DEF 14A 1 proxy2016.htm DEF 14A DEF 14A


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 2016 Annual Meeting of Shareholders and Proxy Statement










Your vote is important
Please vote by using the Internet, telephone, or by signing, dating, and returning the enclosed proxy card.




Table of Contents
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P8
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Notice of Annual Meeting of Shareholders

To the holders of Common Stock of Eli Lilly and Company:
The 2016 Annual Meeting of Shareholders of Eli Lilly and Company will be held as shown below:
WHEN:
11:00 a.m. EDT, Monday, May 2, 2016
WHERE:
The Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285
 
 
 
 
ITEMS OF BUSINESS:
Election of the five directors listed in the proxy statement to serve three-year terms
 
 
Approval, by non-binding vote, of the compensation paid to the company's named executive officers
 
 
Ratification of Ernst & Young LLP as the principal independent auditors for 2016
 
 
If presented, a shareholder proposal seeking a report regarding how we select the countries in which we operate or invest
WHO CAN VOTE:
Shareholders of record at the close of business on February 26, 2016
This proxy statement is dated March 21, 2016 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. Every shareholder vote is important. If you are unable to attend the meeting in person, please sign, date, and return your proxy and/or voting instructions by mail, telephone or through the Internet promptly so that a quorum may be represented at the meeting.
By order of the Board of Directors,
James B. Lootens
Secretary
March 21, 2016
Indianapolis, Indiana

Important notice regarding the availability of proxy materials for the shareholder meeting to be held May 2, 2016: The annual report and proxy statement are available at https://www.lilly.com/_Assets/PDF/lillyar2015.pdf.



P1



Proxy Statement Overview

General Information

This overview highlights information contained elsewhere 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.
Meeting:
Annual Meeting of Shareholders
Date:
May 2, 2016
Time:
11:00 a.m. EDT
Location:
The Lilly Center Auditorium Lilly Corporate Center Indianapolis, Indiana 46285
Record Date:
February 26, 2016
 
Items of Business:
Item 1: Election of the five directors listed in this proxy statement to serve three-year terms.
 
Item 2: Approval, by non-binding vote, of the compensation paid to the company's named executive officers.
 
Item 3: Ratification of Ernst & Young LLP as the principal independent auditors for 2016.
 
Item 4: If presented, a shareholder proposal seeking a report regarding how we select the countries in which we operate or invest.

What Is New In This Year's Proxy Statement

In 2015, we returned to revenue and earnings growth, launched a number of new products, made significant late-stage pipeline progress, and delivered strong returns to shareholders. As a result, we resumed annual increases to base salaries and delivered incentive compensation reflective of our performance.

Additionally, we restated our executive officers' share ownership requirements from a fixed number of shares to a multiple of annual base salary for all executives, excluding the CEO. The CEO's requirement remains six times annual base salary.

In February 2016, we welcomed Juan R. Luciano to the board. Mr. Luciano is the Chairman and CEO of Archer Daniels Midland Company.

Highlights of 2015 Company Performance

The following provides a brief look at our 2015 performance in three dimensions: operating performance, innovation progress, and returns to shareholders. See our 2015 annual report on Form 10-K for more details.

Operating Performance
In 2015, we returned to revenue and earnings growth following a multi-year period of patent expirations. This growth was led by several pharmaceutical products, including Cyramza, Trulicity and Humalog, as well as Erbitux due to the transfer of commercialization rights in North America. This growth was partially offset by the residual impact of the loss of exclusivity for Cymbalta and Evista.

Performance highlights included:
2015 revenue increased 2 percent to approximately $20 billion.
2015 earnings per share (EPS) increased 1 percent on a reported basis to $2.26, and increased 13 percent on a non-GAAP basis to $3.43.

*A reconciliation of GAAP and externally reported non-GAAP measures is included in Appendix A.


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Innovation Progress
We made significant advances with our pipeline in 2015, including:
U.S. FDA approval of six new products, including Portrazza™, in combination with gecitabine and cisplatin, Cyramza® for treatment of colorectal cancer, Glyxambi®, Basaglar®, and Synjardy®.  
A late-stage pipeline including 9 potential new medicines or diagnostic agents in either Phase III development or submission stage.
FDA Breakthrough Therapy Designations for abemaciclib for patients with refractory hormone-receptor-positive advanced or metastatic breast cancer and for olaratumab for advanced or metastatic soft-tissue sarcoma.
Positive Phase III results for ixekizumab, an investigational medicine for patients with psoriatic arthritis.
Positive Phase III results for baricitinib, an investigational medicine for patients with moderately-to-severely active rheumatoid arthritis.
Positive results from a long-term clinical trial investigating cardiovascular outcomes for Jardiance®.

Returns to Shareholders
We generated strong total shareholder returns (share price appreciation plus dividends, reinvested quarterly) for the one-, three-, and five-year periods through year-end 2015, including a 25% percent increase from 2014 to 2015. Our returns exceeded both the compensation peer group and the S&P 500 in all three periods:

Consistent with our ongoing commitment to returning excess cash to shareholders, we returned approximately $2.9 billion in cash to shareholders in 2015 in the form of dividends and share repurchases. In the past four years, we have returned $12.5 billion in cash to shareholders through dividends and share repurchases.



  


P3



Governance (pages 8-27)

Item 1: Election of Directors (pages 8-25)
Name and principal occupation
Joined the Board
Age
Public boards
Management recommendation
Vote required to pass

Ralph Alvarez
2009
60
Skylark Co., Ltd.
Vote FOR
Majority of votes cast
Executive Chairman - Skylark Co., Ltd.
Lowe's Companies, Inc.
 
 
Dunkin' Brands Group, Inc.
 
 
 
Realogy Holdings Corp.
R. David Hoover
2009
70
Ball Corporation
Vote FOR
Majority of votes cast
Former Chairman, President and CEO - Ball Corporation
Edgewell Personal Care Co.
Steelcase, Inc.
Juan R. Luciano
2016
53
Archer Daniels Midland Co.
Vote FOR
Majority of votes cast
Chief Executive Officer and President - Archer Daniels Midland Company
 
Franklyn G. Prendergast, M.D., Ph.D.
1995
71
Cancer Genetics Incorporated
Vote FOR
Majority of votes cast
Former Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology - Mayo Medical Clinic
 
Kathi P. Seifert
1995
66
Investors Community Bank
Vote FOR
Majority of votes cast
Former Executive Vice President - Kimberly-Clark Corporation
Lexmark International, Inc.
 

Our Corporate Governance Policies Reflect Best Practices
Our Board membership is marked by leadership, experience, and diversity.
All 13 of our nonemployee directors, and all Board committee members, are independent.
We have a strong, independent lead director role.
Our Board actively participates in company strategy and CEO/senior executive succession planning.
Our Board oversees compliance and enterprise risk management practices.
We have in place meaningful stock ownership requirements.
We have a majority voting standard and resignation policy for the election of directors.

Compensation (pages 27-52)

Item 2: Advisory Vote on Compensation Paid to Named Executive Officers (pages 27-28)
 
 
 
 
 
Management recommendation
Vote required to pass

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
We have had strong shareholder support of compensation practices: in 2015, over 98 percent of shares cast voted in favor of our executive compensation.
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.
Our Compensation Committee annually reviews compensation programs to ensure appropriate risk mitigation.
We have a broad compensation recovery policy that applies to all executives and covers a wide range of misconduct.

P4



Our executives are subject to robust stock ownership guidelines and are prohibited from hedging or pledging their company stock.
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.
We do not provide tax gross-ups to executive officers (except for limited gross-ups related to international assignments).
We have a very restrictive policy on perquisites.
Our severance plans related to change-in-control generally require a double trigger.
We do not have employment agreements with any of our executive officers.

Executive Compensation Summary for 2015
At the time the total target compensation was established at the end of 2014, compensation for our named executive officers (the five officers whose compensation is disclosed in this proxy statement) was in the middle range of the company's peer group. Incentive compensation program payouts were increased, consistent with the company's strong performance in 2015, as outlined below under "Pay for Performance."

Pay for Performance
As described more fully in the Compensation Disclosures and Analysis (CD&A) section, we link our incentive pay programs to a balanced mix of measures on three dimensions of company performance: (1) operating performance; (2) progress with our innovation pipeline; and (3) shareholder returns.

The summary information below highlights how our incentive pay programs align with company performance. Please see the CD&A for details of how our three incentive pay programs work and how the payouts for 2015 were calculated. Please also see Appendix A for adjustments that were made to revenue and earnings per share (EPS) for incentive compensation programs.

2015 Annual Bonus Multiple
The company exceeded its annual bonus targets for revenue, EPS, and pipeline progress.


*Performance goal multiples are capped at 2.0.



P5



2015 Performance Award Multiple
We fell short of our EPS targets under our Performance Award program, which has targets based on expected EPS growth of peer companies over a two-year period.


2015 Shareholder Value Award Multiple
We significantly exceeded our stock price growth targets under our Shareholder Value Award program, which has targets based on expected large-cap company returns over a three-year period.



P6



Audit Matters (pages 53-55)

Item 3: Proposal to Ratify Appointment of Independent Auditor (pages 53-55)
 
 
 
 
 
Management recommendation
Vote required to pass

Item 3
Ratify the appointment of Ernst & Young LLP as the company's principal independent auditor for 2016

Vote FOR
Majority of
votes cast

Shareholder Proposal (pages 56-57)

Item 4: Proposal Seeking A Report Regarding How We Select the Countries in Which We Operate and Invest (pages 56-57)
 
 
 
 
 
Management recommendation
Vote required to pass

Item 4
Consider a shareholder proposal seeking a report regarding how we select the countries in which we operate and invest
Vote AGAINST
Majority of
votes cast


Other Information (pages 57-60)

How to Vote in Advance of the Meeting
Even if you plan to attend the 2016 Annual Meeting in person, we encourage you to vote prior to the meeting via one of the methods described below. You can vote in advance via one of three ways:

8    Visit 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

Further information on how to vote is provided at the end of the proxy statement under "Meeting and Voting Logistics".

