Form DEF 14A LILLY ELI & CO For: May 06

March 22, 2019 8:59 AM


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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ELI LILLY AND COMPANY
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)





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Notice of 2019 Annual Meeting of Shareholders and Proxy Statement









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




Table of Contents
Notice of Annual Meeting of Shareholders
P1
Proxy Statement Summary
P2
Governance
P8
P8
P8
Shareholder Engagement on Governance Issues
Provisions
Ownership of Company Stock
Compensation
Audit Matters
Management Proposals
Item 4 - Proposal to Amend the Company’s Articles of Incorporation to Eliminate the
Classified Board Structure
Item 5 -   Proposal to Amend the Company's Articles of Incorporation to Eliminate All
Supermajority Voting Provisions
Shareholder Proposal
Item 6 - Requesting a Report Regarding Direct and Indirect Political Expenditures
Other Information
Appendix A - Summary of Adjustments Related to the Annual Cash Bonus and Performance Award
Appendix B - Proposed Amendments to the Company's Articles of Incorporation
Directions and Parking



Notice of 2019 Annual Meeting of Shareholders

To the holders of Common Stock of Eli Lilly and Company:
The 2019 Annual Meeting of Shareholders of Eli Lilly and Company will be held as shown below:
TIME AND DATE
LOCATION
WHO CAN VOTE
11:00 a.m. EDT, Monday,
May 6, 2019
The Lilly Center Auditorium
Lilly Corporate Center
Indianapolis, Indiana 46285
Shareholders of record at close of business on February 26, 2019
This proxy statement is dated March 22, 2019, and is first being sent or given to our shareholders on or about that date.

ITEMS OF BUSINESS
Management Proposals
Board Voting Recommendation
Page Reference
Item 1
Election of the four directors listed in the proxy statement to serve three-year terms
FOR
 each of the director nominees
8
Item 2
Approval, by non-binding vote, of the compensation paid to the company's named executive officers
FOR
31
Item 3
Ratification of Ernst & Young LLP as the principal independent auditors for 2019
FOR
64
Item 4
Approve amendments to the Articles of Incorporation to eliminate the classified board structure
FOR
66
Item 5
Approve amendments to the Articles of Incorporation to eliminate all supermajority voting provisions
FOR
67
Shareholder Proposal
 
 
Item 6
Shareholder proposal requesting a report regarding direct and indirect political expenditures
AGAINST
69

There is a new admission procedure for attending the annual meeting this year. To gain admission, you must have an admission ticket. You must pre-register for the meeting to receive your admission ticket. Your request for an admission ticket must be received before 5:00 p.m. EDT on April 30, 2019. For further details on the new admission process and for information regarding how to attend the meeting, see the section titled "Meeting and Voting Logistics".

Every shareholder vote is important. If you are unable to attend the meeting in person, please sign, date, and return your proxy card or voting instructions by mail, or vote by telephone or online promptly so that a quorum may be represented at the meeting.

By order of the Board of Directors,

Bronwen L. Mantlo
Secretary
March 22, 2019
Indianapolis, Indiana

Important notice regarding the availability of proxy materials for the shareholder meeting to be held May 6, 2019: The annual report and proxy statement are available at lilly.com/2018-annual-report.

P1



Proxy Statement Summary

What is New in This Year's Proxy Statement
In May 2018, R. David Hoover retired from the board and in December 2018, we welcomed Karen Walker to the board. Ms. Walker is the senior vice president and chief marketing officer at Cisco Systems. Her 20-plus years in the information technology industry have included senior field and marketing leadership roles in Europe, North America, and the Asia Pacific region. Ellen Marram will be retiring from the board in May 2019 and as of that time, Juan Luciano will serve as the board’s lead independent director.

The board has approved, and recommends that the shareholders approve, the following management proposals at this year's meeting. The board recommends approval of amendments to the company’s articles of incorporation to eliminate the classified board structure (see Item 4 herein) and to eliminate supermajority voting provisions (see Item 5 herein). The board believes these two proposals balance shareholder interests and demonstrate its accountability and willingness to take steps that address shareholder-expressed concerns.

This year the board updated its conflict of interest policy to clarify that a director must disclose his or her relationship with Lilly to the director’s employer and any other organization with which the director has a relationship of trust and where the relationship with our company is relevant. In addition, the policy clarifies that directors must follow the internal conflict of interest policies and procedures of each such organization.

Highlights of 2018 Company Performance
The following provides a brief look at our 2018 performance in three dimensions: operating performance, progress with our innovation pipeline, and shareholder return (both absolute and relative). See our 2018 annual report on Form 10-K for more details.

Operating Performance
Performance highlights:
2018 revenue increased 7 percent to approximately $24.6 billion.
2018 earnings per share (EPS) on a reported basis were $3.13, compared to a 2017 EPS loss on a reported basis of $0.19.
2018 EPS increased 30 percent on a non-GAAP basis to $5.55.

A reconciliation of measures prepared in accordance with generally accepted accounting principles (GAAP) and externally reported non-GAAP measures is included in Appendix A.

2018 Innovation and Business Development Progress
We made significant pipeline advances in 2018, including:
U.S. and EU approval of Emgality® (galcanezumab-gnlm) for the preventive treatment of migraine in adults.
EU approval of Verzenios® (abemaciclib) and approval in Japan of Verzenio® for the treatment of certain types of advanced or metastatic breast cancer.
U.S. approval of the 2-mg dose of Olumiant® (baricitinib) for the treatment of adults with moderately-to-severely active rheumatoid arthritis.

We also had significant business development engagement in 2018, including:
an initial public offering of Elanco Animal Health, Inc.
a number of licenses, research collaborations, and acquisitions that will strengthen our pipeline, including the acquisition of ARMO BioSciences, an immuno-oncology company, and its lead product candidate pegilodecakin, which has demonstrated clinical benefit as a single agent, and in combination with both chemotherapy and checkpoint inhibitor therapy, across several tumor types.


P2



Shareholder Returns
We generated strong shareholder returns (share price appreciation plus dividends, reinvested quarterly) through year-end 2018. Our returns significantly exceeded both the compensation peer group and the S&P 500 across the time periods presented below:

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P3



Governance
Item 1: Election of Directors
 
 
Further information see page 8
 
 

 
Name and principal occupation
Public boards
Management recommendation
Vote required 
to pass

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Ralph Alvarez, 63
Lowe's Companies, Inc.
Dunkin' Brands Group, Inc.
Vote FOR
Majority of
 votes cast
Operating Partner,
Advent International Corporation
Director since 2009
 
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Carolyn R. Bertozzi, Ph.D., 52
Catalent
Vote FOR
Majority of
 votes cast
Professor of Chemistry and Investigator of the Howard Hughes Medical Institute, Stanford University
Director since 2017
 
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Juan R. Luciano, 57
Archer Daniels Midland Company
Wilmar International (alternate director)
Vote FOR
Majority of
votes cast
Chairman and Chief Executive Officer, Archer Daniels Midland Company
Director since 2016
 
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Kathi P. Seifert, 69
Investors Community Bank
Vote FOR
Majority of
 votes cast
Retired Executive Vice President,
Kimberly-Clark Corporation
Director since 1995
 

Our Corporate Governance Policies Reflect Best Practices
ü Our board membership is characterized by leadership, experience, and diversity.
ü 13 of our 14 directors, and the members of all board committees, are independent.
ü We have a strong, independent, clearly defined lead independent director role.
ü Updated conflict of interest policy clarifies when Lilly board service must be disclosed.
ü We are committed to board refreshment and seek to balance continuity and fresh perspectives.
ü We conduct orientation and continuing education programs for directors.
ü We have an annual cap on director compensation.
ü Our board conducts a robust annual assessment of board performance, including an annual assessment of each individual director.
ü We have a majority voting standard and resignation policy for the election of directors in uncontested
elections.
ü Our board values active shareholder engagement. As a result, we have put forward for consideration at this year's annual meeting management proposals to eliminate our classified board structure and supermajority voting provisions.
ü We have no shareholder rights plan (“poison pill”).
ü The charters of the committees of the board clearly establish the committees’ respective roles and responsibilities.
ü Our board holds executive sessions of the independent directors at every regular board meeting and most committee meetings.
ü Our independent directors have direct access to management and sole discretion to hire independent advisors at the company’s expense.

P4



ü Our independent directors select and evaluate our CEO and ensure we have a strong succession plan for executive officer roles. Our Compensation Committee determines the compensation for our CEO and other executive officers.
ü Our board actively oversees and approves our corporate strategy.
ü Our board has a longstanding commitment to corporate responsibility.
ü Our board oversees compliance and enterprise risk management practices.
ü We have a comprehensive code of ethical and legal business conduct applicable to our board and all
employees worldwide. This code is reviewed and approved annually by the board.
ü We have a supplemental code for our CEO and all members of financial management, in recognition of their unique responsibilities to ensure proper accounting, financial reporting, internal controls, and financial stewardship.
ü We have strong governance and disclosure of corporate political spending.
ü We have transparent public policy engagement.
ü We have meaningful stock ownership and retention guidelines for our directors and executive officers.

Compensation
Item 2: Advisory Vote on Compensation Paid
to Named Executive Officers

Further information see page 31

Management recommendation

Vote FOR
Vote required to pass

Majority of votes cast

Our Executive Compensation Programs Reflect Best Practices
ü
We have had strong shareholder support of our compensation practices: in 2018, over 97 percent of shares cast voted in favor of our executive compensation programs.
ü
Our compensation programs are designed to align with shareholder interests and link pay to performance through a blend of short- and long-term performance measures.
ü
Our Compensation Committee annually reviews our compensation programs to ensure they provide incentives to deliver long-term, sustainable business results while discouraging excessive risk-taking or other adverse behaviors.
ü
We have a broad compensation recovery policy that applies to all executives and covers a wide range of misconduct.
ü
Our executive officers are subject to robust stock ownership and retention guidelines and are prohibited from hedging or pledging their company stock.
ü
We do not have "top hat" retirement plans—supplemental plans are open to all employees and are limited to restoring benefits lost due to IRS limits on qualified plans.
ü
We do not provide tax gross-ups to executive officers (except for limited gross-ups related to international assignments).
ü
We have a very restrictive policy on perquisites.
ü
Our severance plans related to change-in-control generally require a double trigger.
ü
We do not have employment agreements with any of our executive officers.

Executive Compensation Summary for 2018
At the time the total target compensation was established at the end of 2017, target compensation for our named executive officers (the six officers whose compensation is disclosed in this proxy statement) was in the middle range of the company's peer group. Incentive compensation payouts exceeded target, consistent with the company's strong performance in 2018.

Pay for Performance
As described in the Compensation Discussion and Analysis (CD&A), we link our incentive pay programs to a balanced mix of measures on three dimensions of company performance: operating performance; progress with our innovation pipeline; and shareholder return (both absolute and relative).

The summary below highlights how our incentive pay programs are intended to align with company performance. Please also see Appendix A for any adjustments that were made to EPS for incentive compensation programs.

P5




2018 Cash Bonus Plan Multiple
The company exceeded its annual cash bonus targets for revenue, EPS, and pipeline progress.

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*Performance multiples are capped at 2.0.

2017-2018 Performance Award Multiple
We exceeded the EPS growth targets under our performance award program, which has targets based on expected EPS growth of peer companies over a two-year period. This performance resulted in a performance award payout above target.

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2016-2018 Shareholder Value Award Multiple
Our stock price growth exceeded the target range (17.7% to 30.2%) under our shareholder value award program, which is based on expected large-cap company returns over a three-year period. This performance resulted in a shareholder value award payout above target.


P6



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* Shareholder value award payouts were modified for individuals who were executive officers when the award was granted based on a three-year cumulative total shareholder return relative to peer companies. For 2018, the modifier resulted in a final payout of 1.50 percent of target. See the Compensation Discussion and Analysis section for further discussion on the shareholder value award program and the total shareholder return modifier.


Audit Matters
Item 3: Ratification of Appointment of Principal
Independent Auditor

Further information see page 64


Management recommendation

Vote FOR
Vote required to pass

Majority of votes cast

Management Proposals
Item 4: Approval of Amendments to the Articles of
Incorporation to Eliminate the Classified Board Structure

Further information see page 66


Management recommendation

Vote FOR
Vote required to pass

80% of outstanding shares

Item 5: Approval of Amendments to the Articles of
Incorporation to Eliminate Supermajority Voting Provisions

Further information see page 67

Management recommendation

Vote FOR
Vote required to pass

80% of outstanding shares


P7



Shareholder Proposal

Item 6: Shareholder Proposal Requesting a Report Regarding Direct and Indirect Political Contributions

Further information see page 69

Management recommendation

Vote AGAINST
Vote required to pass

Majority of votes cast

Voting

How to Vote in Advance of the Meeting
Even if you plan to attend the 2019 annual meeting in person, we encourage you to vote prior to the meeting via one of the methods described below.
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ONLINE
BY TELEPHONE
BY MAIL
Visit the website listed on your proxy card or voting instruction form
Call the telephone number on your proxy card or voting instruction form
Sign, date, and return your proxy card or voting instruction form

Further information on how to vote is provided at the end of the proxy statement under "Other Information."

Voting at our 2019 Annual Meeting
You may also opt to vote in person at the 2019 annual meeting, which will be held on Monday, May 6, 2019, at the Lilly Corporate Center, Indianapolis, IN 46285, at 11:00 a.m., EDT. See the section titled "Other Information" for more information.

