withheld thereon, irrespective of whether withholding is required.
11.6. Legal Holidays. If any day on which action under the Plan must be taken falls on a Saturday, Sunday, or legal holiday, such action may be taken on the next succeeding day that is not a Saturday, Sunday, or legal holiday; provided, that this subsection 11.8 shall not permit any action that must be taken in one calendar year to be taken in any subsequent calendar year.
11.7. Participant Who Becomes Employee. If a Participant becomes an employee of the Company but remains a Director, he or she will no longer be entitled to new deferrals under the Plan as a Deferred Stock Participant or Monthly Deferral Participant. However, the individual’s Account balances will continue to be administered under the Plan (including eligibility for the Company Credit and Cash Dividends under Sections 7.3 and 7.4) until they are paid out in accordance with Section 8.
Section 12. Term, Amendment, Suspension, and Termination.
The Plan shall remain in effect until terminated by the Board of Directors. The Board of Directors shall have the right at any time, and from time to time, to amend, suspend, or terminate the Plan, subject to the following:
(i) no amendment or termination shall reduce the number of Shares or the cash balance in an Individual Account;
(ii) the number of Shares allocated annually pursuant to Section 6 hereof may not be changed more frequently than every calendar year; and
(iii) to the extent required by New York Stock Exchange listing rules or applicable law, material amendments shall be submitted to the Company’s shareholders for approval.
Section 13. Applicable Law.
The Plan shall be governed by, and construed in accordance with, the laws of the State of Indiana, except to the extent that such laws are preempted by Federal law.
Section 14. Effective Date.
The effective date of this Plan is January 1, 1996. Nothing herein shall invalidate or adversely affect any previous election, designation, deferral, or accrual in accordance with the terms of The Lilly Directors' Deferred Compensation Plan or The Lilly Non-Employee Directors' Deferred Stock Plan that were in effect prior to the effective date of this Plan.
Annual Meeting Admission Ticket
Eli Lilly and Company 2017 Annual Meeting of Shareholders
Monday, May 1, 2017
11:00 a.m. EDT
Lilly Center Auditorium
Lilly Corporate Center
Indianapolis, Indiana 46285
The top portion of this page will be required for admission to the meeting.
Please write your name and address in the space provided below and present this ticket when you enter the Lilly Center.
Doors open at 10:15 a.m.
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City, State, and Zip Code |
Parking Pass
Directions and Parking
From I-70 take Exit 79B; follow signs to McCarty Street. Turn right (east) on McCarty Street; go straight into Lilly Corporate Center. You will be directed to parking. Be sure to takeParking will be available on a first-come, first-served basis in the admission ticket (the top portion of this page) with yougarage. Entrance to the meeting and leave this parking pass on your dashboard.
Take the top portion of this page with youLilly Center Auditorium is adjacent to the meeting.parking garage.
Eli Lilly and Company
Annual Meeting of Shareholders
May 1, 2017
Please place this identifier on the dashboard of your car as you enter Lilly Corporate Center so it can be clearly seen by security and parking personnel.
Important notice regarding the availability of proxy material for the shareholder meeting to be held May 1, 2017:
The Annual Report and Proxy Statement are available at https://www.lilly.com/annualreport2016.
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E15634-P84740
The undersigned hereby appoints Messrs. M.J. Harrington, D.W. Rice, and D.A. Ricks and each of them, as proxies, each with full power to act without the others and with full power of substitution, to vote as indicated on the reverse side of this card all the shares of common stock of ELI LILLY AND COMPANY in this account held in the name of the undersigned at the close of business on February 24, 2017, at the annual meeting of shareholders to be held on May 1, 2017, at 11:00 a.m. EDT, and at any adjournment thereof, with all the powers the undersigned would have if personally present.
If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly. If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.
This proxy is solicited on behalf of the board of directors.
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PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD. |
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ELI LILLY AND COMPANY
C/O IVS, P.O. BOX 17149
WILMINGTON, DE 19885-9801
| VOTE BY INTERNET – www.proxyvote.com
Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Sunday, April 30, 2017. Have your proxy card in hand when you access the website and follow the instructions.
VOTE BY PHONE – (1-800-690-6903)
Transmit your voting instructions by telephone until 11:59 p.m. EDT on Sunday, April 30, 2017. Have your proxy card in hand when you call and follow the instructions.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return to Eli Lilly and Company, c/o IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801.