Voting at our 2016 Annual Meeting
You may also opt to vote in person at the 2016 Annual Meeting, which will be held on Monday, May 2, 2016 at the Lilly Corporate Center, Indianapolis, IN 46285, at 11:00 a.m., local time. See the section entitled "Meeting and Voting Logistics" for more information.


P7



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 2019. Each of the nominees listed below has agreed to serve that term. The following sections provide information regarding our directors including their qualifications, the director nomination process, and compensation, among other topics.

Board Recommendation on Item 1

The Board recommends that you vote FOR each of the following nominees:
Ralph Alvarez
R. David Hoover
Juan R. Luciano
Franklyn G. Prendergast
Kathi P. Seifert

Board Operations and Governance

Board of Directors



From left to right: Franklyn G. Prendergast, Michael L. Eskew, Karen N. Horn, Juan R. Luciano, Katherine Baicker, J. Erik Fyrwald, R. David Hoover, John C. Lechleiter, Ralph Alvarez, Ellen R. Marram, Marschall S. Runge, William G. Kaelin, Jr., Kathi P. Seifert, and Jackson P. Tai.

Each of our directors is elected to serve until his or her successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders may vote for another nominee proposed by the Board of Directors or, as an alternative, the Board of Directors may reduce the number of directors to be elected at the annual meeting.


P8



Director Biographies

Set forth below is information as of March 9, 2016, 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, or skills that led to the conclusion that each director or director nominee should serve as one of our directors in light of our business and structure. Full biographies for each of our directors are available on our website at http://www.lilly.com/about/board-of-directors/Pages/board-of-directors.aspx.

No family relationship exists among any of our directors, director nominees, or 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 2016
The following five directors will be seeking election at this year's annual meeting. Four of these directors are standing for reelection; one director is seeking election for the first time. See “Item 1. Election of Directors” above for more information.

Ralph Alvarez, age 60, director since 2009
Board Committees: Compensation; Science and Technology
Career Highlights
Other Board Service
Skylark Co., Ltd., a leading restaurant operator in Japan
Public boards: Skylark Co., Ltd.; Lowe's Companies, Inc.; Dunkin' Brands Group, Inc.; Realogy Holdings Corp.
Executive Chairman (2013 - present)
McDonald's Corporation
Prior public boards: McDonald's Corporation; KeyCorp
President and Chief Operating Officer (2006 - 2009)
Memberships and Other Organizations
 
 
University of Miami: President's Council; School of Business Administration Board of Overseers; International Advisory Board
 
 
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.
R. David Hoover, age 70, director since 2009
Board Committees: Finance (chair); Directors and Corporate Governance
Career Highlights
Other Board Service
Ball Corporation, a provider of packaging products and other technologies and services to commercial and governmental customers
Public boards: Ball Corporation; Edgewell Personal Care Co.; Steelcase, Inc.
 
Chairman (2002 - 2013)
Prior public boards: Qwest International, Inc.
President and Chief Executive Officer (2001 - 2010)
Non-profit boards: Boulder Community Hospital; Children's Hospital Colorado; DePauw University
Chief Operating Officer (2000 - 2001)
Chief Financial Officer (1998 - 2000)
 
 
Memberships and Other Organizations
 
 
Indiana University Kelley School of Business, Dean's Council
Qualifications: Mr. Hoover has extensive CEO experience at Ball Corporation, with a strong record of leadership in operations and strategy. He 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.

P9



Juan R. Luciano, age 54, director since 2016
Board Committees: Finance; Public Policy and Compliance
Career Highlights
Other Board Service
Archer Daniels Midland Company, a global food-processing and commodities-trading company
• •
Public boards: Archer Daniels Midland Company Non-profit boards: Boys and Girls Clubs of America
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 multi-national 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.

Franklyn G. Prendergast, M.D., Ph.D., age 71, director since 1995
Board Committees: Public Policy and Compliance; Science and Technology
Career Highlights
Other Board Service
Mayo Medical School
Public boards: Cancer Genetics Incorporated
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)
 
 
Qualifications: Dr. Prendergast is a prominent medical clinician, researcher, and academician. He has extensive experience in senior-most administration at Mayo Clinic, a major medical institution, and as director of its renowned cancer center. He retired from Mayo at the end of 2014. He has special expertise in two critical areas for Lilly—oncology and personalized medicine. As a medical doctor, he brings an important practicing-physician perspective to the Board’s deliberations.

Kathi P. Seifert, age 66, director since 1995
Board Committees: Audit; Compensation
Career Highlights
Other Board Service
Kimberly-Clark Corporation, a global consumer products company
Public boards: Investors Community Bank; Lexmark International, Inc.
Executive Vice President (1999 - 2004)
Katapult, LLC, a provider of pro bono mentoring and consulting services to non-profit organizations
Private boards: Appvion, Inc.
Prior public boards: Albertsons; Revlon Consumer Products Co.; Supervalu Inc.
Chairman (2004 - present)
 
 
 
Non-profit boards: Community Foundation for the Fox Valley Region; Fox Cities Building for the Arts; Fox Cities Chamber of Commerce; New North
 
 
 
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.



P10



Class of 2017

The following five directors will continue in office until May 2017, with the exception of Karen N. Horn, who will retire from the Board on May 2, 2016, prior to the annual meeting of shareholders. The Directors and Corporate Governance Committee has not yet identified and evaluated a candidate to fill the vacancy created by Ms. Horn's retirement. Our board expects to reduce the size of the board until it identifies a candidate to fill the vacancy.
Michael L. Eskew, age 66, director since 2008
Board Committees: Audit (chair); Finance; Directors and Corporate Governance
Career Highlights
Other Board Service
United Parcel Service, Inc., a global shipping and logistics company
Public boards: 3M Corporation; IBM Corporation; Allstate Insurance Company
Chairman and Chief Executive Officer (2002 - 2007)
 
Vice Chairman (2000 - 2002)
Non-profit boards: Chairman of the board of trustees of The Annie E. Casey Foundation
UPS Board of Directors (1998 - 2014)
 
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.

Karen N. Horn, Ph.D., Age 72, director since 1987
Board Committees: Compensation (chair); Directors and Corporate Governance
Career Highlights
Other Board Service
Brock Capital Group, a provider of financial advising and consulting services
Public boards: Simon Property Group, Inc.; Norfolk Southern Corporation
Senior Managing Director (2004 - present)
Prior public boards: T. Rowe Price Mutual Funds
President, Private Client Services and Managing Director (1999 - 2003)
Non-profit boards: The National Bureau of Economic Research; The National Association of Corporate Directors
Bank One, Cleveland, N.A.
 
 
Chairman and chief executive officer (1982 - 1987)
 
 
Qualifications: Ms. Horn is a former CEO with extensive experience in various segments of the financial industry, including banking and financial services. Through her for-profit and her public-private partnership work, she has significant experience in international economics and finance. Ms. Horn has extensive corporate governance experience through service on other public company boards in a variety of industries.

William G. Kaelin, Jr., M.D., age 58, director since 2012
Board Committees: Finance; Science and Technology (chair)
Career Highlights
Industry Memberships
Dana-Farber/Harvard Cancer Center
Institute of Medicine; National Academy of Sciences; Association of American Physicians; American Society of Clinical Investigation
Professor of Medicine (2002 - present)
Associate director, Basic Science (2009 - present)
Honors
 
Canada Gairdner International Award
 
 
Lefoulon-Delalande Prize - Institute of France
Qualifications: Dr. Kaelin is a prominent medical researcher and academician. He has extensive experience at Harvard Medical School, a major medical institution, as well as special expertise in oncology—a key component of Lilly's business. He also has deep expertise in basic science, including mechanisms of drug action, and experience with pharmaceutical discovery research.

P11



John C. Lechleiter, Ph.D., age 62, director since 2005
Board Committees: none
 
Career Highlights
Industry Memberships
Eli Lilly and Company
American Chemical Society; Pharmaceutical Research and Manufacturers of America (PhRMA); U.S. - Japan Business Council, chairman
President and CEO (2008 - present)
 
Chairman of the Board (2009 - present)
 
Honors
Other Board Service
Honorary doctorates: Marian University, University of Indianapolis, the National University of Ireland, Indiana University, and Franklin College
Public boards: Ford Motor Company; Nike, Inc.
 
Non-profit boards: United Way Worldwide, chairman; Chemical Heritage Foundation; and the Central Indiana Corporate Partnership
Qualifications: Dr. Lechleiter is our chairman, president, and chief executive officer. A Ph.D. chemist by training, Dr. Lechleiter has over 36 years of experience with the company in a variety of roles of increasing responsibility in research 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.

Marschall S. Runge, M.D., Ph.D., age 61, director since 2013
Board Committees: Science and Technology; Public Policy and Compliance
Career Highlights
Industry Memberships
University of Michigan
Experimental Cardiovascular Sciences Study Section of the National Institutes of Health
CEO, University of Michigan Health System (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, and has deep expertise in biomedical research and clinical trial design.
Class of 2018
The following four directors are serving terms that will expire in May 2018.
Katherine Baicker, Ph.D., age 44, director since 2011
Board Committees: Audit; Public Policy and Compliance
Career Highlights
Industry Memberships
Harvard T.H. Chan School of Public Health, Department of Health Policy and Management
Commissioner of the Medicare Payment Advisory Commission
Professor of health economics (2007 - present)
Chair of the Group Insurance Commission of Massachusetts
C. Boyden Gray Professor and Acting Chair, department of Health Policy and Management (2014 - 2016)
Panel of Health Advisers to the Congressional Budget Office
Council of Economic Advisers, Executive Office of the President
Editorial boards of Health Affairs and the Journal of Health Economics
Member (2005 - 2007)
Member of the Institute of Medicine
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 care policy and health care delivery is recognized in both academia and government.