Governance
Item 1. Election of Directors

Under the company’s articles of incorporation, the board is divided into three classes with approximately one-third of the directors standing for election each year. The term for directors to be elected this year will expire at the annual meeting of shareholders held in 2022. Each of the director nominees listed below has agreed to serve that term. The following sections provide information about our directors, including their qualifications, the director nomination process, and director compensation.

Board Recommendation on Item 1

The board recommends that you vote FOR each of the following nominees:
Ralph Alvarez
Carolyn R. Bertozzi, Ph.D.
Juan R. Luciano
Kathi P. Seifert

Board Operations and Governance

Board of Directors
Each of our directors is elected to serve until his or her successor is duly elected and qualified. If a bona fide nominee set forth in this proxy statement is unable to serve or for good cause will not serve, proxy holders may vote

P8



for another nominee proposed by the board or, as an alternative, the board may reduce the number of directors to be elected at the annual meeting.

Director Biographies
Set forth below is information as of March 8, 2019, regarding the nominees for election, which has been confirmed by each of them for inclusion in this proxy statement. We have provided the most significant experiences, qualifications, attributes, and skills that led to the conclusion that each director or director nominee should serve as a director in light of our business and structure. Full biographies for each of our directors are available on our website at 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 2019
The following four directors will seek election at this year's annual meeting. Three of these directors are standing for reelection; Carolyn Bertozzi is seeking election for the first time. See “Item 1. Election of Directors” above for more information.
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Ralph Alvarez

Age: 63, Director since 2009, Board Committees: Compensation (chair); Science and Technology

PUBLIC BOARDS
PRIOR PUBLIC BOARDS
MEMBERSHIPS + OTHER ORGANIZATIONS
Lowe's Corporation, Inc.;
McDonald's Corporation; KeyCorp;

University of Miami: President's Council;
Dunkin' Brand Group, Inc.
Skylark Co., Ltd.; Realogy Holdings Corp.
School of Business Administration Board of
 
 
Overseers

CAREER HIGHLIGHTS
Advent International Corporation, a leading global private equity firm

     - Operating Partner (2017 - present)
• Skylark Co., Ltd., a leading restaurant operator in Japan
     - Chairman of the Board (2013 - 2018)
McDonald's Corporation  
     - President and Chief Operating Officer (2006 - 2009)
QUALIFICATIONS
Through his positions at Skylark Co., Ltd. and McDonald's Corporation, as well as with other global restaurant
businesses, Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and
strategic planning. His international experience includes a special focus on Japan and emerging markets. He also has
extensive corporate governance experience through his service on other public company boards.


P9



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Carolyn R. Bertozzi, Ph.D.

Age: 52, Director since 2017, Board Committees: Public Policy and Compliance; Science and Technology
PUBLIC BOARDS
NON-PROFIT BOARDS
MEMBERSHIPS + OTHER ORGANIZATIONS
Catalent
Grace Science Foundation;
American Chemical Society; American Society for Biochemistry and
 
Glenn Foundation
Molecular Biology; American Chemical Society Publications, Editor-in-
 
 
Chief of ACS Central Science; National Academy of Medicine; National
 
 
Academy of Sciences; American Academy of Arts and Sciences; National
 
 
Academy of Inventors; German Academy of Sciences Leopoldina; Foreign
 
 
Fellow of the Royal Society
HONORS
 
 
MacArthur Genius Award; Lemelson MIT Prize; Heinrich Wieland Prize; National Academy of Sciences Award in the
Chemical Sciences
CAREER HIGHLIGHTS
• Stanford University

     - Anne T. and Robert M. Bass Professor of Chemistry, Professor of Chemical and Systems Biology and 
           Radiology by courtesy (2015 - present)
     - Baker Family Co-Director of Stanford ChEM-H (2017 - present)
Howard Hughes Medical Institute 
     - Investigator (2000 - present)
University of California, Berkeley
     - T.Z. and Irmgard Chu Professor of Chemistry and Professor of Molecular and Cell Biology (1996 - 2015)
QUALIFICATIONS
Dr. Bertozzi is a prominent researcher and academician. She has extensive experience at Stanford University and the
University of Berkeley, California, two major research institutions. Her deep expertise spans the disciplines of chemistry
and biology, with an emphasis on studies of cell surface glycosylation associated with cancer, inflammation, and

bacterial infection and exploiting this knowledge for development of diagnostic and therapeutic approaches.



P10



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Juan R. Luciano

Age: 57, Director since 2016, Board Committees: Finance (chair); Public Policy and Compliance
PUBLIC BOARDS
NON-PROFIT BOARDS
MEMBERSHIPS + OTHER ORGANIZATIONS
Archer Daniels Midland Company;
Intersect Illinois;
Economic Club of Chicago; Commercial Club of Chicago
Wilmar International
Boys and Girls Clubs of America;
 
  (alternate director)
Kellogg School of Management,
 
 
   Northwestern University
 
CAREER HIGHLIGHTS
Archer Daniels Midland Company, a global food-processing and commodities-trading company

     - Chairman (January 2016 - present)
     - CEO and President (2015 - present)
     - President (2014 - 2015)
     - Executive Vice President and Chief Operating Officer (2011 - 2014)
The Dow Chemical Company, a multinational chemical company
     - Executive Vice President and President, Performance Division (2010 - 2011)
QUALIFICATIONS
Mr. Luciano has CEO and global business experience with Archer Daniels Midland Company, where he has established
a reputation for strong result-oriented and strategic leadership, as well as many years of global leadership at The Dow
Chemical Company. He brings to the board a strong technology and operations background, along with expertise in the
highly-regulated food and agriculture sectors.

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Kathi P. Seifert

Age: 69, Director since 1995, Board Committees: Audit; Compensation
PUBLIC BOARDS
PRIOR PUBLIC BOARDS
NON-PROFIT BOARDS
Investors Community Bank
Albertsons;
Community Foundation for the Fox Valley Region;
 
Revlon Consumer Products Co.;
Fox Cities Building for the Arts;
 
Supervalu Inc.;
Fox Cities Chamber of Commerce; New North;
 
Lexmark International, Inc.
Greater Fox Cities Area Habitat for Humanity;
 
 
Riverview Gardens
CAREER HIGHLIGHTS
Katapult, LLC, a provider of pro bono mentoring and consulting services to nonprofit organizations

     - Chairman (2004 - present)
Kimberly-Clark Corporation, a global consumer products company
     - Executive Vice President (1999 - 2004)
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.


P11



Class of 2020
The following five directors are serving terms that will expire in May 2020.
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Michael L. Eskew

Age: 69, Director since 2008, Board Committees: Audit (chair); Compensation; Directors and Corporate Governance
PUBLIC BOARDS
NON-PROFIT BOARDS
 
3M Corporation;
Chairman of the board of trustees of The Annie E. Casey Foundation
IBM Corporation;
 
Allstate Insurance Company
 
 
CAREER HIGHLIGHTS
United Parcel Service, Inc., a global shipping and logistics company

     - UPS Board of Directors (1998 - 2014)
     - Chairman and CEO (2002 - 2007)

     - Vice Chairman (2000 - 2002)
QUALIFICATIONS
Mr. Eskew has CEO experience with UPS, where he established a record of success in managing complex worldwide
operations, strategic planning, and building a strong consumer brand focus. He is an audit committee financial expert,
based on his CEO experience and his service on other U.S. public company audit committees. He has extensive corporate
governance experience through his service on the boards of other companies.

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

Age: 61, Director since 2012, Board Committees: Finance; Science and Technology (chair)
INDUSTRY MEMBERSHIPS
HONORS
National Academy of Medicine;
Canada Gairdner International Award;
National Academy of Sciences;
Lefoulon-Delalande Prize - Institute of France
Association of American Physicians;
American Society of Clinical Investigation
CAREER HIGHLIGHTS
• Dana-Farber/Harvard Cancer Center

     - Professor of Medicine (2002 - present)
Brigham and Women's Hospital
     - Professor (2002 - present)
• Howard Hughes Medical Institute
     - Investigator (2002 - present)
     - Assistant Investigator (1998 - 2002)
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.


P12



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David A. Ricks

Age: 51, Director since 2017, Board Committees: none
PUBLIC BOARDS
NON-PROFIT BOARDS
INDUSTRY MEMBERSHIPS
Adobe Inc; Elanco Animal Health, Inc.*
Board of Governors for Riley Children's Foundation;
International Federation of Pharmaceutical
Central Indiana Community Partnership
  Manufacturers & Associations (IFPMA);
 
 
Pharmaceutical Research and Manufacturers
 
 
  of America (PhRMA)
CAREER HIGHLIGHTS
• Eli Lilly and Company

     - Chairman of the Board, President and CEO (2017- present)
     - Senior Vice President and President, Lilly Bio-Medicines (2012 - 2016)
QUALIFICATIONS
Mr. Ricks was named President and CEO on January 1, 2017, and Chairman on June 1, 2017. Mr. Ricks joined Lilly in 1996
and most recently served as President of Lilly Bio-Medicines. He has deep expertise in product development, global
sales and marketing, as well as public policy. He has significant global experience in leading the company's commercial
operations.
* Mr. Ricks expects to resign from the Elanco board following the company's full divestiture of its Elanco shares.

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

Age: 64, Director since 2013, Board Committees: Public Policy and Compliance; Science and Technology
NON-PROFIT BOARDS
MEMBERSHIPS + OTHER ORGANIZATIONS
Michigan Medicine
Experimental Cardiovascular Sciences Study Section of the National Institutes of Health
CAREER HIGHLIGHTS
• University of Michigan

     - CEO, Michigan Medicine (2015 - present)
     - Executive Vice President for Medical Affairs (2015 - present)
     - Dean, Medical School (2015 - present)
• University of North Carolina, School of Medicine
     - Executive Dean (2010 - 2015)
     - Chair of the Department of Medicine (2000 - 2015)
     - Principal Investigator and Director of the North Carolina Translational and Clinical Sciences Institute (2010 - 2015)
QUALIFICATIONS
Dr. Runge brings the unique perspective of a practicing physician who has a broad background in health care and
academia. He has extensive experience as a practicing cardiologist, a strong understanding of health care facility
systems, and deep expertise in biomedical research and clinical trial design.

P13



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Karen Walker

Age: 57, Director since 2018, Board Committees: Audit; Public Policy and Compliance
NON-PROFIT BOARDS
MEMBERSHIPS + OTHER ORGANIZATIONS
Salvation Army Advisory Board of Silicon Valley
Association of National Advertisers; IT Services Marketing Association;
 
CMO Council; Marketers that Matter
CAREER HIGHLIGHTS
Cisco Systems, a provider of packaging products, aerospace and other technologies and services to commercial and

     governmental customers
     - Senior Vice President and Chief Marketing Officer (2015 - present)
     - Senior Vice President, Marketing (2013 - 2015)
     - Senior Vice President of Segment, Services and Partner Marketing (2012 - 2013)
     - Vice President of Services Marketing (2008 - 2012)
QUALIFICATIONS
Ms. Walker brings extensive marketing and digital expertise. She has valuable commercial experience developed
through her business and consumer leadership positions in the information technology industry and is a recognized
industry authority on both technology and marketing. Her business expertise includes senior field and marketing roles
in Europe, North America, and the Asia Pacific region.

Class of 2021
With the exception of Ellen Marram, who will retire in May 2019, the following five directors are serving terms that will expire in May 2021.
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Katherine Baicker, Ph.D.

Age: 47, Director since 2011, Board Committees: Audit, Public Policy and Compliance (chair)
MEMBERSHIPS + OTHER ORGANIZATIONS
Panel of Health Advisers to the Congressional Budget Office; Editorial Board of Health Affairs; Research Associate of the
National Bureau of Economic Research; Member of the National Academy of Medicine; and American Academy of
of Arts and Sciences
CAREER HIGHLIGHTS
• Harris School of Public Policy, University of Chicago

     - Dean and the Emmett Dedmon Professor (2017 - present)
• Harvard T.H. Chan School of Public Health, Department of Health Policy and Management
     - C. Boyden Gray Professor (2014 -2017)
     - Acting Chair (2014 - 2016)
     - Professor of health economics (2007 - 2017)
• Council of Economic Advisers, Executive Office of the President
     - Member (2005 - 2007)
     - Senior Economist (2001 - 2002)
QUALIFICATIONS
Dr. Baicker is a leading researcher in the fields of health economics, public economics, and labor economics. As a valued
adviser to numerous health care-related commissions and committees, her expertise in health policy and health care
delivery is recognized in both academia and government.