Important notice regarding the availability of proxy material for the shareholder meeting to be held May 1, 2017: The annual report and proxy statement are available at https://www.lilly.com/annualreport2016.
THANK YOU FOR VOTING.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | E15633-P84740 | KEEP THIS PORTION FOR YOUR RECORDS. |
THIS CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY. |
ELI LILLY AND COMPANY
The board of directors recommends you vote FOR items 1-2 and 4-5 and for "1 Year" on Item 3:
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1. | Election of directors, each for a three-year term. | For | Against | Abstain | | | | | |
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| 1a. M.L. Eskew | | q | q | q | | | | | |
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| 1b. W.G. Kaelin, Jr. | | q | q | q | | | | | |
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| 1c. J.C. Lechleiter | | q | q | q | | | | | |
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| 1d. D.A. Ricks | | q | q | q | | | | | |
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| 1e. M.S. Runge | | q | q | q | | | | | |
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2. | Advisory vote on compensation paid to the company’s named executive officers. | | q | q | q |
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| | 1 Year | 2 Years | 3 Years | Abstain |
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3. | Advisory vote regarding the frequency of advisory votes on compensation paid to the company's named executive officers. | q | q | q | q |
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| | | For | Against | Abstain |
4. | Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2017. | | q | q | q |
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5. | Approve amendment to the Lilly Directors' Deferral Plan. | | q | q | q |
The board of directors recommends you vote AGAINST shareholder proposal 6: |
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6. | Consideration of a shareholder proposal seeking a report regarding direct and indirect political contributions.
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Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others. When signing in a representative capacity, please clearly state your capacity. | |
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Signature (PLEASE SIGN WITHIN BOX) | Date | | Signature (Joint Owners) | Date |
Important notice regarding the availability of proxy material for the shareholder meeting to be held May 1, 2017:
The Annual Report and Proxy Statement are available at https://www.lilly.com/annualreport2016.
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Lilly Employee 401(k) Plan
Confidential Voting Instructions
To Northern Trust, Trustee
By signing on the reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, the number of shares of Eli Lilly and Company Common Stock credited to this account under The Lilly Employee 401(k) Plan or an affiliated plan at the close of business on February 24, 2017, at the Annual Meeting of Shareholders to be held on May 1, 2017, at 11:00 a.m. EDT, and at any adjournment thereof.
If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly. If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.
Also, unless you decline by checking the box below, you direct the Trustee to apply this voting instruction pro rata (along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the participants to whose accounts the shares are credited. For more information on the voting of the undirected shares, see the Proxy Statement.
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| Yes | No |
Question 1: Check “no” only if you decline to have your vote applied pro rata to the undirected shares.
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These confidential voting instructions will be seen only by authorized representatives of the Trustee.
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PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD. |
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NORTHERN TRUST, TRUSTEE
C/O IVS, P.O. BOX 17149
WILMINGTON, DE 19885-9801
| VOTE BY INTERNET – www.proxyvote.com
Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Tuesday, April 25, 2017. Have your proxy card in hand when you access the website and follow the instructions.
VOTE BY PHONE – (1-800-690-6903)
Transmit your voting instructions by telephone until 11:59 p.m. EDT on Tuesday, April 25, 2017. Have your proxy card in hand when you call and follow the instructions.
VOTE BY MAIL
Mark, sign, and date this card and return it in the postage-paid envelope we have provided or return to IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801. Card must be received by April 25, 2017.
Important notice regarding the availability of proxy material for the shareholder meeting to be held May 1, 2017: The annual report and proxy statement are available at https://www.lilly.com/annualreport2016.
THANK YOU FOR VOTING.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | E15635-P84740 | KEEP THIS PORTION FOR YOUR RECORDS. |
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ESOP
| THIS CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY. |
ELI LILLY AND COMPANY
The board of directors recommends you vote FOR items 1-2 and 4-5 and for "1 Year" on Item 3:
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1. | Election of directors, each for a three-year term. | For | Against | Abstain | | | | | |
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| 1a. M.L. Eskew | | q | q | q | | | | | |
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| 1b. W.G. Kaelin, Jr. | | q | q | q | | | | | |
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| 1c. J.C. Lechleiter | | q | q | q | | | | | |
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| 1d. D.A. Ricks | | q | q | q | | | | | |
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| 1e. M.S. Runge | | q | q | q | | | | | |
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| | | | | | | | For | Against | Abstain |
2. | Advisory vote on compensation paid to the company’s named executive officers. | | q | q | q |
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| | 1 Year | 2 Years | 3 Years | Abstain |
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3. | Advisory vote regarding the frequency of advisory votes on compensation paid to the company's named executive officers. | q | q | q | q |
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| | | For | Against | Abstain |
4. | Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2017. | | q | q | q |
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5. | Approve amendment to the Lilly Directors' Deferral Plan. | | q | q | q |
The board of directors recommends you vote AGAINST shareholder proposal 6:
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6. | Consideration of a shareholder proposal seeking a report regarding direct and indirect political contributions.