P12



J. Erik Fyrwald, age 56, director since 2005
Board Committees: Public Policy and Compliance (chair); Science and Technology
Career Highlights
E.I. duPont de Nemours and Company, a global chemical company
Univar, Inc., a leading distributor of industrial and specialty chemicals and provider of related services
Group Vice President, agriculture and nutrition (2003 - 2008)
President and Chief Executive Officer (2012 - present)
 
Nalco Company, a provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications
Other Board Service
Private boards: Amsted Industries
Chairman and Chief Executive Officer (2008 - 2011)
Non-profit boards: Society of Chemical Industry; Amsted Industries; The Chicago Public Education Fund; Field Museum of Chicago, Trustee
Ecolab, a leading cleaning and sanitization and water treatment products and services company
 
 
 
President (2012)
 
 
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 Univar and Nalco.

Ellen R. Marram, age 69, director since 2002, lead director since 2012
Board Committees: Compensation; Directors and Corporate Governance (chair)
Career Highlights
Other Board Service
The Barnegat Group LLC, provider of business advisory services • President (2006 - present)
 
Public boards: Ford Motor Company, The New York Times Company
North Castle Partners, LLC
Prior public boards: Cadbury plc
Managing Director (2000 - 2006)
Private boards: Newman's Own, Inc.
Tropicana Beverage Group
Non-profit boards: Wellesley College; Institute for the Future; New York-Presbyterian Hospital; Lincoln Center Theater; and Families and Work Institute
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 65, director since 2013
 
Board Committees: Audit; Finance
 
Career Highlights
Other Board Service
 
DBS Group Holdings and DBS Bank (formerly the Development Bank of Singapore), one of the largest financial services groups in Asia
Public boards: The Bank of China Limited, MasterCard Incorporated, Royal Philips NV
 
 
Vice Chairman and Chief Executive Officer (2002-2007)
Prior boards: Singapore Airlines; NYSE Euronext; ING Groep NV; CapitaLand (Singapore); DBS Group Holdings and DBS Bank
 
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.

Director Qualifications and Nomination Process

Director Qualifications
The Board assesses Board candidates by considering the following:


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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. The Board is well-rounded, with a balance of relevant perspectives and experience, as illustrated in the following charts:
CEO Experience:
 
8

Financial Expertise:
 
7

 
Relevant Scientific/Academic Expertise:
 
6

 
 
Healthcare Experience:
 
4

 
 
 
 
Operational/Strategic Expertise:
 
7

 
International Experience:
 
7

 
Marketing and Sales Expertise:
 
5

 
 
 
Gender/Ethnic Diversity:
 
8


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.

2 Years Tenure or Less:
 
1

 
 
 
 
 
 
3-5 Years:
 
5

 
 
6-10 Years:
 
3

 
 
 
 
More than 10 Years:
 
4

 
 
 

Diversity: The Board strives to achieve diversity in the broadest sense, including persons diverse in geography, gender, ethnicity, and experiences. Although the Board does not establish specific diversity goals or have a stand-alone 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 fourteen directors range in age from 44 to 72, and include four women and four ethnically diverse members.

Character: Board members should possess the personal attributes necessary to be an effective director, including unquestioned integrity, sound judgment, independence, a collaborative spirit, and commitment to the company, our shareholders, and other constituencies.

Director Nomination Process
The Board delegates the director screening process to the Directors and Corporate Governance Committee, which receives input from other Board members. Potential directors are identified from several sources, including executive search firms retained by the committee, incumbent directors, management, and shareholders.

The 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 the 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 director, for direct discussions to determine the mutual levels of interest in pursuing the candidacy. If these discussions are favorable, the committee makes a final recommendation to

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the Board to nominate the candidate for election by the shareholders (or to select the candidate to fill a vacancy, as applicable).

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 appropriate viewpoints, diversity, and expertise necessary to support our complex and evolving business. The results of this assessment 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 2016 class who are standing for election be elected at the 2016 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
In 2015, nonemployee directors received an annual retainer of $110,000 (payable in monthly installments). In addition, certain Board roles received additional annual retainers:

Lead director: $30,000

Committee chairs: $12,000 ($18,000 for Audit Committee chair; $15,000 for Science and Technology Committee chair)

Audit Committee/Science and Technology Committee members (including the chair): $6,000

All other Committee members (including the chairs): $3,000

Directors are reimbursed for customary and usual travel expenses. Directors may also receive additional cash compensation for serving on ad hoc committees that may be assembled from time-to-time.

Stock Compensation
Directors should hold meaningful equity ownership positions in the company; accordingly, a significant portion of director compensation is in the form of Lilly stock. 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 are in compliance with these guidelines.

Nonemployee directors received $145,000 of stock compensation (but no more than 7,500 shares), deposited annually in a deferred stock account in the Lilly Directors’ Deferral Plan (as described below), payable after their service on the Board has ended.

Lilly Directors’ Deferral Plan: In addition to stock compensation, this plan allows nonemployee 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 funds 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. In addition, the annual stock compensation award as noted above is credited to this account. The number of shares credited is calculated by dividing the $145,000 annual compensation figure by the closing stock price on a pre-set annual date. Funds in this account are credited as hypothetical shares of company stock based on the market price of the stock at the time the compensation would otherwise have been earned. Hypothetical dividends are “reinvested” in additional shares based on the market price of the stock on the date dividends are paid. Actual shares are issued after the director ends his or her service on the Board.

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Deferred Compensation Account. Funds in this account earn interest each year at a rate of 120 percent of the applicable federal long-term rate, compounded monthly, as established the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The aggregate amount of interest that accrued in 2015 for the participating directors was $171,916, at a rate of 3.2 percent. The rate for 2016 is 3.1 percent.

Both accounts may be paid 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.

2015 Compensation for Nonemployee Directors
Name1
Fees Earned
or Paid in Cash ($)
Stock Awards ($)2
All Other
Compensation
and Payments ($)
3
Total ($)4
Mr. Alvarez
$119,000
 
$145,000
 
$0
 
$264,000
 
Dr. Baicker
$119,000
 
$145,000
 
$0
 
$264,000
 
Mr. Eskew
$140,000
 
$145,000
 
$10,000
 
$295,000
 
Mr. Fyrwald
$125,000
 
$145,000
 
$12,500
 
$282,500
 
Mr. Hoover
$128,000
 
$145,000
 
$30,000
 
$303,000
 
Ms. Horn
$128,000
 
$145,000
 
$3,050
 
$276,050
 
Dr. Kaelin
$134,000
 
$145,000
 
$0
 
$279,000
 
Ms. Marram
$158,000
 
$145,000
 
$22,000
 
$325,000
 
Mr. Douglas Oberhelman5
$49,583
 
$60,417
 
$30,000
 
$140,000
 
Dr. Prendergast
$119,000
 
$145,000
 
$0
 
$264,000
 
Dr. Runge
$129,500
 
$145,000
 
$0
 
$274,500
 
Ms. Seifert
$119,000
 
$145,000
 
$7,050
 
$271,050
 
Mr. Tai
$129,500
 
$145,000
 
$30,000
 
$304,500
 

1Mr. Luciano is not included in this chart as he became a board member effective February 2016.
     
2 Each nonemployee director received an award of stock valued at $145,000 (approximately 1,785 shares), except Mr. Oberhelman, who retired from the board in May 2015 and 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 director ends his or her service on the Board, as described above under “Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award. 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.

3 
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 amount for Ms. Horn includes matching contributions for donations made at the end of 2014 ($1,700), for which the matching contribution was not paid until 2015.

4 
Directors do not participate in a company pension plan or non-equity incentive plan.

5 Mr. Olberhelman's term expired in May 2015, and he chose not to seek reelection.

2016 Director Compensation
In 2016, nonemployee directors will receive $160,000 in stock compensation. This is the first increase to nonemployee directors' stock compensation in over ten years. All other elements of director compensation remain the same as in 2015.

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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 http://www.lilly.com/about/corporate-governance/Pages/guidelines.aspx, along with our Corporate Governance Guidelines.
On the recommendation of the Directors and Corporate Governance Committee, the Board determined that all 13 current nonemployee directors, as well as Douglas Oberhelman, who served for part of 2015, are independent, and that the members of each committee also meet our independence standards. The Board determined that none of the nonemployee directors has had during the last four years (i) any of the relationships referenced above 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.
Director
Organization
Type of Organization
Director Relationship to Organization
Primary Type of Transaction/ Relationship/ Arrangement between Lilly and Organization
2015 Aggregate Percentage of Organization's Revenue
Dr. Baicker
Harvard University
Educational Institution
Employee
Research grants
Less than 0.1 percent
Mr. Fyrwald
Univar, Inc.
For-profit Corporation
Executive Officer
Purchases 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 0.1 percent
Mr. Luciano
Archer Daniels Midland
For-profit Corporation
Executive Officer
Purchases of products
Less than 0.1 percent
Sales 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
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
University of North Carolina Medical School
Educational Institution
Executive Officer
Research grants
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

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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 are independent as defined in the NYSE listing requirements, and Lilly's independence standards, and 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.