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jerikfyrwaldboardcirclephoto.jpg
J. Erik Fyrwald

Age: 59, Director since 2005, Board Committees: Public Policy and Compliance; Science and Technology
PUBLIC BOARDS
PRIVATE BOARDS
NON-PROFIT BOARDS
Bunge Limited
Syngenta International AG
UN World Food Program Farm to Market Initiative;
 
 
Crop Life International; Swiss-American Chamber of Commerce
CAREER HIGHLIGHTS
Syngenta International AG, a global Swiss-based agriculture technology company that produces agrochemicals and

     seeds
     - CEO (2016 - present)
 Univar, Inc., a leading distributor of chemicals and provider of related services
     - President and CEO (2012 - 2016)
Ecolab, a leading provider of cleaning, sanitization, and water products and services
     - President (2012)
Nalco Company, a leading provider of water treatment products and services
     - Chairman and Chief Executive Officer (2008 - 2011)
E.I. duPont de Nemours and Company, a global chemical company
     - Group Vice President, agriculture and nutrition (2003 - 2008)
QUALIFICATIONS
Mr. Fyrwald has a strong record of operational and strategic leadership in three complex worldwide businesses with a
focus on technology and innovation. He is an engineer by training and has significant CEO experience with Syngenta,
Univar, and Nalco.

jamerejacksonboardcirclephot.jpg
Jamere Jackson

Age: 50, Director since 2016, Board Committees: Audit; Finance
CAREER HIGHLIGHTS
Hertz Global Holdings, Inc., a global vehicle rental, leasing, and fleet management business

     - Chief Financial Officer (2018 - present)
Nielsen Holdings plc, a global measurement and data analytics company
     - Chief Financial Officer (2014 - 2018)
GE
     - Vice President and CFO, GE Oil & Gas, drilling and surface division (2013 - 2014)
     - Senior Executive, Finance, GE Aviation (2007 - 2013)
     - Finance Executive, GE Corporate (2004 - 2007)
QUALIFICATIONS
Through his senior financial roles at Nielsen and GE, Mr. Jackson brings to the board significant global financial
expertise and strong background in strategic planning, having spent his professional career in a broad range of financial
and strategic planning roles. He is an audit committee financial expert, based on his CFO experience and his training as
a certified public accountant.


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ellenmarramboardcirclephotos.jpg
Ellen R. Marram

Age: 72, Director since 2002, lead independent director since 2012, Board Committees: Compensation; Directors and Corporate Governance (chair)
PUBLIC BOARDS
PRIOR PUBLIC BOARDS
PRIVATE BOARDS
NON-PROFIT BOARDS
Ford Motor Company
Cadbury plc;
Newman's Own, Inc.
Wellesley College;
 
The New York Times Company
 
New York-Presbyterian Hospital;
 
 
 
Lincoln Center Theater;
 
 
 
Newman's Own Foundation
CAREER HIGHLIGHTS
 
The Barnegat Group LLC, provider of business advisory services
    

 
     - President (2006 - present)
 
North Castle Partners, LLC, private equity firm
 
 
     - Managing Director (2000 - 2006)
 
Tropicana Beverage Group
 
 
     - President and Chief Executive Officer (1993 - 1998)
 
Nabisco Biscuit Company, a unit of Nabisco, Inc.
 
 
     - President and Chief Executive Officer (1988 - 1993)
 
QUALIFICATIONS
 
Ms. Marram is a former CEO with a strong marketing and consumer-brand background. Through her non-profit 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.

jacksontaiboardcirclephotos1.jpg
Jackson P. Tai

Age: 68, Director since 2013, Board Committees: Audit; Directors and Corporate Governance; Finance
PUBLIC BOARDS
PRIOR PUBLIC BOARDS
PRIVATE BOARD
NON-PROFIT BOARDS
MasterCard Incorporated;
The Bank of China Limited;
Canada Pension Plan
Metropolitan Opera;
Royal Phillips NV

Singapore Airlines;
   Investment Board
Rensselaer Polytechnic Institute
   (until March 31, 2019);
NYSE Euronext;
   (until March 31, 2019)
 
HSBC Holdings
ING Groep NV;
 
 
 
CapitaLand (Singapore);
 
 
 
DBS Holdings and DBS Bank
 
 
CAREER HIGHLIGHTS
 
DBS Group Holdings and DBS Bank (formerly the Development Bank of Singapore), one of the largest financial
 

     services groups in Asia
     - Vice Chairman and Chief Executive Officer (2002 - 2007)
     - President and Chief Operating Officer (2001 - 2002)
J.P. Morgan & Co. Incorporated, a leading global financial institution
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, an important 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.


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Director Qualifications and Nomination Process
Director Qualifications

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. We believe the board is well-rounded, with a balance of relevant perspectives and experience, as illustrated in the following chart:
CEO Experience:
 
6

 
 
 
 
Financial Expertise:
 
6

 
 
 
 
Relevant Scientific/Academic Expertise:
 
4

 
 
 
 
 
 
Healthcare Experience:
 
5

 
 
 
 
 
Operational/Strategic Expertise:
 
9

 
International Experience:
 
7

 
 
 
Marketing and Sales Expertise:
 
7

 
 
 
Digital Expertise:
 
1

 
 
 
 
 
 
 
 
 

Board Tenure: As the following chart demonstrates, our director composition reflects a mix of tenure on the board, which provides an effective balance of historical perspective and an understanding of the evolution of our business with fresh perspectives and insights.

In 2018, Karen Walker joined the board and David Hoover retired from the board. Ellen Marram, who joined the board in 2002, will retire in May 2019.
3 Years or Less:
 
4

 
 
 
3-5 Years:
 
3

 
 
 
 
6-10 Years:
 
2

 
 
 
 
 
More than 10 Years:
 
5

 
 

Diversity: The board strives to achieve diversity in the broadest sense, including persons diverse in geography, gender, ethnicity, age, and experiences. Although the board does not establish specific diversity goals or have a standalone 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 14 directors range in age from 46 to 72 and include five 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, a collaborative spirit, and commitment to the company, our shareholders, and other constituencies.

Director Refreshment
The Directors and Corporate Governance Committee performs periodic assessments of the overall composition and skills of the board in order to ensure that the board and management are actively engaged in succession planning for directors, and that our board reflects the viewpoints, diversity, and expertise necessary to support our complex and evolving business. The Directors and Corporate Governance Committee, with input from all board members, also considers the contributions of the individual directors.

The results of these assessments inform the board's recommendations on nominations for directors at the annual meeting each year and help provide us with insight on the types of experiences, skills, and other characteristics we should be seeking for future director candidates. Based on this assessment, the Directors and Corporate Governance Committee has recommended that the directors in the 2019 class be elected at the 2019 annual meeting.


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

The Directors and Corporate Governance committee employs the same process for evaluating all candidates, including those submitted by shareholders. The committee initially evaluates a candidate based on publicly available information and any additional information supplied by the party recommending the candidate. If the candidate appears to satisfy the selection criteria and the committee’s initial evaluation is favorable, the committee, assisted by management or a search firm, gathers additional data on the candidate’s qualifications, availability, probable level of interest, and any potential conflicts of interest. If the committee’s subsequent evaluation continues to be favorable, the candidate is contacted by the Chairman of the Board and one or more of the independent directors, including the lead independent director, for direct discussions to determine the mutual level of interest in pursuing the candidacy. If these discussions are favorable, the committee recommends that the board nominate the candidate for election by the shareholders (or elects the candidate to fill a vacancy, as applicable).

Director Compensation

Director compensation is reviewed and approved annually by the board, on the recommendation of the Directors and Corporate Governance Committee. Directors who are employees receive no additional compensation for serving on the board.

Cash Compensation
The following table shows the retainers and meeting fees for all non-employee directors in effect in 2018.
Board Retainers
(annual, paid in monthly installments)
 
 
Committee Retainers 
(annual, paid in monthly installments)
 
 
 
 
Annual Board Retainer
$110,000
 
Audit Committee; Science and Technology Committee members (including the chairs)
$6,000
 
 
 
 
Annual Retainers (in addition to annual board retainer):
 
 
Compensation Committee; Directors and Corporate Governance Committee; Finance Committee; Public Policy and Compliance Committee members (including the chairs)
$3,000
 
Lead Independent Director
$35,000
 
Audit Committee Chair
$18,000
 
Compensation Committee Chair; Directors and Corporate Governance Committee Chair; Finance Committee Chair; Public Policy and Compliance Committee Chair
$12,000
 
Science and Technology Committee Chair
$15,000

Directors are reimbursed for customary and usual travel expenses in connection with their travel to and from board meetings and other company events. Directors may also receive additional cash compensation for serving on ad hoc committees that may be formed from time to time.

Stock Compensation
Directors are required to hold meaningful equity ownership positions in the company, and may not sell the equity compensation they earn as a director until after leaving the board. A significant portion of director compensation is in the form of deferred Lilly stock payable after they leave the board. Directors are required to hold Lilly stock, directly or through company plans, valued at not less than five times their annual board retainer; new directors are allowed five years to reach this ownership level. All directors serving at least five years have satisfied these guidelines, and all other directors are making progress toward these requirements.

In 2018, non-employee directors received $175,000 of equity compensation (but no more than 7,500 shares), deposited annually in a deferred stock account in the Lilly Directors’ Deferral Plan (as described below). This award is prorated for time served and payable beginning the second January following the director's departure from board service.

Annual Compensation Cap for Directors
In 2018, the board approved a cap to the total annual compensation (cash and equity compensation) for non-employee directors of $800,000. The cap is intended to avoid excessive director compensation and is included in

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both our Directors' Deferral Plan and in the Amended and Restated 2002 Lilly Stock Plan approved by shareholders at the 2018 annual shareholders' meeting.

Lilly Directors’ Deferral Plan: The Lilly Directors' Deferral Plan allows non-employee directors to defer receipt of all or part of their cash compensation until after their service on the board has ended. Each director can choose to invest the amounts deferred in one or both of the following two accounts:

Deferred Stock Account. This account allows the director, in effect, to invest his or her deferred cash compensation in company stock. Funds in this account are credited as hypothetical shares of company stock based on the closing stock price on pre-set monthly dates. In addition, the annual stock compensation award as described above is also credited to this account. The number of shares credited is calculated by dividing the $175,000 annual compensation figure by the closing stock price on a pre-set annual date. Hypothetical dividends are “reinvested” in additional shares based on the market price of the stock on the date dividends are paid. Actual shares are issued on the second January following the director's departure from board service.

Deferred Compensation 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 (the Internal Revenue Code). The aggregate amount of interest that accrued in 2018 for the participating directors was $143,381, at a rate of 3.1 percent. The rate for 2019 is 3.9 percent.

Both accounts may generally only be paid out in a lump sum or in annual installments for up to 10 years, beginning the second January following the director’s departure from board service. Amounts in the deferred stock account are paid in shares of company stock.

2018 Compensation for Non-Employee Directors
Name
Fees Earned
or Paid in Cash ($)
 
Stock Awards ($)1
All Other
Compensation
and Payments ($)
2
Total ($)3
Mr. Alvarez
$131,000
 
$175,000
 
$0
 
$306,000
 
Dr. Baicker
$127,000
 
$175,000
 
$0
 
$302,000
 
Dr. Bertozzi
$119,000
 
$175,000
 
$0
 
$294,000
 
Mr. Eskew
$140,000
 
$175,000
 
$0
 
$315,000
 
Mr. Fyrwald
$123,000
 
$175,000
 
$1,205
 
$299,205
 
Mr. Jackson
$119,000
 
$175,000
 
$0
 
$294,000
 
Dr. Kaelin
$134,000
 
$175,000
 
$0
 
$309,000
 
Mr. Luciano
$124,000
 
$175,000
 
$0
 
$299,000
 
Ms. Marram
$163,000
 
$175,000
 
$30,000
 
$368,000
 
Dr. Runge
$119,000
 
$175,000
 
$1,000
 
$295,000
 
Ms. Seifert
$119,000
 
$175,000
 
$16,841
 
$310,841
 
Mr. Tai
$121,000
 
$175,000
 
$30,000
 
$326,000
 
Ms. Walker
$9,917
 
$14,583
 
$0
 
$24,500
 
Retired
 
Mr. Hoover
$53,333
 
$72,917
 
$30,000
 
$156,250
 
     
1 Each non-employee director received an award of stock valued at $175,000 (approximately 1,511 shares), except Mr. Hoover (who retired from the board in May 2018) and Ms. Walker (who joined the board in December 2018), who each received a pro-rated award for a partial year of service. This stock award and all prior stock awards are fully vested; however, the shares are not issued until the second January following the director's departure from board service, as described above under “Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. See Note 11 of the consolidated financial statements in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for additional detail regarding assumptions underlying the valuation of equity awards. Aggregate outstanding stock awards are shown in the “Common Stock Ownership by Directors and Executive Officers” table in the “Stock Units Not Distributable Within 60 Days” column.


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2 
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 non-employee directors. Under this program, the Foundation matched 100 percent of charitable donations over $25 made to eligible charities, up to a maximum of $30,000 per year for each individual. The Foundation matched these donations via payments made directly to the recipient charity. The amounts for Mr. Fyrwald, Mr. Hoover, Ms. Marram, Dr. Runge, Ms. Seifert, and Mr. Tai include matching contributions for donations made at the end of 2017 (Mr. Fyrwald - $1,205; Mr. Hoover - $30,000; Ms. Marram - $8,000; Dr. Runge - $1,000; Ms. Seifert - $11,000; and Mr. Tai - $30,000), for which the matching contribution was not paid until 2018.

3 
Directors do not participate in a company pension plan or non-equity incentive plan.

2019 Director Compensation
In 2018, the Directors and Corporate Governance Committee reviewed the company’s compensation for independent directors, including a peer group analysis which showed total director compensation slightly above the median. As a result of this analysis, the committee recommended no changes to independent director compensation for 2019.