| | q | q | q |
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Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others. When signing in a representative capacity, please clearly state your capacity. | |
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Signature (PLEASE SIGN WITHIN BOX) | Date | | Signature (Joint Owners) | Date |
Important notice regarding the availability of proxy material for the shareholder meeting to be held May 1, 2017:
The Annual Report and Proxy Statement are available at https://www.lilly.com/annualreport2016.
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Lilly Employee 401(k) Plan
Confidential Voting Instructions
To Northern Trust, Trustee
By signing on the reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, the number of shares of Eli Lilly and Company Common Stock credited to this account under The Lilly Employee 401(k) Plan or an affiliated plan at the close of business on February 24, 2017, at the Annual Meeting of Shareholders to be held on May 1, 2017, at 11:00 a.m. EDT, and at any adjournment thereof.
If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly. If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.
Also, unless you decline by checking the box below, you direct the Trustee to apply this voting instruction pro rata (along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the participants to whose accounts the shares are credited. For more information on the voting of the undirected shares, see the Proxy Statement.
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| Yes | No |
Question 1: Check “no” only if you decline to have your vote applied pro rata to the undirected shares.
| q | q |
These confidential voting instructions will be seen only by authorized representatives of the Trustee.
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PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD. |
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NORTHERN TRUST, TRUSTEE
C/O IVS, P.O. BOX 17149
WILMINGTON, DE 19885-9801
| VOTE BY INTERNET – www.proxyvote.com
Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Tuesday, April 25, 2017. Have your proxy card in hand when you access the website and follow the instructions.
VOTE BY PHONE – (1-800-690-6903)
Transmit your voting instructions by telephone until 11:59 p.m. EDT on Tuesday, April 25, 2017. Have your proxy card in hand when you call and follow the instructions.
VOTE BY MAIL
Mark, sign, and date this card and return it in the postage-paid envelope we have provided or return to IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801. Card must be received by April 25, 2017.
Important notice regarding the availability of proxy material for the shareholder meeting to be held May 1, 2017: The annual report and proxy statement are available at https://www.lilly.com/annualreport2016.
THANK YOU FOR VOTING.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | E15637-P84740 | KEEP THIS PORTION FOR YOUR RECORDS. |
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PAYSOP | THIS CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY. |
ELI LILLY AND COMPANY
The board of directors recommends you vote FOR items 1-2 and 4-5 and for "1 Year" on Item 3:
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1. | Election of directors, each for a three-year term. | For | Against | Abstain | | | | | |
| | | | | | | | | | |
| 1a. M.L. Eskew | | q | q | q | | | | | |
| | | | | | | | | | |
| 1b. W.G. Kaelin, Jr. | | q | q | q | | | | | |
| | | | | | | | | | |
| 1c. J.C. Lechleiter | | q | q | q | | | | | |
| | | | | | | | | | |
| 1d. D.A. Ricks | | q | q | q | | | | | |
| | | | | | | | | | |
| 1e. M.S. Runge | | q | q | q | | | | | |
| | | | | | | | | | |
| | | | | | | | For | Against | Abstain |
2. | Advisory vote on compensation paid to the company’s named executive officers. | | q | q | q |
| | | | | |
| | 1 Year | 2 Years | 3 Years | Abstain |
| | | | | |
3. | Advisory vote regarding the frequency of advisory votes on compensation paid to the company's named executive officers. | q | q | q | q |
| | | | | |
| | | For | Against | Abstain |
4. | Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2017. | | q | q | q |
| | | | | |
5. | Approve amendment to the Lilly Directors' Deferral Plan. | | q | q | q |
The board of directors recommends you vote AGAINST shareholder proposal 6: |
| | | | | | | | | | |
6. | Consideration of a shareholder proposal seeking a report regarding direct and indirect political contributions.
| | q | q | q |
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Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others. When signing in a representative capacity, please clearly state your capacity. | |
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Signature (PLEASE SIGN WITHIN BOX) | Date | | Signature (Joint Owners) | Date |