All six committee charters are available online at http://investor.lilly.com/governance.cfm, or upon request to the company's corporate secretary.

Audit Committee

Assists the Board in fulfilling its oversight responsibilities by monitoring:

The integrity of financial information provided to the shareholders and others;
Management's systems of internal controls and disclosure controls;
The performance of internal and independent audit functions; and
The 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 and Mr. Tai are audit committee financial experts, as defined in the SEC rules.

Compensation Committee

Oversees the company’s global compensation philosophy and policies;
Establishes the compensation of our chief executive officer and other executive officers;
Acts as the oversight committee with respect to the company’s deferred compensation plans, management stock plans, and other management incentive compensation programs; and
Reviews succession plans for the CEO and other senior leadership positions.

Compensation Committee Interlocks and Insider Participation

None of the Compensation Committee members:
Has ever been an officer or employee of the company;
Is or has been a participant in a related-person transaction with the company (see “Review and Approval of Transactions with Related Persons” for a description of our policy on related-person transactions); or
Has any other interlocking relationships requiring disclosure under applicable SEC rules.


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Directors and Corporate Governance Committee

Together with the lead director, leads the process for director recruitment;
Recommends to the Board candidates for membership on the Board and Board committees and for lead director; and
Oversees matters of corporate governance, including Board performance, director independence and compensation, the corporate governance guidelines, and shareholder engagement on governance matters.

Finance Committee

Reviews and makes recommendations to the Board regarding financial matters, including:

Capital structure and strategies;
Dividends;
Stock repurchases;
Capital expenditures;
Investments, financing, and borrowings;
Benefit plan funding and investments;
Financial risk management; and
Significant business-development opportunities.

Public Policy and Compliance Committee

Oversees the processes by which 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;
Together with the Audit Committee, oversees the company's enterprise risk management program; and
Reviews and makes recommendations regarding policies, practices, and procedures of the company that relate to public policy and social, political, and economic issues.

Science and Technology Committee

Reviews and makes recommendations regarding the company’s strategic research goals and objectives;
Reviews new developments, technologies, and trends in pharmaceutical research and development;
Reviews the progress of the company's new product pipeline;
Reviews the scientific aspects of significant business development opportunities; and
Oversees matters of scientific and medical integrity and risk management.

Membership and Meetings of the Board and Its Committees

In 2015, each director attended at least 80 percent of the total number of meetings of the Board and the committees on which he or she serves. In addition, all Board members are expected to attend the annual meeting of shareholders, and all the directors attended in 2015. Current committee membership and the number of meetings of the Board and each committee in 2015 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
Member

Member



Member
Dr. Baicker
Member
Member



Member

Mr. Eskew
Member
Chair

Member
Member


Mr. Fyrwald
Member




Chair
Member
Mr. Hoover
Member


Member
Chair


Ms. Horn
Member

Chair
Member



Dr. Kaelin
Member



Member

Chair
Dr. Lechleiter
Chair






Mr. Luciano
Member
 
 
 
Member
Member
 
Ms. Marram
Lead Director

Member
Chair



Dr. Prendergast
Member




Member
Member
Dr. Runge
Member




Member
Member
Ms. Seifert
Member
Member
Member




Mr. Tai
Member
Member


Member


Number of 2015 Meetings
9
11
8
6
9
4
8

Board Oversight of Compliance and Risk Management

The Board, together with the Audit and Public Policy and Compliance 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.

The company also has an enterprise risk management program overseen by its chief ethics and compliance officer/senior vice president of enterprise risk management, who reports directly to the CEO. Enterprise risks are identified and prioritized by management through both top-down and bottom-up processes. The top priorities are assigned to a Board committee or full Board for oversight. 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 joint meeting of the Audit and Public Policy and Compliance Committees, and enterprise risks are also addressed in periodic business unit 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 Book: 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 Management: 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: http://www.lilly.com/about/business-practices/ethics-compliance and https://www.lilly.com/About/Business-practices/Ethics-compliance/Code-of-conduct/code-of-conduct-financial-management.aspx, or upon request to the company's corporate secretary.

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

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accountability for 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 full corporate governance guidelines document, which is available online at http://investor.lilly.com/governance.cfm or 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:

Providing general oversight of the business;
Approving corporate strategy;
Approving major management initiatives;
Selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and compensating other senior executives;
Ensuring that an effective succession plan is in place for all senior executives;
Overseeing the company’s ethics and compliance program and management of significant business risks; and
Recruiting, nominating, compensating, and evaluating directors.

Board Composition and Requirements

Mix of Independent Directors and Officer-Directors
There should always be a substantial majority (75 percent or more) of independent directors. The CEO should be a Board member.

Voting for Directors
In an uncontested election, directors are elected by a majority of votes cast. An incumbent nominee who fails to receive a majority of the votes cast will tender his or her resignation. 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. The Directors and Corporate Governance Committee has authority to recommend exceptions to this policy. 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.

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 director with

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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/about/corporate-governance/Pages/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 director position, is the most efficient and effective leadership model for the company, fostering clear accountability, effective 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.

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 CEO: conducted by the independent directors, the results of which are reviewed with the chief executive officer and considered by Compensation Committee in establishing the CEO’s compensation for the next year.

A strong, independent, clearly defined lead director role: The lead 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;
Serving as a liaison between the chairman and the independent directors;
If requested by major shareholders, ensures that 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; and
Together with the Directors and Corporate Governance Committee, leading the director recruitment process.

The lead director also has authority to call meetings of the independent directors and to retain advisers for the independent directors.

The lead director is appointed annually by the Board. Currently Ms. Marram is the lead director.

Director access to management and independent advisors: Independent directors have direct access to members of management whenever they deem it necessary; and the company's executive 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 company 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. During these reviews, the CEO and independent directors discuss future candidates for the CEO and other senior leadership positions, succession timing, and development plans for the highest-potential candidates. The company ensures that the directors have multiple

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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.

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.

Board Education and Annual Performance Assessment

The company engages in a comprehensive orientation process for incoming new directors. Directors also receive 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, the Directors and Corporate Governance Committee conducts an annual assessment of the Board's performance, Board committee performance, and all Board processes based on input from all directors.

Conflicts of Interest and Transactions with Related Persons

Conflicts of Interest
Directors must disclose to the company all relationships that create a conflict or an appearance of a conflict. The Board, after consultation with counsel, takes appropriate steps to identify actual or apparent conflicts and ensure that all directors voting on an issue are disinterested. A director may be excused from discussions on the issue, as appropriate.

Review and Approval of Transactions with Related Persons
The Board has adopted a policy and procedures for review, approval, and monitoring of transactions involving the company and related persons (directors and executive officers, their immediate family members, or shareholders of 5 percent or greater 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).

Policy: Related-person transactions must be approved by the Board or by a committee of the Board consisting solely of independent directors, who will approve the transaction only if they determine that it is in the best interests of the company. In considering the transaction, the Board or committee will consider all relevant factors, including:

The company’s business rationale for entering into the transaction;
The alternatives to entering into a related-person transaction;
Whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees 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; and
The overall fairness of the transaction to the company.

The Board or relevant committee will periodically monitor the transaction to ensure there are no changed circumstances that would render it advisable to amend or terminate the transaction.

Procedures:
Management or the affected director or executive officer will bring the matter to the attention of the chairman, the lead director, the chair of the Directors and Corporate Governance Committee, or the secretary.
The chairman and the lead 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

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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 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 which are considered related-party transactions under the SEC rules.

We have three current employees who are relatives of executive officers. Dr. John Bamforth, vice president, chief marketing officer, Lilly Bio-Medicines, is the spouse of Dr. Susan Mahony, an executive officer. Myles O’Neill, senior vice president, global drug products, is the spouse of Dr. Fionnuala Walsh, an executive officer. Finally, Andrew Lechleiter, advisor, strategy and operations, Amyvid, is the son of Dr. John Lechleiter, Lilly's CEO. For 2015, these three employees received compensation, including cash compensation, and, in the case of Dr. Bamforth and Mr. O'Neill, equity grants, of between $176,000 and $1.5 million.

All three individuals participate 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.

Communication with the Board of Directors

You may send written communications to one or more members of the Board, 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 2015, we spoke with a number of our largest investors. Issues discussed included shareholders' perspectives regarding a potential management proposal to eliminate the company's classified board and supermajority voting requirements, proxy access, board composition and recruitment, and the company's executive compensation, among other topics. The overall tone from these conversations was positive and the investors with whom we spoke were generally supportive of our overall compensation and governance policies. We have shared the feedback we received from these conversations with our Compensation Committee and Directors and Corporate Governance Committee. We are committed to continuing to engage with our investors to ensure their diverse perspectives are thoughtfully considered.

Prior Management Proposals to Eliminate Classified Board and Supermajority Voting Requirements
Between 2007 and 2012, each year we submitted management 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, as required in the company's articles of incorporation. In addition, in 2010, 2011, 2012, 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 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

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absent specific instructions from such clients. We have decided not to resubmit those proposals in 2016 based on our discussions with large shareholders as described above and our assessment that the proposals would not be successful. 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
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 21, 2016. 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 annual meeting must give the company written notice by November 21, 2016 and no earlier than September 22, 2016. That notice must provide certain other information as described in the bylaws. Copies of the bylaws are available online at http://investor.lilly.com/governance.cfm 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 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 2017 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 21, 2016 and no earlier than September 22, 2016. 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 http://investor.lilly.com/governance.cfm. 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 meeting.

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Ownership of Company Stock

Common Stock Ownership by Directors and Executive Officers
The following table sets forth the number of shares of company common stock beneficially owned by the directors, the named executive officers, and all directors and executive officers as a group, as of February 19, 2016. None of the stock, stock options, 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
Shares Owned 2
 
Options Exercisable/Stock Units Distributable Within 60 Days 3
Ralph Alvarez

 

30,670

Katherine Baicker, Ph.D.