Director Independence

The board annually determines the independence of directors based on a review by the Directors and
Corporate Governance Committee. No director is considered independent unless the board has determined that he or she has no material relationship with the company, either directly or as a partner, significant shareholder, or officer of an organization that has a material relationship with the company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others. To evaluate the materiality of any such relationship, the board has adopted categorical independence standards consistent with the New York Stock Exchange (NYSE) listing standards, except that the “look-back period” for determining whether a director’s prior relationship(s) with the company impairs independence is extended from three to four years.
The company's process for determining director independence is set forth in our Standards for Director Independence, which can be found on our website at lilly.com/who-we-are/governance, along with our Corporate Governance Guidelines.
On the recommendation of the Directors and Corporate Governance Committee, the board determined that each current non-employee director is independent. Prior to his retirement in 2018, the board reached the same conclusions regarding Dr. Hoover, and determined that the members of each committee also meet our independence standards. The board determined that none of the non-employee directors has had during the last four years (i) any of the relationships identified in the company’s categorical independence standards or (ii) any other material relationship with the company that would compromise his or her independence. The table that follows includes a description of categories or types of transactions, relationships, or arrangements the board considered in reaching its determinations.


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Director
Organization
Type of Organization
Director Relationship to Organization
Primary Type of Transaction/ Relationship/ Arrangement between Lilly and Organization
2018 Aggregate Percentage of Organization's Revenue
Dr. Baicker
University of Chicago
Educational Institution
Employee
Research grants
Less than 0.1 percent
Dr. Bertozzi
Stanford University
Educational Institution
Employee
Research grants
Less than 0.1 percent
Mr. Fyrwald
Syngenta International AG
For-profit Corporation
Executive Officer
Purchase of products
Less than 0.1 percent
Mr. Jackson
Hertz Global Holdings Inc
For-profit Corporation
Executive Officer
Purchase of products
Less than 0.1 percent
Nielsen Holdings plc
For-profit Corporation
Former Executive Officer
Purchase of products
Less than 0.1 percent
Dr. Kaelin
Harvard University
Educational Institution
Employee
Research grants
Less than 0.1 percent
Brigham and Women's Hospital
Health Care Institution
Employee
Research grants
Less than 0.1 percent
Dana-Farber Cancer Institute
Health Care Institution
Employee
Research grants
Less than 0.1 percent
Mr. Luciano
Archer Daniels Midland
For-profit Corporation
Executive Officer
Purchase of products
Less than 0.1 percent
Sale of products
Less than 0.1 percent of Lilly's revenue
Dr. Runge
University of Michigan Medical School
Educational Institution
Executive Officer
Research grants
Less than 0.1 percent
Ms. Walker
Cisco Systems Inc
For-profit Corporation
Employee
Purchase of products
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 organizations, in each of the last four fiscal years, did not exceed the greater of $1 million or 2 percent of that organization's consolidated gross revenues in a single fiscal year for the relevant four-year period. No director had any direct business relationships with the company or received any direct personal benefit from any of these transactions, relationships, or arrangements.

Committees of the Board of Directors

The duties and membership of the six board-appointed committees are described below. All committee members are independent as defined in the NYSE listing requirements and Lilly's independence standards. 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.


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Membership and Meetings of the Board and Its Committees

In 2018, each director attended at least 80 percent of the total number of meetings of the board and the committees on which he or she served during his or her tenure as a board or committee member. In addition, all board members are expected to attend the 2019 annual meeting, and all directors then serving attended the annual meeting in 2018. Current committee membership and the number of meetings of the board and each committee in 2018 are shown in the table below.
Name
Board
Audit
Compensation
Directors and
Corporate Governance
Finance
Public Policy and
Compliance
Science and
Technology
Mr. Alvarez
ü

C



ü
Dr. Baicker
ü
ü



C

Dr. Bertozzi
ü




ü
ü
Mr. Eskew
ü
C
ü
ü



Mr. Fyrwald
ü




ü
ü
Mr. Jackson
ü
ü


ü


Dr. Kaelin
ü



ü

C
Mr. Luciano
ü



C
ü

Ms. Marram
LD

ü
C



Mr. Ricks
ü






Dr. Runge
ü




ü
ü
Ms. Seifert
ü
ü
ü




Mr. Tai
ü
ü

ü
ü


Ms. Walker
ü
ü



ü

Number of 2018 Meetings
6
10
6
6
8
4
5

C    Committee Chair
LD
Lead Independent Director: Ms. Marram will be the lead independent director until May 2019, at which time she will retire from serving on the board. Mr. Luciano has been appointed as the new lead independent director starting in May 2019, pending his reelection at the 2019 annual meeting.

All six committee charters are available online at lilly.com/who-we-are/governance, or upon request to the company's corporate secretary. Key responsibilities of each committee are set forth below.

Audit Committee
The 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
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, Mr. Jackson, and Mr. Tai are audit committee financial experts, as defined in the SEC rules.

Compensation Committee
The Compensation Committee:
oversees the company’s global compensation philosophy and policies
establishes the compensation of our CEO 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

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reviews succession plans for the CEO and other key senior leadership positions
reviews, monitors, and oversees stock ownership guidelines for executive officers.

Compensation Committee Interlocks and Insider Participation
None of the Compensation Committee members:
has ever been an officer or employee of the company
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)
has any other interlocking relationships requiring disclosure under applicable SEC rules.

Directors and Corporate Governance Committee
The Directors and Corporate Governance Committee:
leads the process for director recruitment, together with the lead independent director
recommends to the board candidates for membership on the board and its committees, as well as for the role of lead independent director
oversees matters of corporate governance, including board performance, director independence and compensation, corporate governance guidelines, and shareholder engagement on governance matters.

Finance Committee
The 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
significant business development opportunities.

Public Policy and Compliance Committee
The Public Policy and Compliance Committee:
reviews, identifies and when appropriate, brings to the attention of the board political, social, and legal trends and issues, and compliance and quality matters that may have an impact on the business operations, financial performance, or public image of the company
reviews, monitors, and makes recommendations to the board on corporate policies and practices that relate to public policy and compliance.

Science and Technology Committee
The 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 product pipeline
reviews the scientific aspects of significant business development opportunities
oversees matters of scientific and medical integrity and risk management.


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Board Oversight of Compliance and Risk Management

The board, together with its committees, oversees the processes by which the company conducts its business to ensure the company operates in a manner that complies with laws and regulations and reflects the highest standards of integrity. On an annual basis, the full board reviews the company's overall state of compliance.

The company also has an enterprise risk management program directed by its chief ethics and compliance officer, who reports directly to the CEO. Enterprise risks are identified and prioritized by management through both top-down and bottom-up processes. The risk management program is overseen by the full board, and certain prioritized risks are reviewed by a board committee or the full board. Company management is charged with managing risk through robust internal processes and controls. The enterprise risk management program as a whole is reviewed annually at a full board meeting, and enterprise risks are also addressed in periodic business function reviews and at the annual board and senior management strategy session.

Code of Ethics
The board approves the company's code of ethics, which is set out in:

The Red 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: lilly.com/who-we-are/governance/ethics-and-compliance-program and lilly.com/ethical-conduct-for-financial-management, or upon request to the company's corporate secretary. In the event of any amendments to, or waivers from, a provision of the code affecting the CEO, chief financial officer, chief accounting officer, controller, or persons performing similar functions, we intend to post on the above website within four business days after the event a description of the amendment or waiver as required under applicable SEC rules, and we will maintain that information on our website for at least 12 months.

Highlights of the Company’s Corporate Governance

The company is committed to good corporate governance, which promotes the long-term interests of shareholders and other company stakeholders, builds confidence in our company leadership, and strengthens accountability by the board and company management. The board has adopted corporate governance guidelines that set forth the company's basic principles of corporate governance. The section that follows outlines key elements of the guidelines and other governance matters. Investors can learn more by reviewing the corporate governance guidelines, which are available online at lilly.com/who-we-are/governance 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 the following (certain of which are carried out through the board's committees):
providing general oversight of the business
approving corporate strategy
approving major management initiatives
selecting, compensating, evaluating, and, when necessary, replacing the CEO, and compensating other key senior leadership positions
ensuring that an effective succession plan is in place for all key senior leadership positions and reviewing the broader talent management process, including diversity and inclusion
overseeing the company’s ethics and compliance program and management of significant business risks
nominating, compensating, and evaluating directors
overseeing the company's enterprise risk management program.


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The board takes an active role in its oversight of our corporate strategy. Each year, the board and executive management closely examine the company's strategy, including key risks and decisions facing the company. Decisions reached in this session are updated throughout the year, including as the board discusses the company's financial performance, the performance of our business units, and progress in our pipeline.

Board Composition and Requirements
Mix of Independent Directors and Officer-Directors
We believe there should always be a substantial majority (75 percent or more) of independent directors. The CEO should be a member of the board.

Voting for Directors
In an uncontested election, directors are elected by a majority of votes cast. An incumbent nominee who fails to receive a greater number of votes “for” than “against” his or her election will tender his or her resignation from the board (following the certification of the shareholder vote). The board, on recommendation of the Directors and Corporate Governance Committee, will decide whether to accept the resignation. The company will promptly disclose the board's decision, including, if applicable, the reasons 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, although the Directors and Corporate Governance Committee has authority to recommend exceptions to this policy. The Directors and Corporate Governance Committee, with input from all board members, also considers the contributions of the individual directors annually, with a more robust assessment at least every three years when considering whether to nominate directors to new three-year terms. The company has not adopted term limits because the board believes that arbitrary term limits on a director’s service are not appropriate.

Other Board Service
In general, no director may serve on more than three other public company boards. The Directors and Corporate Governance Committee may approve exceptions if it determines that the additional service will not impair the director's effectiveness on the Lilly board.

Board Confidentiality Policy
The board has adopted a Confidentiality Policy, applicable to all current and future members of the board. The policy prohibits a director from sharing confidential information obtained in his or her role as a director with any outside party except under limited circumstances where the director is seeking legal advice or is required to disclose information by order of law. The Confidentiality Policy can be viewed on the company's website: 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 CEO, coupled with a strong lead independent director position (see the description of the role below), is the most efficient and effective leadership model for the company, fostering clear accountability, effective decision making, and alignment on corporate strategy. The board periodically reviews its leadership structure and developments in the area of corporate governance to ensure that this approach continues to strike the appropriate balance for the company and our stakeholders. Such a review was conducted most recently during the succession-management process relating to the appointment of Mr. Ricks as chairman, effective June 2017.

Board Independence
The board has put in place a number of governance practices to ensure effective independent oversight, including:

Executive sessions of the independent directors: held after every regular board meeting.

Annual performance evaluation of the chairman and CEO: conducted by the independent directors, the
results of which are reviewed with the CEO and considered by the Compensation Committee in establishing
the CEO’s compensation for the next year.


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A strong, independent, clearly defined lead independent director role: The lead independent director's
responsibilities include:
leading the board’s processes for selecting and evaluating the CEO
presiding at all meetings of the board at which the chairman is not present
serving as a liaison between the chairman and the independent directors
if requested by major shareholders, ensuring that he or she is available for consultation and direct
communication
approving meeting agendas and schedules and generally approving information sent to the board
conducting executive sessions of the independent directors
overseeing the independent directors' annual performance evaluation of the chairman and CEO
together with the Directors and Corporate Governance Committee, leading the director recruitment
process.

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

The lead independent director is appointed annually by the board. Currently Ms. Marram is the lead
independent director. Ms. Marram will retire from the board in May 2019, at which time Mr. Luciano, contingent upon his reelection at the 2019 annual meeting, will become the new lead independent director.

Director access to management and independent 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 the company's expense, whenever they feel it would be desirable to do so.

CEO Succession Planning
The Compensation Committee, board, and CEO annually review the company's succession plans for the CEO and other key senior leadership positions. The independent directors also meet without the CEO to discuss CEO succession planning.

During these reviews, the CEO and directors discuss:
future candidates for the CEO and other senior leadership positions
succession timing
development plans for the highest-potential candidates.

The independent directors and the CEO maintain a confidential plan for the timely and efficient transfer of the CEO's responsibilities in the event of an emergency or his sudden departure, incapacitation, or death.

The company ensures that the directors have multiple opportunities to interact with the company's top leadership talent in both formal and informal settings to allow them to most effectively assess the candidates' qualifications and capabilities.

Board Education and Annual Performance Assessment

The company engages in a comprehensive orientation process for incoming new directors. Directors also attend 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.

Every year the Directors and Corporate Governance Committee conducts a robust assessment of the board's performance, board committee performance, and all board processes, based on input from all directors. We also conduct an annual assessment of each individual director performance and every three years we conduct a detailed review of individual director performance when considering whether to nominate the director to a new three-year term.


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Conflicts of Interest and Transactions with Related Persons
Conflicts of Interest
Occasionally a director's business or personal relationships may give rise to an interest that conflicts, or appears to conflict, with the interests of the company. As outlined in the company's corporate governance guidelines, directors must disclose to the company all relationships that could create a conflict or an appearance of a conflict. The board, after consultation with counsel, takes appropriate steps to identify actual or apparent conflicts and ensure that all directors voting on an issue are disinterested with respect to that issue. A director may be excused from board discussions and decisions on an issue related to an actual or apparent conflict, as appropriate.

In addition, a director’s relationship with Lilly may give rise to an interest that conflicts, or appears to conflict, with the interests of another company, institution, or other stakeholder. A director must disclose his or her relationship with Lilly in connection with any scientific publication, using the International Committee of Medical Journal Editors (ICMJE) conflict of interest form for this purpose when possible. Each director must disclose his or her service on the board to his or her employer and any other organization with which the director has a relationship of trust and where the relationship with the company is relevant. In addition, directors must follow the internal conflict of interest policies and procedures of each such organization.

Review and Approval of Transactions with Related Persons
The board has adopted a policy and procedures for review, approval, and monitoring of transactions involving the company and related persons (directors and executive officers, their immediate family members, or shareholders of more than 5 percent of the company’s outstanding stock). The policy covers any related-person transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest).

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 the board or committee determines that it is in the best interests of the company. In considering the transaction, the board or committee will consider all relevant factors, including:
the company’s business rationale for entering into the transaction
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
the overall fairness of the transaction to the company.

Procedures:
Management or the affected director or executive officer will bring the matter to the attention of the chairman, the lead independent director, the chair of the Directors and Corporate Governance Committee, or the corporate secretary.
The chairman and the lead independent director shall jointly determine (or, if either is involved in the transaction, the other shall determine) whether the matter should be considered by the board or by one of its existing committees.
If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.
The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified, if appropriate, as promptly as practicable.
The board or relevant committee will review the transaction annually to determine whether it continues to be in the company’s best interests.

The Directors and Corporate Governance Committee has approved the following employment relationships that are considered related-party transactions under the SEC rules.

Dr. John Bamforth is the spouse of Dr. Susan Mahony, a former executive officer. Dr. Bamforth, who retired as vice president, global marketing, received cash and equity payments totaling $1,220,000, and he participated in the company’s benefit programs generally available to U.S. employees while he was an active employee.

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Communication with the Board of Directors

You may send written communications to members of the board, including independent directors, addressed to:
Board of Directors
Eli Lilly and Company
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, IN 46285

Shareholder Engagement on Governance Issues

Each year, the company engages large shareholders and other key constituents to discuss areas of interest or concern related to corporate governance, as well as any specific issues for the coming proxy season. In 2018, we spoke with a number of our largest investors on topics such as eliminating the company's classified board and supermajority voting requirements, board composition and succession planning, the company's executive compensation, environmental and social responsibility, drug pricing, and shareholders' ability to amend the bylaws, among other topics. The overall tone of these conversations was productive and positive, and the investors with whom we spoke were generally supportive of our performance and our overall compensation and governance policies, although a few shareholders communicated differing views on some of our governance practices. This feedback has been discussed with our CEO and chairman, the lead independent director, our Compensation Committee, and our Directors and Corporate Governance Committee, and it was a key input into board discussions on corporate governance topics. As a result of these discussions and its own deliberations, the board decided to put forward the two management proposals described below. We are committed to continuing to engage with our investors to ensure their diverse perspectives on corporate governance issues are thoughtfully considered.

Management Proposals to Eliminate Classified Board and Supermajority Voting Requirements
Each year between 2007 and 2012, and again in 2018, our management put forward proposals to eliminate the company's classified board structure. The proposals did not pass because they failed to receive a “supermajority vote” of 80 percent of the outstanding shares of our common stock, as required in the company's articles of incorporation. In addition, in 2010, 2011, 2012, and 2018, we submitted management proposals to eliminate the supermajority voting requirements themselves. Those proposals also fell short of the required 80 percent vote.   

Prior to 2012, these proposals received support ranging from 72 to 77 percent of the outstanding shares. In 2012, the vote in support of these proposals was approximately 63 percent of the outstanding shares, driven in part by a 2012 NYSE rule revision prohibiting brokers from voting their clients' shares on corporate governance matters absent specific instructions from such clients. In 2018, the vote in support was approximately 62 percent of the outstanding shares.

After considering the interests of the company and our shareholders, we have resubmitted management proposals to eliminate the classified board and supermajority voting requirements for consideration at the 2019 annual meeting (see Items 4 and 5). We will continue to 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 23, 2019. Proposals should be addressed to the company’s corporate secretary, Lilly Corporate Center, Indianapolis, Indiana 46285. In addition, the company’s bylaws provide that any shareholder wishing to propose any other business at the 2020 annual meeting must give the company written notice by November 23, 2019, and no earlier than September 24, 2019. That notice must provide certain other information as described in the bylaws. Copies of the bylaws are available online at lilly.com/who-we-are/governance or upon request to the company’s corporate secretary.

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Shareholder Recommendations and Nominations for Director Candidates
A shareholder who wishes to recommend a director candidate for evaluation should forward the candidate's name and information about the candidate's qualifications to:

Chair of the Directors and Corporate Governance Committee
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, IN 46285

The candidate must meet the selection criteria described above under "Director Qualifications and Nomination Process - Director Qualifications" and must be willing and expressly interested in serving on the board.

Under Section 1.9 of the company’s bylaws, a shareholder who wishes to directly nominate a director candidate at the 2020 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 23, 2019, and no earlier than September 24, 2019. The notice should be addressed to the corporate secretary at the address provided above. The notice must contain prescribed information about the candidate and about the shareholder proposing the candidate as described in more detail in Section 1.9 of the bylaws. A copy of the bylaws is available online at lilly.com/who-we-are/governance. The bylaws will also be provided by mail upon request to the corporate secretary.

We have not received any notice regarding shareholder nominations for board candidates or other shareholder business to be presented at the 2019 shareholders' meeting.

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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, including company subsidiaries, common stock, beneficially owned by the directors, the named executive officers, and all directors and executive officers as a group, as of February 15, 2019. None of the stock or stock units owned by any of the listed individuals has been pledged as collateral for a loan or other obligation.
Beneficial Owners
Common Stock 1
Stock Units Not Distributable Within 60 Days 4
 
Shares Owned 2
 
Stock Units Distributable Within 60 Days 3
 
Ralph Alvarez

 

43,373

 
Katherine Baicker, Ph.D.

 

16,872

 
Carolyn R Bertozzi, Ph.D.

 

3,317

 
Enrique A. Conterno
138,147

 

55,012

 
Michael L. Eskew

 

39,420

 
J. Erik Fyrwald
100

 

61,600

 
Michael J. Harrington
126,745

 

18,765

 
Jamere Jackson

 

4,029

 
William G. Kaelin, Jr., M.D.

 

15,351

 
Juan R. Luciano

 

8,208

 
Ellen R. Marram
1,000

 

55,200

 
David A. Ricks
170,367

5 

69,350

 
Marschall S. Runge, M.D., Ph.D.

 

11,061

 
Kathi P. Seifert
3,533

 

68,135

 
Jeffrey N. Simmons
179,858

6 

198,091

6 
Daniel Skovronsky, M.D., Ph.D.
70,818

 


 
Joshua L. Smiley
31,951

 

7,947

 
Jackson P. Tai
43,709

 

10,538

 
Karen Walker

 

211

 
All directors and executive officers as a group (28 people):
1,159,748

 

739,456

 

1 
The sum of the "Shares Owned" and "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 0.02 percent of the outstanding common stock of the company. The directors and executive officers as a group own approximately 0.11 percent of the outstanding common stock of the company.
2 This column includes the number of shares of common stock held individually as well as the number of
401(k) Plan shares held by the beneficial owners indirectly through the 401(k) Plan.
3 
This column sets forth restricted stock units that vest within 60 days of February 15, 2019.
4 For the executive officers, this column reflects restricted stock units that will not vest within 60 days of February 15, 2019. For the independent directors, this column includes the number of stock units credited to the directors' accounts in the Lilly Directors' Deferral Plan.
5 The shares shown for Mr. Ricks include 11,389 shares that are owned by a family foundation for which he is a director. Mr. Ricks has shared voting power and shared investment power with respect to the shares held by the foundation.
6 The shares shown for Mr. Simmons include 22,000 shares of Elanco common stock and 145,929 Elanco stock units not distributable within 60 days.


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Principal Holders of Stock
Based on reports filed with the SEC pursuant to Regulation 13D-G of the Securities Exchange Act of 1934 (the Exchange Act), the only beneficial owners of more than 5 percent of the outstanding shares of the company’s common stock, as of December 31, 2018, 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, IN 46208
118,015,304
11.1%
 
 
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
75,658,219
7.1%
 
 
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
68,956,519
6.5%
 
 

The Endowment has sole voting and sole dispositive power with respect to all of its shares. The Board of Directors of the Endowment is composed of N. Clay Robbins, chairman, president & CEO; Mary K. Lisher; William G. Enright; Daniel P. Carmichael; Charles E. Golden; Eli Lilly II; David N. Shane; Craig Dykstra; Jennett M. Hill; and John C. Lechleiter.

The Vanguard Group provides investment management services for various clients. It has sole voting power with respect to 1,145,235 of its shares and sole dispositive power with respect to 74,302,105 of its shares.

BlackRock, Inc. provides investment management services for various clients. It has sole voting power with respect to 60,041,509 of its 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. Our compensation philosophy is designed to attract, engage, and retain highly talented individuals and motivate them to create long-term shareholder value by achieving top-tier corporate performance while embracing the company’s values of integrity, excellence, and respect for people.

The Compensation Committee and the Board of Directors believe that our executive compensation aligns well with our philosophy and with corporate performance. Executive compensation is an important matter for our shareholders. We routinely review our compensation practices and engage in ongoing dialogue with our shareholders to ensure our practices are aligned with stakeholder interests and reflect best practices.

We request shareholder approval, on an advisory basis, of the compensation of the company’s named executive officers as disclosed in this proxy statement. As an advisory vote, this proposal is not binding on the company. However, the Compensation Committee values input from shareholders and will consider the outcome of the vote when making future executive compensation decisions.

Board Recommendation on Item 2

The board 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 Compensation Discussion and Analysis (CD&A), the compensation tables, and related narratives provided below in this proxy statement.


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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 Compensation Committee considered when setting executive compensation for 2018, and how the company’s results affected incentive payouts for 2018 performance. This CD&A provides compensation information for the CEO, chief financial officer, and the three other most highly compensated executive officers who were serving as executive officers on December 31, 2018. It also provides compensation information for one former executive officer, Jeffrey Simmons. On September 20, 2018, Lilly launched an initial public offering of Elanco Animal Health, Inc. (“Elanco”). At that time, Mr. Simmons ceased being an executive officer of Lilly and became the CEO of Elanco.

Our Philosophy on Compensation
At Lilly, our purpose is to unite caring with discovery to create medicines that make life better for people around the world. In order to do this, we must attract, engage, and retain highly talented individuals who are committed to our core values of integrity, excellence, and respect for people. Our compensation programs are designed to help us achieve these goals while balancing the long-term interests of our shareholders and customers.

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

Reflect individual and company performance: We reinforce a high-performance culture by linking pay with individual and company performance. As employees assume greater responsibilities, the proportion of total compensation based on company performance and shareholder returns increases. We perform annual reviews to ensure our programs provide an incentive to deliver long-term, sustainable business results while discouraging excessive risk-taking or other adverse behaviors.

Attract and retain talented employees: Compensation opportunity should be market competitive 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 executive compensation and benefit programs.

Say-on-Pay Results for 2018
At last year's annual meeting, more than 97 percent of the shares cast voted in favor of the company's say-on-pay proposal on executive compensation. Management and the Compensation Committee view this vote as supportive of the company's overall approach toward executive compensation.

Compensation Committee's Processes and Analyses
Setting Compensation
The Compensation Committee considers individual performance assessments, compensation recommendations from the CEO, company performance, peer group data, input from its compensation consultant, and its own judgment when determining compensation for its executive officers.

Individual performance: Generally, the independent directors, under the direction of the lead independent director, meet with the CEO at the beginning of each year to agree upon the CEO's performance objectives. At the end of the year, the independent directors meet to assess the CEO's achievement of those objectives along with other factors, ethics, and integrity. This evaluation is used in setting the CEO's compensation for the next year.


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The Compensation Committee receives individual performance assessments and compensation recommendations from the CEO for each of the remaining executive officers. Each executive officer’s performance assessment is based on the achievement of objectives established between the executive officer and the CEO at the start of the year, as well as other factors, including the demonstration of Lilly values and leadership behaviors. The Compensation Committee considers these inputs, its knowledge of and interactions with each executive officer, and its judgement to develop a final individual performance assessment. For new executive officers, compensation is set by the Compensation Committee at the time of promotion or offer.

Company performance: Lilly performance and, with respect to Mr. Simmons, Elanco performance is considered in two ways:
Overall performance for the prior year based on a variety of metrics, which is a factor in establishing target compensation for the coming year.
Specific performance goals are established at the beginning of each performance year to determine payouts under cash and equity incentive programs.

Peer group analysis: The Compensation Committee uses data from the peer group described below as a market check for compensation decisions, but does not use this data as the sole basis for its compensation targets and does not target a specific position within that range of market data.

Input from an independent compensation consultant concerning executive pay: Lilly’s Compensation Committee considers the advice of its independent compensation consultant, Frederic W. Cook & Co., Inc., when setting executive officer compensation.

Elanco Animal Health: Prior to the Elanco initial public offering, the Compensation Committee reviewed and approved how the already granted bonus and equity elements of Mr. Simmons’ Lilly compensation would transition to Elanco. Lilly management, working with an independent consultant, proposed an Elanco compensation structure for Mr. Simmons to the Elanco board of directors, including base salary, target bonus, target equity compensation, and a one-time founders' award composed of stock options and restricted stock units (RSUs). The Elanco board of directors reviewed and approved the recommended compensation.