 

10,380

Enrique A. Conterno
118,397

 

30,244

Michael L. Eskew

 

31,279

J. Erik Fyrwald
100

 

51,185

Michael J. Harrington
60,329

 

9,732

R. David Hoover
1,000

 

30,777

Karen N. Horn, Ph.D.

 

73,582

William G. Kaelin, Jr., M.D.

 

8,971

John C. Lechleiter, Ph.D.
976,078

5 

46,097

Jan M. Lundberg, Ph.D.
115,772

 

15,366

Ellen R. Marram
1,000

 

44,914

Franklyn G. Prendergast, M.D., Ph.D.

 

63,495

Derica W. Rice
386,777

6 

19,463

Marschall S. Runge, M.D., Ph.D.

 

4,995

Kathi P. Seifert
3,533

 

57,891

Jackson P. Tai
35,258

 

4,494

All directors and executive officers as a group (26 people)7:
2,395,063

 

721,174


1 
The sum of the "Shares Owned" and "Options Exercisable/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 0.1 percent of the outstanding common stock of the company. All directors and executive officers as a group own approximately 0.2 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 includes stock options exercisable within 60 days and RSUs that vest within 60 days.
4 For the executive officers, this column reflects RSUs that will not vest within 60 days. 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 56,148 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 4,243 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.
6 The shares shown for Mr. Rice include 11,596 shares that are owned by a family foundation for which he is a director. Mr. Rice has shared voting power and shared investment power with respect to the shares held by the foundation.
7 Mr. Luciano joined the Board in February 2016, and currently does not beneficially own any shares.

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Principal Holders of Stock
To the best of the company’s knowledge, the only beneficial owners of more than 5 percent of the outstanding shares of the company’s common stock, as of December 31, 2015, are the shareholders listed below:
Name and Address
Number of Shares
Beneficially Owned
Percent of Class
Lilly Endowment Inc. (the Endowment)
2801 North Meridian Street
Indianapolis, Indiana 46208
127,860,804
11.5%


BlackRock, Inc.
55 East 52nd Street
New York, New York 10055
66,007,964
6.0%


The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
59,913,179
5.4%


PRIMECAP Management Company
225 South Lake Ave., #400
Pasadena, CA 91101
57,654,392
5.2%



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; Mary K. Lisher; William G. Enright; Daniel P. Carmichael; Charles E. Golden; Eli Lilly II; David N. Shane; Craig Dykstra; and Jennett M. Hill.

BlackRock, Inc. provides investment management services for various clients. It has sole voting power with respect to 57,088,447 of its shares and sole dispositive power with respect to 65,974,281 of its shares.

The Vanguard Group provides investment management services for various clients. It has sole voting power with respect to 1,832,006 of its shares and sole dispositive power with respect to 57,973,673 of its shares.

PRIMECAP Management Company acts as investment advisor to various clients. It has sole voting power with respect to 11,365,505 shares and sole 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. As described in the CD&A section below, our compensation philosophy is designed to attract 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 dialog 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.


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Board Recommendation on Item 2

The Board 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, the compensation tables, and related narratives provided below in this proxy statement.
Compensation Discussion and Analysis

This CD&A describes our executive compensation philosophy, the Compensation Committee's process for setting executive compensation, the elements of our compensation program, the factors the committee considered when setting executive compensation in 2015, and how the company's results affected incentive payouts for 2015.

Say on Pay Results for 2015

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 mission is to make medicines that help people live longer, healthier, more active lives. In order to accomplish our mission, we must attract, engage, and retain highly-talented individuals who are committed to the company's 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 customers and shareholders.

Objectives
Our compensation and benefits programs are based on the following objectives:

Reflect both individual and company 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 review to ensure the programs provide incentive to deliver long-term, sustainable business results while discouraging excessive risk-taking or other adverse behaviors.

Attract and retain talented employees. Compensation opportunities should be 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. 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. Management and the Compensation Committee consider the results of our annual Say on Pay vote and other sources of shareholder feedback when designing compensation and benefit programs.


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Compensation Committee's Processes and Analyses

Process for setting compensation
The Compensation Committee considers the following in determining executive compensation:

Assessment of the executive's individual performance and contribution.
CEO: The independent directors, under the direction of the lead director, meet with the CEO at the beginning of each year to agree upon the CEO's performance objectives for the year. 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-end evaluation is used in setting the CEO's compensation for the next year.
Other Executive Officers ("EOs"): The committee receives individual performance assessments and compensation recommendations from the CEO and also exercises its judgment based on the Board's knowledge and interactions with the EOs. Each other EO's performance assessment is based on achievement of objectives established between such EO and the CEO at the start of the year as well as other factors.

Assessment of company performance. The Compensation Committee considers company performance in two ways:
As a factor in establishing potential compensation for the coming year, the committee considers overall company performance during the prior year across a variety of metrics.
To 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, and stock price growth.

Peer-group analysis. The committee uses peer-group data as a market check for compensation decisions, but does not use this data as the sole basis for its compensation targets. The company does not target a specific position within the range of market data.

Input from an independent compensation consultant concerning executive pay. The role of the independent compensation consultant is described in more detail under "Compensation Committee Matters" that follows the CD&A.

Competitive pay assessment
Our peer group is comprised of companies that directly compete with us, operate in a similar business model, and employ people with the unique skills required to operate an established biopharmaceutical company. In selecting the peer group, the committee considers companies' market caps and revenue as measures of size, and selects a peer group whose median market cap and revenues are broadly similar to Lilly. The committee reviews the peer group at least every three years. The group includes: Abbott, Abbvie, Allergan, Amgen, AstraZeneca, Baxter, Biogen, Bristol-Myers Squibb, Celgene, Gilead, GlaxoSmithKline, Hoffman-La Roche, Johnson & Johnson, Medtronic, Merck, Novartis, Pfizer, and Sanofi-Aventis. With the exception of Johnson & Johnson, Novartis, and Pfizer, peer companies were no greater than three times our size with regard to both measures. The 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. In the aggregate, the company’s total compensation to NEOs, when reviewed at the end of 2014, was in the middle range of the peer group.


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Components of Our Compensation

Our executive compensation has three components: (1) base salary; (2) an annual cash bonus, which is calculated based on company revenue, EPS, and the progress of the pipeline relative to internal targets; and (3) 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 earnings per share ("EPS") relative to the expected peer group growth followed by a service-vesting period; and (ii) Shareholder Value Awards ("SVAs") - performance-based equity awards that pay out based on company stock price growth over a three-year period, followed by a one-year holding period. Executives also receive the company benefits package, described below under "Other Compensation Practices and Information - Employee Benefits".

Adjustments to reported financial results
The Compensation Committee has authority to adjust the reported revenue and EPS on which incentive compensation payouts are determined in order to eliminate the distorting effect of unusual income or expense items that may occur during a given year that impact year-over-year growth percentages or to improve comparability to peer companies. The Committee considers the adjustments approved by the Audit Committee in reporting non-GAAP EPS and other adjustments, based on guidelines approved at the beginning of the performance period. Further details on the adjustments for 2015 and the rationale for making these adjustments are set forth in Appendix A, "Summary of Adjustments Related to the Annual 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 GAAP revenue and EPS that were approved.

1.
Base Salary

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, and expertise, along with peer group data.

Base salary increases are 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.

2.
Annual Bonus

The Eli Lilly and Company Bonus Plan ("Bonus Plan") is designed to align employees' individual goals with the company's financial plans and pipeline objectives for the year. The bonus is based on company performance in three areas over the course of the year, relative to internal targets: (1) revenue; (2) EPS; and (3) pipeline progress.

Company performance goals and individual bonus targets are set at the beginning of each year, and actual bonuses can range from 0 to 200% of each individual's bonus target. In establishing the performance goals, the Compensation Committee references the annual operating plan. Each year, the Compensation Committee reviews the relative weighting for each of the factors. The 2015 weightings remained unchanged from the prior year:
Goal
Weighting
Revenue performance
25%
EPS performance
50%
Pipeline progress
25%

Based on this weighting, the company bonus multiple is calculated as follows:


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(0.25 x revenue multiple) + (0.50 x EPS multiple) + (0.25 x pipeline multiple)
= company bonus multiple

Multiples for performance goals can range from 0-2.0.

The payout is calculated as follows:

bonus multiple x individual bonus target x base salary earnings = payout

In order to preserve tax deductibility of bonus payouts, EOs are subject to the Executive Officer Incentive Plan (EOIP), which sets further limits on the allowable bonus amounts. Under the EOIP, the maximum annual bonus allowable is calculated based on non-GAAP net income (generally described in "Adjustments to Reported Results" in Appendix A to this proxy statement) for the year. For the CEO, the maximum bonus award is 0.3 percent of non-GAAP net income. For other EOs, the maximum amount is 0.15 percent of non-GAAP net income. EOs will not receive any annual cash incentive payments unless the company has a positive non-GAAP net income for the year.

Once the maximum payout for an EO is determined, the Compensation Committee has the discretion to reduce (but not increase) the amount of the bonus to be paid. In exercising this discretion, the committee intends to generally award EOs the lesser of (i) the bonuses they would have received under the Bonus Plan or (ii) the EOIP maximum bonuses.

3.
Equity Incentives

The company grants two types of equity incentives to EOs - PAs and SVAs. The PAs are designed to focus company leaders on multi-year operational performance relative to peer companies and the SVAs align earned compensation with long-term growth in shareholder value. The Compensation Committee has the discretion to adjust downward (but not upward) any executive officer's equity award payout from the amount yielded by the applicable formula.