Competitive Pay Assessment
Lilly’s peer group is comprised of companies that directly compete with Lilly, use a similar business model, and employ people with the unique skills required to operate an established biopharmaceutical company. Lilly’s Compensation Committee selects a peer group whose median market cap and revenue are broadly similar to Lilly's. The Compensation Committee reviews the peer group at least every three years. Lilly’s Compensation Committee established the following peer group in June 2015 for purposes of assessing competitive pay:

Abbvie
Celgene
Merck
Amgen
Gilead
Novartis
AstraZeneca
GlaxoSmithKline
Pfizer
Baxter
Hoffman-LaRoche
Sanofi-Aventis
Biogen
Johnson & Johnson
Shire
Bristol-Myers Squibb
Medtronic
 

At the time of the review in June 2015, all peer companies were no greater than three times our revenue or market cap except Johnson & Johnson, Novartis, and Pfizer. The Compensation Committee included these three companies despite their size because they compete directly with Lilly, have similar business models, and seek to hire from the same pool of management and scientific talent.

When determining pay levels for target compensation, the Compensation Committee considers an analysis of peer group pay for each executive officer position (except CEO) along with internal factors such as the performance and experience of each executive officer. The independent compensation consultant for the Compensation Committee provides a similar analysis when recommending pay levels for the CEO. The CEO analysis includes a comparison of our CEO actual total direct compensation in the prior year to company performance on an absolute basis and on a

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relative basis to the peer group. The analysis also includes a comparison of current target total direct compensation for our CEO to the most recently available market data on CEO target total direct compensation for our peer companies. In the aggregate, the company’s target total compensation to named executive officers was in the middle range of the peer group at the end of 2018.

Components of Our Compensation
Our executive compensation is primarily composed of three components:
base salary
annual cash bonus, which is generally calculated based on company performance relative to internal targets for revenue, earnings per share (EPS), and the progress of our pipeline
two different forms of equity incentives:
performance awards, which are performance-based equity awards that vest over three years and have a performance component measuring the company's two-year growth in EPS relative to the expected peer group growth followed by a 13-month service-vesting period
shareholder value awards, which are performance-based equity awards that pay out based on absolute company stock price growth and total shareholder return (TSR) relative to peers, both measured over a three-year period, followed by a one-year holding period.
 
Executives also receive a company benefits package, described below under "Other Compensation Practices and Information - Employee Benefits."

When Lilly divests its remaining interest in Elanco, Mr. Simmons’ unvested Lilly equity awards will terminate in accordance with their terms for no consideration. Prior to the Elanco initial public offering, the Compensation Committee reviewed and approved how the bonus and equity elements of Mr. Simmons’ 2018 Lilly compensation would transition to Elanco. Lilly management, working with an independent consultant, proposed a compensation structure for 2018 for Mr. Simmons to the Elanco board of directors, including base salary, target bonus, target equity compensation, and a one-time founders’ award composed of stock options and restricted stock units. The Elanco board of directors reviewed and approved the recommended compensation, as described in more detail below. It is anticipated that the Elanco compensation committee will authorize the issuance of Elanco equity awards of a value and duration similar to Mr. Simmons’ unvested Lilly equity awards, subject to the requirements of applicable law and terms of applicable equity incentive plans and award agreements.

Adjustments to Reported Financial Results
The Compensation Committee has authority to adjust the company's reported revenue and EPS upon which incentive compensation payouts are determined to eliminate the distorting effect of unusual income or expense items. These items may affect year-over-year growth percentages or comparability with peer companies. The Compensation Committee considers the adjustments approved by the Audit Committee for reporting non-GAAP EPS and other adjustments, based on guidelines approved by the Compensation Committee prior to the performance period. The Compensation Committee considers adjustments on a quarterly basis and may adjust payouts to eliminate the benefit of share repurchases, large swings in foreign exchange rates, or the impact of price adjustments significantly above the business plan. For 2018 compensation, the Compensation Committee eliminated the benefit of share repurchases in excess of a pre-established collar from the bonus payout. The Compensation Committee has also removed the positive impact of tax reform from our 2017-2018 performance award results to avoid artificial uplift that was not considered at the time goals were established. Further details on the adjustments for 2018 and the rationale for making these adjustments are set forth in Appendix A, "Summary of Adjustments Related to the Annual Cash Bonus and Performance Award." For ease of reference, throughout the CD&A and the other compensation disclosures, we refer simply to "revenue" and "EPS" but we encourage you to review the information in Appendix A to understand the adjustments from reported revenue and EPS that were approved.

The Compensation Committee also has general authority to apply downward (but not upward) discretion to bonus, performance award, and shareholder value award payouts for individual executive officers.

1.
Base Salary

In setting salaries, Lilly seeks to retain, motivate, and reward successful performers while maintaining affordability within the company's business plan. Base salaries are reviewed and established annually and may be adjusted upon

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promotion, following a change in job responsibilities, or to maintain market competitiveness. Salaries are based on each person's level of contribution, responsibility, expertise, and competitiveness and are compared annually with peer group data.

Base salary increases for 2018, if any, were established based upon a corporate budget for salary increases, which is set considering company performance over the prior year, expected company performance for the following year, and general external trends.

2.
Annual Cash Bonus

The Eli Lilly and Company Bonus Plan (Lilly bonus plan) is designed to reward the achievement of the company’s annual financial plans and innovation objectives. The named executive officers, except Mr. Simmons, participated in the Lilly bonus plan during 2018. Mr. Simmons participated in the Elanco Corporate Bonus Plan (Elanco bonus plan).


Lilly Bonus Plan
The Compensation Committee sets performance goals and individual bonus targets for the Lilly bonus plan at the beginning of each year. The bonus is based on three areas of company performance measured relative to internal targets: revenue, EPS, and innovation progress. The annual cash bonus payout is calculated as follows:

(bonus plan multiple) x (individual bonus target) x (base salary earnings) = payout

Actual payouts can range from 0 to 200 percent of an individual's bonus target. The Compensation Committee references the annual operating plan to establish performance targets and to assess the relative weighting for each objective. The 2018 weightings remain unchanged from the prior year:

Lilly Goals
Weighting
Revenue performance
25%
EPS performance
50%
Pipeline progress
25%

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

Bonus Plan Multiple

(0.25 x revenue multiple) + (0.50 x EPS multiple) + (0.25 x pipeline multiple)

Executive officer bonuses are also subject to the terms of the Executive Officer Incentive Plan (EOIP). Under the EOIP, the maximum annual cash bonus allowable is calculated based on non-GAAP net income (generally described in "Adjustments to Reported Results" in Appendix A) for the year. For Mr. Ricks, the maximum amount for 2018 is 0.3 percent of non-GAAP net income. For other executive officers except Dr. Skovronsky, the maximum amount is 0.15 percent of non-GAAP net income. Dr. Skovronsky’s maximum amount is 0.15 percent of non-GAAP net income prorated for the time served as a Lilly executive officer. In addition, none of the executive officers receives an annual cash bonus payment unless the company has positive non-GAAP net income for the year.

Under the EOIP, the Compensation Committee has the discretion to reduce (but not to increase) the amount to be paid. In exercising this discretion, the Compensation Committee intends to award the lesser of (i) the bonus the executive officer would have received under the Lilly bonus plan, or (ii) the EOIP maximum payout.

Elanco Bonus Plan
Mr. Simmons’ bonus was aligned with the Elanco bonus plan for all of 2018, which is designed to reward the achievement of Elanco’s financial goals, innovation objectives, and contributions to Lilly’s overall financial success for the year. Prior to the Elanco initial public offering, the Elanco bonus plan was approved by Lilly management and Mr. Simmons’ EOIP participation and payout alignment with the Elanco bonus plan was approved by the Compensation Committee. The compensation committee of Elanco’s board of directors approved the 2018 Elanco bonus plan of which Mr. Simmons is a participant.


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The annual Elanco bonus plan payout is calculated as follows:

(Elanco bonus plan multiple) x (individual bonus target) x (base salary earnings) = payout

The bonus is based on four areas of Elanco and Lilly performance measured relative to internal targets: Elanco revenue, Elanco operating margin, Elanco innovation progress, and Lilly corporate objectives as measured under the Lilly bonus plan. The weighting for the Elanco bonus plan objectives for 2018 were:

Elanco Goals
Weighting
Elanco Revenue performance
25%
Elanco Operating Margin performance
25%
Elanco Innovation progress
25%
Lilly Bonus Plan Multiple
25%

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

Elanco Bonus Plan Multiple

(0.25 x revenue multiple) + (0.25 x operating margin multiple) + (0.25 x innovation multiple) + (0.25 x Lilly bonus plan multiple)

For the time period from January 1 through September 20, 2018, Mr. Simmons will receive the lesser of (i) the bonus he would have received under the Elanco bonus plan or (ii) an EOIP maximum payout prorated for service through September 20, 2018. For the period from September 20 through December 31, 2018, Mr. Simmons will receive a prorated bonus under the Elanco bonus plan as approved by the compensation committee of Elanco's board of directors.

3.
Equity Incentives

The company grants two types of equity incentives to executives and certain other employees: performance awards and shareholder value awards are designed to focus its leaders on multi‑year operational performance relative to peer companies. Shareholder value awards are intended to align earned compensation with long-term growth in shareholder value and relative TSR performance within our industry. The Compensation Committee has the discretion to adjust any payout from an equity award granted to an executive officer downward (but not upward) from the amount yielded by the applicable formula.

Performance Awards
Performance awards vest over three years. Payouts are based on achieving EPS growth targets over a two-year performance period, followed by an additional 13-month service-vesting period for executive officers, during which the award is held in the form of restricted stock units. The growth-rate targets are set relative to the median expected EPS growth for our peer group over the same performance period. These awards do not accumulate dividends during the two-year performance period, but they do accumulate dividend equivalent units during the service-vesting period.

The Compensation Committee believes EPS growth is an effective measure of operational performance because it is closely linked to shareholder value, is broadly communicated to the public, is easily understood by Lilly employees, and allows for objective comparisons to performance of Lilly's peer group. Consistent with its compensation objectives, Lilly company performance exceeding the expected peer group median results in above‑target payouts, while Lilly company performance lagging the expected peer group median results in below‑target payouts. Possible payouts range from 0 percent to 150 percent of the target, depending on Lilly EPS growth over the performance period.

The measure of EPS used in the performance award program differs from the measure used in the Lilly bonus plan in two ways. First, the EPS goal in the Lilly bonus plan is set with reference to internal goals that align to our annual operating plan for the year, while the EPS goal in the performance award program is set based on the expected

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growth rates of our peer group. Second, the Lilly bonus plan measures EPS over a one-year period, while the performance award program measures EPS over a two-year period. In a given year, the Lilly bonus plan may pay above target while the performance award pays below target (or vice versa).

Because Mr. Smiley and Dr. Skovronsky were not executive officers when their 2017-2018 performance awards were granted, those awards were not subject to the additional 13-month service-vesting period and vested in full as of December 31, 2018.

Shareholder Value Awards
Shareholder value awards are earned based on Lilly's share price and relative TSR performance. Shareholder value awards pay above target if Lilly's stock outperforms an expected rate of return and below target if Lilly's stock underperforms that expected rate of return. The expected rate of return is based on the three-year TSR that a reasonable investor would consider appropriate when investing in a basket of large-cap U.S. companies, as determined by the Compensation Committee. The minimum target price to achieve is calculated by multiplying the starting share price of Lilly's stock by the three-year compounded expected rate of return less Lilly's dividend yield. Shareholder value awards have a three-year performance period, and any shares paid are subject to a one-year holding requirement. No dividends are accrued during the performance period. Executive officers receive no payout if Lilly's TSR for the three-year period is zero or negative. Possible payouts are based on share price growth and range from 0 to 150 percent of the target.

A modifier based on Lilly's three-year cumulative TSR relative to our peer companies' median TSR performance is applied to executive officer payouts. The committee added the relative TSR modifier to the shareholder value award program to align executive officers' rewards with shareholder experience while also encouraging strong performance within the industry. If Lilly's TSR is above the median of our peers, the payout is increased by 1 percent for every percentage point that Lilly's TSR exceeds the median (up to a maximum of 20 percent). Likewise, if Lilly's TSR is below the median, the payout will be reduced by up to a maximum of 20 percent.

Because Mr. Smiley and Dr. Skovronsky were not executive officers at the time of the grant, their 2016-2018 shareholder value awards were not subject to the relative TSR modifier.

Other Equity Awards
In addition to his performance award and shareholder value award grants in 2018, Mr. Simmons received a founders’ award shortly after Elanco’s initial public offering which was approved by the compensation committee of the Elanco board of directors. This award is composed of 50 percent Elanco stock options and 50 percent Elanco time-based restricted stock units, and is intended to tie a significant portion of Mr. Simmons' compensation to Elanco’s performance and the interests of Elanco shareholders. The Elanco stock options will vest over three years, at which point Mr. Simmons will have seven additional years to exercise. The Elanco restricted stock units will vest over three years.

Pay for Performance
The mix of compensation for our named executive officers reflects Lilly’s desire to link executive compensation with company performance. As reflected in the charts below, a substantial portion of the target pay for executive officers is performance-based. The annual cash bonus and equity payouts are contingent upon company performance, with the bonus factoring in performance over a one-year period, and equity compensation factoring in performance over two- and three-year periods (as described above). The charts below depict the annualized mix of target compensation for Lilly’s CEO and the average for the other named executive officers, excluding Mr. Simmons.


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chart-87de08ea6c485d2690e.jpgchart-b786643c8b8051eeb14.jpg* The pay mix for the other named executive officers would have been 22% base salary, 20% bonus, and 58% equity with Mr. Simmons’ annualized base pay, blended bonus, and annual equity award. The mix does not include his one-time founders’ award.


2018 Target Total Compensation
Performance Review Process
In setting target compensation for the named executive officers in 2018, the Compensation Committee considered individual contributions, Lilly and Elanco (as appropriate) performance during 2017, internal pay equity, peer group data, and input from the CEO to establish executive officer compensation for 2018. Dr. Skovronsky’s pay was adjusted on June 1, 2018, when he became senior vice president and chief scientific officer. Mr. Simmons' pay was adjusted during the annual review based on 2017 performance and further adjusted by the Elanco board of directors when he was appointed as the president, CEO, and director of Elanco Animal Health, Inc.

2017 Individual Named Executive Officer Performance
A summary of the Compensation Committee's review of individual named executive officer performances is provided below:

David Ricks, Chairman, President and Chief Executive Officer: In accordance with the company’s Corporate Governance Guidelines, the lead independent director conducted an assessment of Mr. Ricks’ performance during his first year as CEO, which was discussed by the independent directors during an executive session of the board. The independent directors believe the company largely met or exceeded its combined financial and strategic goals for 2017 under Mr. Ricks’ leadership. Mr. Ricks and his team:

delivered on the company's financial commitments
continued implementation of next generation research and development leading to the launch of Verzenio in the United States, Olumiant in Europe and nine other product approvals around the world which deliver value to patients and provide continued future growth for the company. Numerous potential medicines entered Phase 1 and Phase 2 clinical development from both internal research efforts and external sources
drove a cross-company productivity agenda resulting in savings that funded increased investment in research and development and allowed above-plan capital return to shareholders
announced the strategic review of the Elanco animal health business
implemented a strategy that improved diversity and inclusion across the company, increased the representation of women and minorities in management, and demonstrated the company’s commitment to pay equity

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progressed Lilly 30x30, a program to improve access to quality health care in resource-limited settings for 30 million people on an annual basis by 2030
improved certain environmental performance areas, such as greenhouse gas emissions, energy efficiency, waste efficiency, and wastewater.

In addition, the company appointed several new members to the leadership team while improving the team’s diversity profile, and was named one of the world’s most ethical companies by Ethisphere Institute.

Joshua Smiley, Senior Vice President and Chief Financial Officer: Mr. Smiley became senior vice president and CFO on January 1, 2018. Prior to becoming CFO, Mr. Smiley led the company’s treasury function throughout 2017, where he played a critical role in:

development and implementation of the company’s productivity agenda during the 2017 strategic plan and 2018 operating plan process
leadership of the capital allocation process allowing for investment in several in-licensing deals and increased funding for the advancement of new medicines
co-leadership of the Elanco strategic review ultimately leading to the Elanco initial public offering in 2018
engagement with legislation leading to U.S. tax reform
establishment of an excellent rapport with the investment community
leadership and executive sponsorship of Lilly’s Indian Network, an employee resource group focused on supporting and advancing people of Indian heritage in the company.

Michael Harrington, Senior Vice President and General Counsel: Mr. Harrington was effective and influential in his role as general counsel in 2017, and he was a productive partner with the executive team. In 2017, he:

defended several key patents, including patents for Alimta in the United States, Europe, and Japan
developed and implemented legal strategies across the company
worked to ensure the company has robust compliance around the world
led a company initiative to increase protection of Lilly's intellectual property assets and improve cyber security
led and served as an executive sponsor of the company’s PRIDE organization, an employee resource group focused on supporting and advancing lesbian, gay, bisexual, and transgender employees.

Enrique Conterno, Senior Vice President and President, Lilly Diabetes and President, Lilly USA: Mr. Conterno demonstrated strong leadership of Lilly Diabetes and across the company. In 2017, he:

drove volume growth within the diabetes business unit, primarily from newer products
championed the development of new insulin delivery devices incorporating digital technology to provide patients with better diabetes control
led the company’s U.S. commercial business, which is the company's largest market, as well as the company's human pharmaceutical commercial operations in China, Japan, and Canada
served as executive sponsor of WILL (Women’s Initiative for Leading at Lilly), the company’s employee resource group focused on supporting and advancing the development of women across the company.

Daniel Skovronsky, M.D., Ph.D., Senior Vice President and Chief Scientific Officer: Dr. Skovronsky became senior vice president and chief scientific officer on June 1, 2018. Prior to this promotion, Dr. Skovronsky was senior vice president for product development. In 2017, Dr. Skovronsky led efforts including:

transformation of the company’s drug research and drug development function by creating program teams that act as small biotech companies, modifying traditional governance structures to enable agile decision making, and creating boards that oversee each program
strategies that significantly reduced the time drug candidates spend in development, leading to earlier product launch
sponsorship of an increase in Lilly’s external research efforts, including expansion of key research hubs in Boston and San Francisco
leadership and executive sponsorship of Lilly’s Japanese Network, an employee resource group focused on supporting and advancing people of Japanese heritage in the company.


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Jeffrey Simmons, President, Chief Executive Officer and Director Elanco Animal Health, Inc.: Mr. Simmons became the President and CEO of Elanco in September 2018, after leading Lilly’s animal health business since 2008. During his tenure Elanco grew from a small business to one with more than $3 billion in annual revenue. This growth came from innovative new products providing strong organic growth and successfully integrating numerous acquired businesses, the largest being Novartis’s animal health business. Mr. Simmons' key accomplishments in 2017 included:

completion of several business development transactions, including the integration of Boehringer Ingelheim’s Vetmedica business into Elanco’s business operations
implementation of a broad productivity agenda that increased margins and operating income
co-leadership of the Elanco strategic review, ultimately leading to the Elanco initial public offering in 2018, while ensuring strong operational performance of the business
launch of new products for food animals and companion animals that are expected to drive future growth
improvements in operational performance across the Elanco business, including improving ethics and compliance processes.

2018 Target Compensation
The information below reflects total compensation at target for named executive officers for 2018. The actual compensation received in 2018 is summarized below in "2018 Compensation Results."

Rationale for Changes to Named Executive Officer Target Compensation
The Compensation Committee established 2018 target total compensation opportunities for each named executive officer based on the named executive officer's 2017 performance, internal relativity, and peer group data. For Mr. Smiley and Dr. Skovronsky, the Compensation Committee established initial pay based on market data and internal relativity.

Base Salary
The following table shows the approved annualized salary effective at the beginning of March for each named executive officer, except for Mr. Smiley, Dr. Skovronsky, and Mr. Simmons. Mr. Smiley’s salary is reflected as of January 1, 2018, when he became senior vice president and chief financial officer. Dr. Skovronsky’s salary is reflected as of June 1, 2018, when he became senior vice president and chief scientific officer. Mr. Simmons’ annual base salary was $688,118 from January 1, 2018 through September 19, 2018. When Mr. Simmons assumed his new responsibilities as the president, CEO and director of Elanco on September 20, 2018, his annual base salary was adjusted to $1,000,000 by the Elanco board of directors. Mr. Conterno’s base salary increase reflects his additional responsibility as head of Lilly USA and the importance of his leadership of the diabetes business unit and across the company. Each named executive officer's actual base salary earned during 2018 is reflected in the Summary Compensation Table in the "Executive Compensation" section of this proxy.

Name
2017 Annual Base Salary
2018 Annual Base Salary
Increase (effective March 1, 2018)
Mr. Ricks
1,400,000
$1,400,000
-
Mr. Smiley
N/A1
$875,000
-
Mr. Harrington
$860,300
$860,300
-
Mr. Conterno
$768,100
$800,000
4%
Dr. Skovronsky
N/A1
$900,000
-

1 Mr. Smiley and Dr. Skovronsky became executive officers in 2018.

Annual Cash Bonus Targets
Based on a review of internal relativity, peer group data, and individual performance, the Compensation Committee decided to retain the same bonus targets for Mr. Ricks, Mr. Harrington, and Mr. Conterno as in 2017. Mr. Simmons’ bonus target was 80% from January 1, 2018 through September 19, 2018. When Mr. Simmons assumed his new responsibilities as the president, CEO, and director of Elanco on September 20, 2018, his bonus target was adjusted to 120% by the Elanco board of directors. Bonus targets are shown in the table below as a percentage of each named executive officer’s base salary earnings:


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Name
2017 Bonus Target
2018 Bonus Target
Mr. Ricks
150%
150%
Mr. Smiley
N/A1
95%
Mr. Harrington
80%
80%
Mr. Conterno
80%
80%
Dr. Skovronsky
N/A1
95%

1 Mr. Smiley and Dr. Skovronsky became executive officers in 2018.

Equity Incentives - Target Grant Values
For 2018 equity grants, the Compensation Committee set the total target values for named executive officers based on peer group data, individual performance, and internal relativity. Named executive officers, except Dr. Skovronsky, have 60 percent of their equity target allocated to shareholder value awards and 40 percent to performance awards. Because Dr. Skovronsky was not an executive officer at the time of annual grants, 50 percent of his equity target was allocated to shareholder value awards and 50 percent was allocated to performance awards. Total target values for the 2017 and 2018 equity grants to the named executive officers were as follows:

Name
2017 Annual Equity Grant
2018 Annual Equity Grant2
Mr. Ricks
$8,500,000
$9,000,000
Mr. Smiley
N/A1
$2,300,000
Mr. Harrington
$2,300,000
$2,550,000
Mr. Conterno
$2,500,000
$2,600,000
Dr. Skovronsky
N/A1
$2,300,000
Mr. Simmons*
N/A
$1,200,000

1 Mr. Smiley and Dr. Skovronsky became executive officers in 2018.

* Mr. Simmons’ 2018 annual equity grant from Lilly was $1,200,000; this amount excludes the
founders’ awards Mr. Simmons received as part of the Elanco initial public offering as described in the "Grants
of Plan-Based Awards During 2018" table below. Mr. Simmons' annual equity grants from Lilly will terminate in accordance with their terms when Lilly divests its remaining interest in Elanco.


Performance Goals for 2018 Incentive Programs
Annual Cash Bonus Goals
The Compensation Committee established the company performance targets using the company's 2018 corporate operating plan, which was approved by the Board of Directors in 2017. These targets are described below under "2018 Compensation Results." Management established the Elanco bonus plan performance targets, and Mr. Simmons’ bonus plan alignment, which was approved by the Compensation Committee in 2017 and later approved by the Elanco board of directors.

2018-2020 Performance Award
In February 2018, the Compensation Committee established a compounded two-year EPS growth target of 8.1 percent per year based on investment analysts’ EPS growth estimates for our peer group companies at that time. Payouts for the 2018-2020 performance award could range from 0 to 150 percent of target, as shown below:

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50% payout
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
pointera05.jpg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Target
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payout Multiple
 
0.00
 
0.50
 
 
0.75
 
 
1.00
 
 
1.25
 
 
1.50
Cumulative 2-Year EPS
$4.28
 
$8.57
 
 
$9.09
 
 
$9.63
 
 
$10.18
 
$10.74
EPS Growth
 
 
 
0.1%
 
 
4.1%
 
 
8.1%
 
 
12.1%
 
16.1%

2018-2020 Shareholder Value Award
For purposes of establishing the stock price target for the shareholder value awards, the starting price was $84.70 per share, the average closing stock price for all trading days in November and December 2017. The target share price was established using the expected annual rate of return for large-cap companies (8 percent), less an assumed Lilly dividend yield of 2.66 percent. To determine payout, the ending price will be the average closing price of company stock for all trading days in November and December 2020. The award is designed to deliver no payout to executive officers if the shareholder return (including projected dividends) is zero or negative. Possible payouts based on share price ranges are illustrated in the grid below (and apply to all named executive officers other than Dr. Skovronsky).

Ending Stock Price
Less than $77.38
$77.38 - $88.19
$88.20 -$99.01
$99.02-$109.83
$109.84 -$120.65
 Greater than $120.65
Compounded Annual Share Price Growth Rate (excluding dividends)
Less than (3.0%)
(3.0%)-1.4%
1.4%-5.3%
5.3%-9.0%
9.1% -12.5%
Greater than 12.5%
Percent of Target
0%
50%
75%
100%
125%
150%

Executive officer awards are subject to a relative TSR modifier, as shown in the grid below. The number of shares to be paid will increase or decrease by 1 percent for every percentage point Lilly's three-year TSR deviates from our peer group's median three-year TSR, capped at 20 percent (applies to all named executive officers other than Dr. Skovronsky).

tsrmodifier2018proxyv2a02.jpg

Because Dr. Skovronsky was not an executive officer when his award was granted, his award does not include the TSR modifier described above, and has a lower threshold stock price hurdle. Otherwise, the payout grid for his shareholder value award, as illustrated below is the same as for the other named executive officers.