Performance Awards
PAs vest over three years. Potential shares are earned based on achieving EPS growth targets over a two-year period followed by an additional 13-month service-vesting period in the form of restricted stock unites ("RSUs"). The growth rate targets are set relative to the median expected EPS growth for the peer group. These awards do not accumulate dividends during the two-year performance period, but do accumulate dividends 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 employees, and allows for objective comparisons to peer-group performance. Consistent with our compensation objectives, company performance exceeding the expected peer-group median will result in above-target payouts, while company performance lagging the expected peer-group median will result in below-target payouts. Possible payouts range from 0 to 150 percent of the target depending on EPS growth over the performance period.

The measure of EPS used in the PA program differs from the measure used in our annual bonus program in two ways. First, the bonus program measures EPS over a one-year period, while the PA program uses EPS over a two-year period. Second, the target EPS goal in the bonus program is set with reference to internal goals that align to our annual operating plan for the year, while the target EPS goal in the PA program is set relative to expected growth rates among our peer group.


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Shareholder Value Awards
SVAs may be earned based on Lilly's share price performance over a three-year period. SVAs 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 total three-year shareholder return ("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. Executive officers receive no payout if TSR for the three-year period is zero or negative.

Possible payouts range from 0 to 140 percent of the target amount, depending on stock performance over the period.

Pay for Performance

The mix of compensation for the CEO and other NEOs reflects our desire to link executive compensation with company performance. As reflected in the charts below, a substantial portion of the target pay for all NEOs is performance-based. Both the annual 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 term (as described above under "Components of Our Compensation - 3. Equity Incentives").


2015 Target Total Compensation

Performance Review Process
In setting potential EO compensation for 2015, the Compensation Committee considered both individual and company performance during 2014.

2014 Individual EO Performance
A summary of the committee's review of the individual EOs is provided below:


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Dr. John Lechleiter: In accordance with the company's Corporate Governance Guidelines, the independent directors conducted a review of Dr. Lechleiter's performance during 2014, which was provided to the Compensation Committee during a private session. Under Dr. Lechleiter's leadership the company exceeded key financial targets and saw the successful approval and launch of three new products - Trulicity®, Jardiance® and Cyramza®. In addition, the company controlled operating expenses, while setting a clear strategic plan towards sustained growth. Dr. Lechleiter continued his effective leadership and public advocacy on behalf of the broader biopharmaceutical industry, via his key leadership roles in the U.S.-Japan Business Council and PhRMA, among other organizations. Dr. Lechleiter continued to set a strong cultural tone throughout the organization, consistently demonstrating honesty, integrity, and transparency in his internal and external interactions throughout a particularly challenging period of patent expirations.

Derica Rice: Mr. Rice demonstrated exemplary leadership by helping to navigate the company through a very challenging period of patent expirations of many of our major products, while maintaining strong performance of the global services organization. He played key roles in numerous business development activities, including the Novartis Animal Health acquisition, and strongly influenced the company's external research and development strategy.

Dr. Jan Lundberg: Dr. Lundberg led the research and development organization through one of its most productive years in recent history and played a key leadership role in portfolio prioritization.

Michael Harrington: Mr. Harrington provided outstanding leadership of the company’s legal division, and effectively managed a number of key legal matters throughout the year. He also excelled in building effective partnerships with the leadership teams of our various business areas.

Enrique Conterno: Mr. Conterno drove above-plan revenues and earnings and increased Lilly’s market share in the diabetes therapeutic area. Through his leadership, the Lilly Diabetes business achieved three product approvals and two launches during the year.

The information in the section below reflects target total compensation for executive officers for 2015. The actual payouts made to the NEOs in the form of the 2015 annual bonus and equity awards that vested in 2015 are summarized in the next section, under "2015 Compensation Payouts".

Rationale for Changes to NEO Target Compensation
The committee established 2015 target total compensation opportunities for each executive based on the executive’s 2014 performance, internal relativity, and peer-group data. The committee determined an increase to Dr. Lechleiter’s total compensation was appropriate given overall company results and his strong leadership over several years. The committee decided his increase should be delivered entirely in performance-based compensation, leaving his base salary unchanged from prior years but increasing his bonus target and the target value of his equity. For Dr. Lundberg, the committee believed his target cash compensation was appropriate but increased his target equity award reflecting the strategic importance and long-term impact of the R&D organization’s success. Messrs. Rice, Harrington and Conterno received salary increases reflecting their contributions over time and aligned with the company’s annual increase guidelines. In light of strong performance since assuming the General Counsel role, Mr. Harrington also received an increase to his equity.

Resulting Compensation Targets

Base Salary
The following table outlines salary increases, if any, for each executive approved by the committee in 2015. Each executive's actual base salary earned during 2015 is reflected in the "Summary Compensation Table" in the "Executive Compensation" section of the proxy that follows.


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Name
2014 Annual Base Salary
2015 Annual Base Salary
Increase (effective March 1, 2015)
Dr. Lechleiter
$1,500,000
$1,500,000
Mr. Rice
$1,019,700
$1,050,300
3%
Dr. Lundberg
$1,007,855
$1,007,855
Mr. Harrington
$765,000
$788,000
3%
Mr. Conterno
$682,890
$710,205
4%

Annual Bonus Targets
Based on a review of internal relativity, peer data, and individual performance, the committee decided to maintain the same 2014 bonus targets for all NEOs in 2015, except Dr. Lechleiter. Based on the rationale described above, Dr. Lechleiter's target was increased. Bonus targets are shown in the table below as a percentage of base salary:
Name
2014 Bonus Target
2015 Bonus Target
Dr. Lechleiter
140%
150%
Mr. Rice
90%
90%
Dr. Lundberg
90%
90%
Mr. Harrington
75%
75%
Mr. Conterno
75%
75%


Total Equity Program - Target Grant Values
For 2015 equity grants, the committee set the total target values for NEOs based on internal relativity, individual performance, and peer-group data. The committee determined that for all NEOs a 50/50 split between PAs and SVAs would continue to appropriately balance company financial performance with shareholder return. Total target values for the 2014 and 2015 equity grants to the NEOs were as follows:
Name
2014 Total Equity
2015 Total Equity
Dr. Lechleiter
$9,000,000
$10,000,000
Mr. Rice
$3,800,000
$3,800,000
Dr. Lundberg
$3,000,000
$3,400,000
Mr. Harrington
$1,900,000
$2,300,000
Mr. Conterno
$2,000,000
$2,000,000

Performance Goals for 2015 Incentive Programs

2015 Annual Bonus Goals
The Compensation Committee established the company performance targets for 2015 at the targets specified in the company's 2015 corporate operating plan approved by the Board of Directors in 2014.

Performance Awards – 2015-2016 PA
In January 2015, the committee established an EPS growth target based on investment analysts’ peer group estimates at that time. However, the first two months of 2015 saw an extraordinarily rapid and steep decline in the value of several currencies against the U.S. dollar, significantly driving down the median of analysts' growth expectations for our peer group.  As a result, in March 2015, less than 90 days into the two-year performance period, the committee reset the target at one percent compounded annually to reflect revised investment analysts' estimates for the peer group.

Possible payouts for the 2015-2016 PA range from 0 to 150 percent of the target, as illustrated in the chart below:

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50% payout
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Target
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payout Multiple
 
0.00
 
0.50
 
 
0.75
 
 
1.00
 
 
1.25
 
 
1.50
Cumulative 2-Year EPS
$3.03
 
$5.61
 
 
$5.88
 
 
$6.15
 
 
$6.43
 
$6.71+
EPS Annual Growth Rate
 
 
 
(5.00)%
 
 
(2.00)%
 
 
1.00%
 
 
4.00%
 
 
7.00%

Shareholder Value Awards – 2015-2017 SVA
For purposes of establishing the stock price target for the SVAs, the starting price was $69.13 per share, representing the average of the closing prices of company stock for all trading days in November and December 2014. The target ending share price range was established based on the expected annual rate of return for large-cap companies (8 percent), less an assumed dividend yield of 2.89 percent, rounded up to the nearest $0.05. The ending price to determine payouts will be the average of the closing prices of company stock for all trading days in November and December 2017. The award is designed to deliver no payout to EOs if the shareholder return (including projected dividends) is zero or negative. The target share price growth of 5.1 percent per year is comparable to a compounded annual total shareholder return of 7.9 percent. Possible payouts based on share price ranges are illustrated in the grid below.

Ending Stock Price
Less than$63.02
$63.02-$68.72 
$68.73-$74.41 
$74.72-$80.29
$80.30-$86.17
$86.18-$92.04
 Greater than $92.04
Compounded Annual Share Price Growth Rate (excluding dividends)
Less than(3.0%)
(3.0%)-(0.2)%
(0.2%)-2.5%
2.5%-5.1%
5.1%-7.6%
7.6% - 10.0%
Greater than 10.0%
Percent of Target
0%
40%
60%
80%
100%
120%
140%

2015 Compensation Payouts

The information in this section reflects the amounts paid to NEOs for the 2015 annual bonus and payouts from equity awards for which the relevant performance period ended in 2015.

2015 Company Performance
For 2015, the company slightly exceeded its revenue target with annual revenues of $20.6 billion after adjustments as described in Appendix A. The company substantially exceeded its EPS target, with EPS of $3.49 after adjustments as described in Appendix A. The company also made significant progress on its pipeline, meeting or exceeding most targets for pipeline progress, highlighted by regulatory approval for necitumumab, along with 10 other new approvals, indications, or line extensions during 2015.

Bonus Award for 2015
The company's 2015 performance compared to targets for revenue, EPS, and pipeline progress, as well as the resulting bonus multiple, are illustrated below.

 
2015 Corporate Target
Adjusted Results
Multiple¹
Revenue
$20.4 billion
$20.6 billion
1.06
EPS
$3.19
$3.49
2.00
Pipeline score
3
3.7
1.37
Resulting Bonus Multiple
1.61

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¹Performance goal multiples are capped at 2.0.



The Science and Technology Committee assessed the company's progress toward achieving product pipeline goals at 3.7 (on a scale of 1 to 5) including:

1 new molecular entity (NME) product approval consistent with goal, and 10 other significant approvals versus a goal of 6.
5 NMEs entering into Phase III versus a goal of 2 entrants.
60 percent of preclinical pipeline projects and 66 percent of clinical projects met their delivery reliability goals, compared with targets of 60 and 75 percent, respectively.
Subjective assessment of the quality of the pipeline, considering many factors -- awarded a score of 5, recognizing another record-setting year for innovation.

Based on the recommendation of the Science and Technology Committee, the Compensation Committee certified a pipeline score of 3.7, resulting in a pipeline multiple of 1.37.

Combined, the revenue, EPS, and pipeline progress multiples yielded a bonus multiple of 1.61.
(0.25 x 1.06) + (0.50 x 2.00) + (0.25 x 1.37) = 1.61 bonus multiple

The bonus amounts paid to NEOs for 2015 are reflected in the "Summary Compensation Table" below.

Equity Award Payouts in 2015

2014-2015 Performance Award
The target cumulative EPS for the 2014-2015 PA was set in January 2014 reflecting expected industry growth of 7.6 percent each year. The company's two-year EPS growth decreased by 19.3%, reflecting the negative impact of multiple patent expirations.

The company's performance compared to targets (and the resulting multiple) for the 2014-2015 PA is reflected in the charts below.


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For the NEOs, the number of shares subject to an additional 13-month service-vesting period under the 2014-2015 PA is reflected in the table below (this information is also included in footnote 5 to the "Outstanding Equity Awards" table in the "Executive Compensation" section below):
Name
Target Shares
RSUs Earned
Dr. Lechleiter
92,194
46,097
Mr. Rice
38,926
19,463
Dr. Lundberg
30,731
15,366
Mr. Harrington
19,463
9,732
Mr. Conterno
20,488
10,244

2013-2015 Shareholder Value Award
The target stock price of $57.65 for the 2013-2015 SVA was set in January 2013 based on a beginning stock price of $48.43, which was the average closing price for Lilly stock for all trading days in November and December 2012. The ending stock price of $83.74 represents stock price growth of approximately 73 percent over the relevant three-year period. The company's performance compared to target (and the resulting payout multiple) for the 2013-2015 SVA is shown below.


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The shares paid to NEOs during 2015 for the 2013-2015 SVA were as follows:
Name
Target Shares
Shares Paid Out
Dr. Lechleiter
110,756
155,058
Mr. Rice
46,763
65,468
Dr. Lundberg
36,919
51,687
Mr. Harrington
21,536
30,150
Mr. Conterno
24,612
34,457

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,
provide post-retirement income; and
enhance productivity and job satisfaction through benefit programs that focus on overall well-being.

The benefits available are the same for all U.S. employees and include medical and dental coverage, disability insurance, and life insurance. In addition, The Lilly Employee 401(k) plan (the "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 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 executive officer.

Perquisites

The company provides very limited perquisites to executive officers. The company does not allow personal use of the corporate aircraft except the aircraft is made available for the personal use of Dr. Lechleiter in very rare cases when the security and efficiency benefits to the company outweigh the expense. The company did not incur any expenses for personal use by Dr. Lechleiter of its aircraft in 2015, nor did he receive any other perquisites. Depending on seat availability, family members and personal guests of executive officers may travel on the company aircraft to accompany executives who are traveling on business. There is no incremental cost to the company for these trips.

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 (the "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 2015” table.

Severance Benefits

Except in the case of a change in control of the company, the company is not obligated to pay severance to executive officers upon termination of their employment; any such payments are at the discretion of the Compensation Committee.


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The company has adopted change-in-control severance pay plans for nearly all employees, including the 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
All regular employees are covered
Up to two-year pay protection
Double trigger generally required
18-month benefit continuation
No tax gross-ups
 
 

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 trigger. 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. 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 portion of which would be paid out upon a change in control on a pro-rated basis for time worked based on the forecasted payout level at the time of the change in control. This partial payment is appropriate because of the difficulties in converting 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.

Covered terminations. Employees are eligible for payments if, within two years of the change in control, their employment is terminated (i) without cause by the company or (ii) for good reason by the employee, each as is defined in the 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 protection. These provisions assure 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 continued for 18 months following termination of employment, unless the individual becomes eligible for coverage with 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 awards. Any unvested equity awards would vest at the time of termination of employment.

Excise tax. 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.


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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. During 2015, the requirement for other executive officers changed from a fixed number of shares to a multiple of annual base salary (2 or 3 times annual base salary depending on the position). Until the required number of shares is reached, the executive officer must retain 50 percent of net shares received from new equity payouts. Our executives have a long history of maintaining significant levels of company stock. As of February 19, 2016, Dr. Lechleiter held shares valued at approximately 49 times his annual salary. The following table shows the share requirements for each NEO:
Name
Share Requirement
Owns Required Shares
Dr. Lechleiter
six times base salary
Yes
Mr. Rice
three times base salary

Yes
Dr. Lundberg
three times base salary

Yes
Mr. Harrington
three times base salary

Yes

Mr. Conterno
three times base salary

Yes

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, this holding requirement is met by the one-year service-vesting period that applies after the end of the performance period.

Employees 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 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 period or for disciplinary reasons. In addition, the Compensation Committee has adopted an executive compensation recovery policy, which gives the 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 incentive compensation in the case of materially inaccurate financial statements or material errors in the performance calculation, whether or not they result in a restatement and whether or not the executive 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. 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.


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Looking Ahead to 2016 Compensation

We periodically review our incentive programs to ensure alignment with our business strategy and the views of our stakeholders.  As a result of a review conducted in 2015, it was concluded that the current programs have worked well, i.e., paid for performance, provided appropriate incentives for our executives, and met the interests of our external stakeholders as evidenced by strong say-on-pay vote outcomes and the positive feedback received during shareholder outreach calls. However, this review identified some enhancements to the Shareholder Value Award (SVA) for executive officers to be implemented in 2016, as follows:
Changed the payout threshold and maximum to 50% and 150% (from 40% and 140%) to align with the PA’s threshold and maximum payout levels.
Added a "relative TSR modifier" to reflect our performance compared with the median performance of our peer group. This will incent our executives to deliver top performance within the industry in addition to driving absolute shareholder return. The number of shares to be paid will increase or decrease by 1% for every percentage point Lilly’s three-year TSR deviates from our peer group’s median three-year TSR (capped at +/-20%).
Increased the portion of equity being awarded as SVAs (from 50% to 60%) to incent behaviors aligned with long-term growth.

We also approved minor changes to our peer group, adding Shire Plc and removing Abbott and also Allergan, which was acquired by Actavis in 2015.

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, 5
All Other Compensation
($) 4
Total Compensation
($)
John C. Lechleiter, Ph.D.
2015

$1,500,000

$0
$11,350,000
$0

$3,622,500

$0

$90,000


$16,562,500

Chairman, President, and
Chief Executive Officer
2014

$1,500,000

$0
$6,750,000
$0

$1,785,000

$4,356,142

$90,000


$14,481,142

2013

$1,500,000

$0
$6,750,000
$0

$2,877,000

$0

$90,000


$11,217,000

Derica W. Rice
2015

$1,045,200

$0
$4,313,000
$0

$1,514,495

$0

$62,712


$6,935,407

Executive Vice President,
Global Services and
Chief Financial Officer
2014

$1,019,700

$0
$2,850,000
$0

$780,071

$2,023,458

$61,182


$6,734,411

2013

$1,014,750

$0
$2,850,000
$0

$1,251,187

$0

$60,885


$5,176,822

Jan M. Lundberg, Ph.D.
2015

$1,007,855

$0
$3,859,000
$0

$1,460,382

$390,645

$60,471


$6,778,353

Executive Vice President,
Science and Technology and President, Lilly Research Laboratories
2014

$1,007,855

$0
$2,250,000
$0

$771,009

$517,761

$60,471


$4,607,096

2013

$1,002,963

$0
$2,250,000
$0

$1,236,653

$224,741

$60,178


$4,774,535

Michael J. Harrington
2015

$784,167

$0
$2,610,500
$0

$946,881

$391,899

$47,050


$4,780,497

Senior Vice President and
General Counsel
2014

$765,000

$0
$1,425,000
$0

$487,688

$1,330,586

$45,900


$4,054,174

2013

$765,000

$0
$1,312,500
$0

$786,038

$264,784

$45,900


$3,174,222

Enrique A. Conterno
2015

$705,653

$0
$2,270,000
$0

$852,075

$0

$42,339


$3,870,067

Senior Vice President and
President Diabetes Business Unit
2014

$682,890

$0
$1,500,000
$0

$435,342

$1,235,839

$40,973


$3,895,044

2013

$680,658

$0
$1,500,000
$0

$699,376

$88,167

$40,840


$3,009,041


1 This column shows the grant date fair value of PAs and SVAs computed in accordance with FASB ASC Topic 718. Values for awards subject to performance conditions (PAs) are computed based upon the probable outcome of the performance condition as of the grant date. The PA grant values includes in the "Stock Awards" column are based on the probable payout outcome anticipated at the time of grant, which was

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different from the target value in each year. For purposes of comparison, the supplemental table below shows the total target grant values:

Name
2013 Total Equity
2014 Total Equity
2015 Total Equity
Dr. Lechleiter
$9,000,000
$9,000,000
$10,000,000
Mr. Rice
$3,800,000
$3,800,000
$3,800,000
Dr. Lundberg
$3,000,000
$3,000,000
$3,400,000
Mr. Harrington
$1,750,000
$1,900,000
$2,300,000
Mr. Conterno
$2,000,000
$2,000,000
$2,000,000

The table below shows the minimum, target, and maximum payouts (using the grant date fair value) for the 2015-2016 PA grant included in this column of the Summary Compensation Table.  
Name
Payout Date
Minimum Payout
Target Payout
Maximum Payout
Dr. Lechleiter
January 2017
$0
$5,000,000
$7,500,000
Mr. Rice
January 2017
$0
$1,900,000
$2,850,000
Dr. Lundberg
January 2017
$0
$1,700,000
$2,550,000
Mr. Harrington
January 2017
$0
$1,150,000
$1,725,000
Mr. Conterno
January 2017
$0
$1,000,000
$1,500,000

2     Payments for 2015 performance under the bonus plan. All bonuses paid to NEOs were part of a non-equity incentive plan.

3     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 2015 were driven to a large extent by a higher discount rate which lowered the net present value of pensions. The design of the pension benefit did not change. See the Pension Benefits in 2015 table on page 46 for information about the standard actuarial assumptions used. No named executive officer received preferential or above-market earnings on deferred compensation.
 
4     The amounts in this column are solely company matching contributions for each individual's 401(k) 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 some years, the net present value of the pension benefits for Dr. Lechleiter, Mr. Rice, and Mr. Conterno 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 increased discount rate.


Grants of Plan-Based Awards During 2015
The compensation plans under which the grants in the following table were made are described in the CD&A and consist of the bonus plan (a non-equity incentive plan) and the 2002 Lilly Stock Plan (which provides for PAs, SVAs, stock options, restricted stock grants, and RSUs).

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Name
Award
Grant Date2
Compensation Committee Action Date
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
1
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
Threshold
($)
Target
($)
Maximum
($)
Threshold
(# shares)
Target
(# shares)
Maximum
(# shares)
Dr. Lechleiter
 
__ 
 
__ 
$56,250
$2,250,000
$4,500,000
 
 
 
 
 

2015-2016 PA
3/30/2015
3 
3/28/2015
 
 
 
35,542
71,083
106,625
 
$6,350,000

2015-2017 SVA
2/2/2015
4 
1/26/2015
 
 
 
45,015
112,537
157,552
 
$5,000,000

 
 
 
 
 
 
 
 
 
 
0
 
Mr. Rice
 
__ 
 
__ 
$23,517
$940,680
$1,881,360
 
 
 
 
 

2015-2016 PA
3/30/2015
3 
3/28/2015
 
 
 
13,506
27,012
40,518
 
$2,413,000

2015-2017 SVA
2/2/2015
4 
1/26/2015
 
 
 
17,106
42,764
59,870
 
$1,900,000

 
 
 
 
 
 
 
 
 
 
0
 
Dr. Lundberg
 
__ 
 
__ 
$22,677
$907,070
$1,814,139
 
 
 
 
 

2015-2016 PA
3/30/2015
3 
3/28/2015
 
 
 
12,084
24,168
36,252
 
$2,159,000

2015-2017 SVA
2/2/2015
4 
1/26/2015
 
 
 
15,305
38,262
53,567
 
$1,700,000

 
 
 
 
 
 
 
 
 
 
0
 
Mr. Harrington
 
__ 
 
__ 
$14,703
$588,125
$1,176,250
 
 
 
 
 

2015-2016 PA
3/30/2015
3 
3/28/2015
 
 
 
8,175
16,349
24,524
 
$1,460,500

2015-2017 SVA
2/2/2015
4 
1/26/2015
 
 
 
10,353
25,883
36,236
 
$1,150,000

 
  
  
 
 
 
 
 
 
 
0
 
Mr. Conterno
 
__ 
 
__ 
$13,231
$529,239
$1,058,479
 
 
 
 
 

2015-2016 PA
3/30/2015
3 
3/28/2015
 
 
 
7,109
14,217
21,326
 
$1,270,000

2015-2017 SVA
2/2/2015
4 
1/26/2015
 
 
 
9,003
22,507
31,510
 
$1,000,000

 
 
 
 
 
 
 
 
 
 
0
 
1    These columns show the threshold, target, and maximum payouts for performance under the bonus plan. Bonus payouts range from 0 to 200 percent of target. The bonus payment for 2015 performance was 161 percent of target, and is included in the “Summary Compensation 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 effective on the first trading day of the following month.

3 This row shows the range of payouts for 2015-2016 PA grants. This PA will pay out in January 2017, with payouts ranging from 0 to 150 percent of target. The grant-date fair value of the PA reflects the probable payout outcome anticipated at the time of grant, which was greater than the target value.

4    This row shows the range of payouts for 2015-2017 SVA grants. This SVA will pay out in January 2018, with payouts ranging from 0 to 140 percent of target. We measure the fair value of the SVA on the grant date using a Monte Carlo simulation model.
To receive a payout under the PA or the SVA, a participant must remain employed with the company through the end of the relevant performance period (except in the case of death, disability, retirement, or reallocation). No dividends accrue on either PAs or SVAs during the performance period. Non-preferential dividends accrue during the earned PA’s one-year restriction period (following the two-year performance period) and are paid upon vesting.

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Outstanding Equity Awards at December 31, 2015
The 2015 closing stock price applied to the values in the table below was $84.26.
 
Stock Awards1
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 ($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#)
Equity Incentive
Plan Awards:
Market or
Payout Value of Unearned
Shares, Units,
or Other Rights
That Have Not
Vested ($)
Dr. Lechleiter
2015-2017 SVA




157,552

2 
$13,275,332
 
2014-2016 SVA




172,178

3 
$14,507,718
 
2015-2016 PA




35,542

4 
$2,994,769
 
2014-2015 PA
46,097

5 
$3,884,133




 
2013-2014 PA
46,623

6 
$3,928,454




Mr. Rice
2015-2017 SVA




59,870

2 
$5,044,646
 
2014-2016 SVA




72,698

3 
$6,125,533
 
2015-2016 PA




13,506

4 
$1,138,016
 
2014-2015 PA
19,463

5 
$1,639,952




 
2013-2014 PA
19,685

6 
$1,658,658




Dr. Lundberg
2015-2017 SVA




53,567

2 
$4,513,555
 
2014-2016 SVA




57,393

3 
$4,835,934
 
2015-2016 PA




12,084

4 
$1,018,198
 
2014-2015 PA
15,366

5 
$1,294,739




 
2013-2014 PA
15,541

6 
$1,309,485




Mr. Harrington
2015-2017 SVA




36,236

2 
$3,053,245
 
2014-2016 SVA




36,348

3 
$3,062,682
 
2015-2016 PA




8,175

4 
$688,826
 
2014-2015 PA
9,732

5 
$820,018




 
2013-2014 PA
9,066

6 
$763,901
 
 
 
Mr. Conterno
2015-2017 SVA




31,510

2 
$2,655,033
 
2014-2016 SVA




38,262

3 
$3,223,956
 
2015-2016 PA




7,109

4 
$599,004
 
2014-2015 PA
10,244

5 
$863,159




 
2013-2014 PA
10,360

6 
$872,934




 
RSU
20,000

7 
$1,685,200





1 The chart no longer includes stock option awards as the company has not awarded stock options to employees since 2006 and there are no outstanding stock option awards.

2    SVAs granted for the 2015-2017 performance period. 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 vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended December 31, 2015, the payout would have been 100 percent of target.

3 SVAs granted for the 2014-2016 performance period. The number of shares reported reflects the maximum payout, which will be made if the average closing stock price in November and December 2016 is over $65.44. Actual payouts may vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended December 31, 2015, the payout would have been 140 percent of target.

4    This number represents the threshold value of PA shares that could pay out for 2015-2016 performance, provided performance goals are met. Once the combined cumulative EPS result and associated payout level is determined, RSUs vesting in February 2018 will be issued. Actual payouts may vary from 0 to 150 percent

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of target. The number of shares recorded in the table reflects the payout if the combined cumulative EPS for 2015 and 2016 is $6.15.

5    The 2014-2015 PA was determined to be 50 percent of target in January 2016 and the resulting RSUs will vest February 2017.

6    RSUs vested February 2016 from the 2013-2014 PA.

7 This grant was made in 2008 outside of the normal annual cycle and will vest on May 1, 2018.

Options Exercised and Stock Vested in 2015
 
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 ($)
1
Dr. Lechleiter    
140,964
$2,864,829

52,462

2 
$3,777,264

155,058

3 
$12,708,586
Mr. Rice
57,108
$1,024,145

26,581

2 
$1,913,832

65,468

3 
$5,365,774
Dr. Lundberg
0
$0

20,985

2 
$1,510,920

51,687

3 
$4,236,234
Mr. Harrington
6,024
$88,613

0


$0

30,150

3 
$2,471,127
Mr. Conterno
6,928
$169,875

13,990

2 
$1,007,280

34,457

3 
$2,824,079

1    Amounts reflect the market value of the stock on the day the stock vested.

2    RSUs resulting from the 2012-2013 PA vested in February 2015.

3    Payout of the 2013-2015 SVA at 140 percent of target.

Retirement Benefits
We provide retirement income to eligible U.S. employees, including 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 “Summary Compensation 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 “Pension Benefits in 2015” 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