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Ending Stock Price
Less than $42.35
$42.35 - $88.19
$88.20 -$99.01
$99.02-$109.83
$109.84 -$120.65
 Greater than $120.65
Compounded Annual Share Price Growth Rate (excluding dividends)
Less than (20.6%)
(20.6%)-1.4%
1.4%-5.3%
5.3%-9.0%
9.1% -12.5%
Greater than 12.5%
Percent of Target
0%
50%
75%
100%
125%
150%

2018 Compensation Results
The information in this section reflects the amounts paid to named executive officers under the Lilly bonus plan or the Elanco bonus plan, as applicable, and for equity awards granted in prior years for which the relevant performance period ended in 2018.

Lilly Performance
In 2018 we exceeded both our annual revenue and EPS targets. We also made significant progress on our pipeline, meeting or exceeding all of our pipeline targets. Key pipeline highlights include first regulatory approval for Emgality and eleven other new approvals, indications, or line extensions.

Lilly Bonus Plan
The company's performance compared to targets for revenue, EPS, and pipeline progress, as well as the resulting Lilly bonus multiple, is illustrated below. In 2018, the non-GAAP EPS for Lilly Bonus was adjusted by $(0.06) to eliminate the benefit of share repurchases in excess of a pre-established collar.


 
2018 Corporate Target
Adjusted Results*
Multiple
Revenue
$23.457 billion
$24.556 billion
1.48
EPS
$4.91
$5.49
2.00
Pipeline score
3.00
3.9
1.45
Lilly Bonus Multiple
 
 
1.73

*See Appendix A, “Summary of Adjustments Related to the Annual Cash Bonus and Performance Award.”

chart-a79617285ef65be1a2b.jpgchart-b4bb3b3ced9258de8ec.jpg
The Science and Technology Committee's assessment of the company's progress toward achieving product pipeline goals is detailed below:


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Activity
Objective
Achievement
Approvals
1-2 new drug first approval
9 other approvals
1 new drug first approvals
10 other approvals
Potential new drug Phase 3 starts
2
3
Potential new drug Phase 1 starts
9-11
11
Potential new indication or line extension Phase 3 starts
3
5
Plan Boldly
Meet industry benchmark for speed of development
Plans exceeded industry benchmark
Deliver to Launch
Meet planned project timelines
Delivered much faster than planned timelines
Qualitative Assessment
Chief scientific officer's assessment of performance against strategic objectives

Based on the recommendation of the Science and Technology Committee, the Compensation Committee approved a pipeline score of 3.90, resulting in a pipeline multiple of 1.45.

When combined, the revenue, EPS, and pipeline multiples yielded a bonus multiple of 1.73.
(0.25 x 1.48) + (0.50 x 2.00) + (0.25 x 1.45) = 1.73 bonus multiple

The 2018 bonuses paid to the applicable named executive officers under the Lilly bonus plan were as follows:

Name
2018 Bonus ($)
Mr. Ricks
$3,633,000
Mr. Smiley
$1,438,063
Mr. Harrington
$1,190,655
Mr. Conterno
$1,099,842
Dr. Skovronsky
$1,376,431


Elanco Bonus Plan
Elanco’s performance compared to targets for Elanco revenue, Elanco operating margin, Elanco innovation progress, and the Lilly bonus multiple, as well as the resulting Elanco bonus multiple, is illustrated below:

 
2018 Elanco Target
2018 Elanco Results
Multiple
Elanco Revenue
$3.171 billion
$3.143 billion
0.85
Elanco Operating Margin
20.0%
20.2%
1.10
Elanco Innovation
3.00
3.60
1.30
Lilly Company Bonus Multiple
 
 
1.73
Resulting Elanco Bonus Multiple
 
 
1.24
*See Appendix A, “Summary of Adjustments Related to the Annual Cash Bonus and Performance Award.”


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chart-67b7bee25ec85a84b09.jpgchart-aa5895e1a4b6590db8b.jpg
Elanco’s 2018 innovation target was 3.0 on a scale of 1.0 to 5.0. Elanco’s innovation multiple comprises the following factors: (i) achievement of product approvals, (ii) entrants into early and late-stage development, (iii) adherence to approval timelines, and (iv) a qualitative assessment by Elanco’s head of R&D of overall performance. Based on the weighted outcomes of these factors, Elanco achieved a 3.6 score, which correlates to a 1.30 innovation multiple for use in the Elanco bonus calculation.

When combined, the Elanco revenue, Elanco operating margin, Elanco innovation, and Lilly bonus multiple yielded a 2018 Elanco bonus plan multiple of 1.24.

(0.25 x 0.85) + (0.25 x 1.10) + (0.25 x 1.30) + (0.25 x 1.73) = 1.24 bonus multiple

The 2018 bonus paid to Mr. Simmons under the Elanco bonus plan is as follows:

Name
2018 Bonus ($)
Mr. Simmons
$907,450


2017-2019 Performance Awards
The target cumulative EPS for the 2017-2019 performance award was set in the first quarter of 2017, reflecting expected industry growth of 5.3 percent each year over the two-year performance period of 2017-2018. The company's actual annual EPS growth for the two-year period was 22.5 percent, after an adjustment to non-GAAP EPS of $(0.24) to eliminate the benefit to our effective tax rate resulting from the implementation of U.S. tax reform in 2018. The actual EPS growth over the 2017-2018 performance period was largely driven by volume growth from our newer products.





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chart-c36c178d8f795b6ca90.jpgchart-8ada51db6cf75e38b4f.jpg

For the named executive officers other than Mr. Smiley and Dr. Skovronsky, shares earned for the 2017-2018 performance period are subject to an additional 13-month service-vesting period and are shown in the table below as restricted stock units. Mr. Smiley's and Dr. Skovronsky’s 2017-2018 performance awards were paid in shares of Lilly common stock.

Name
Target Shares
Shares Earned
RSUs Earned
Mr. Ricks
46,233
 N/A
69,350
Mr. Smiley
4,759
7,139
 N/A
Mr. Harrington
12,510
 N/A
18,765
Mr. Conterno
13,598
 N/A
20,397
Dr. Skovronsky
8,839
13,259
 N/A
Mr. Simmons
10,878
 N/A
16,317

2016-2018 Shareholder Value Award
The target stock price range of $98.55 to $109.06 (17.7 percent to 30.2 percent total stock price growth) for the 2016-2018 shareholder value award was set in 2016 based on a beginning stock price of $83.74, which was the average closing price for Lilly stock for all trading days in November and December 2015. The ending stock price of $112.38 represents stock price growth of approximately 34.2 percent over the relevant three-year period. The company’s performance compared to target (and the resulting payout multiple) for this award is shown below:

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chart-03ed1c594eef57c38c6.jpgchart-aed194de429655a99e4.jpg

The performance multiple of 1.25 was modified for all the named executive officers other than Mr. Smiley and Dr. Skovronsky by the relative TSR metric. The cumulative TSR median for the company’s peer group was 16.6 percent, and Lilly’s TSR over the same period was 44.9 percent as depicted in the chart below:

tsrmodifier020719a011.jpg
           
Given this positive relative performance, the shareholder value award payout multiple was increased by 20 percent, making the final performance multiple for these named executive officers 1.50.
 
The number of shares paid to each of our named executive officers for the 2016-2018 performance period were as follows:

Name
Target Shares
Shares Paid Out
Mr. Ricks
32,109
48,164
Mr. Smiley*
6,744
8,430
Mr. Harrington
33,568
50,352
Mr. Conterno
32,109
48,164
Dr. Skovronsky*
12,042
15,053
Mr. Simmons
29,190
43,785

*The TSR modifier did not apply to Mr. Smiley’s and Dr. Skovronky’s 2016-2018 shareholder value award payouts since neither one was an executive officer at the time of grant.


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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
enhance productivity and job satisfaction through benefit programs that focus on overall well-being.

The benefit programs available to executive officers are offered to all U.S. employees and include medical and dental coverage, disability insurance, and life insurance. In addition, The Lilly Employee 401(k) plan (401(k) Plan) and The Lilly Retirement Plan (the Retirement Plan) provide U.S. employees a reasonable level of retirement income reflecting employees’ careers with the company. To the extent that any employee’s retirement benefit exceeds Internal Revenue Service (IRS) limits for amounts that can be paid through a qualified plan, the company also offers a nonqualified pension plan and a nonqualified savings plan. These plans provide only the difference between the calculated benefits and the IRS limits, and the formula is the same for all U.S. employees. The cost of employee benefits is partially borne by the employee, including each executive officer.

Perquisites
The company provides very limited perquisites to executive officers. The company generally does not allow personal use of the corporate aircraft. In rare cases when the security and efficiency benefits outweigh the expense, the corporate aircraft is made available to Mr. Ricks for personal use. The company did not incur any expenses for personal use of its aircraft in 2018 by Mr. Ricks, and he did not receive any other perquisites. Depending on seat availability, family members and personal guests may accompany executive officers who are traveling for business on the company aircraft. There is no incremental cost to the company for these trips by family members and personal guests.

The Lilly Deferred Compensation Plan
Members of senior management may defer receipt of part or all of their cash compensation under The Lilly Deferred Compensation Plan (Deferred Compensation Plan), which allows executives to save for retirement in a tax-effective way at minimal cost to the company. Under this unfunded plan, amounts deferred by the executive are credited at an interest rate of 120 percent of the applicable federal long-term rate, as described in more detail following the “Nonqualified Deferred Compensation in 2018” table.

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

The company has adopted change-in-control severance pay plans for nearly all employees, including 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
double trigger generally required
no tax gross-ups
up to two-year pay protection
18-month benefit continuation

Although benefit levels may differ depending on the employee’s job level and seniority, the basic elements of the plans are comparable for all eligible employees:

Double trigger: Unlike “single trigger” plans that pay out immediately upon a change in control, our plans require a “double trigger” -- a change in control followed by an involuntary loss of employment within two years. This is consistent with the plan's intent to provide employees with financial protection upon loss of employment. With respect to unvested equity, performance to the date of the change in control will be used to

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determine the number of shares earned under an award, but vesting does not accelerate immediately upon a change in control. Rather, the performance-adjusted awards will convert to time-based restricted stock units that continue to vest with the new company. Shares will pay out upon the earlier of the completion of the original award period; upon a covered termination; or if the successor entity does not assume, substitute, or otherwise replace the awards.

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 ensure 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 continue 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 a covered termination.

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.

Elanco has adopted a similar severance plan that covers Mr. Simmons.

Share Ownership and Retention Guidelines; Prohibition on Hedging and Pledging Shares
Share ownership and retention guidelines help to foster a focus on long-term growth. The CEO is required to own company stock valued at least six times annual base salary. During 2018, the holding requirement for other executive officers ranged from two to four times annual base salary depending on the position. Until the required number of shares is reached, an executive officer must retain 50 percent of shares net of taxes received from new equity payouts. Our executives have a long history of maintaining significant levels of company stock. As of December 31, 2018, Mr. Ricks held shares valued at approximately 11 times his base salary. The following table shows the share requirements for the named executive officers:

Name
Share Requirement
Meets Requirement
Mr. Ricks
six times base salary
Yes
Mr. Smiley*
four times base salary
No
Mr. Harrington
four times base salary
Yes
Mr. Conterno
four times base salary
Yes
Dr. Skovronsky
four times base salary
Yes
Mr. Simmons
four times base salary
Yes

* Mr. Smiley was compliant with the annual share retention guideline as he builds
toward his ownership requirement.


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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 performance awards awarded to executive officers, this holding requirement is met by the 13-month service-vesting period that applies after the end of the performance period.

Non-employee directors and employees, including executive officers, are not permitted to hedge their economic exposures to company stock through short sales or derivative transactions. Non-employee directors and all members of senior management (approximately 150 employees in 2018) are prohibited from pledging any company stock (i.e., using company stock as collateral for a loan or trading shares on margin).

Executive Compensation Recovery Policy
All incentive awards are subject to forfeiture upon termination of employment prior to the end of the performance or vesting period or for disciplinary reasons. In addition, the Compensation Committee has adopted an executive compensation recovery policy that gives the Compensation Committee broad discretion to claw back incentive payouts from any member of senior management 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 from an executive officer in the case of materially inaccurate financial statements or material errors in the performance calculation, whether or not such inaccuracies or errors 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 a member of senior management during the last three years. Subsequent changes in status, including retirement or termination of employment, do not affect the company’s rights to recover compensation under the policy.

Looking Ahead to 2019 Compensation
The Compensation Committee reviewed our peer group in 2018 to ensure it continues to include the companies that compete with us, operate in a similar business model, and employ people with the unique skills required to operate an established biopharmaceutical company. The Compensation Committee selected companies whose median market cap and revenues are broadly similar to Lilly. During this review, the Compensation Committee chose to add Allergan, Novo Nordisk, and Takeda while removing Baxter and Medtronic.


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Executive Compensation

Summary Compensation Table
Name and Principal Position
Year
Salary
($)
Bonus
($)
Stock Awards
($)
1
 
Option Awards
($)
2
Non-Equity Incentive Plan Compensation
($)
3
Change in
Pension Value
($)
4
 
All Other Compensation
($)
5
Total Compensation
($)
David A. Ricks
2018
$1,400,000
$0
$10,584,000
 
$0
$3,633,000
$1,529,337
 
$84,000
$17,230,337
Chairman, President, and
Chief Executive Officer
2017
$1,400,000
$0
$10,200,000
 
$0
$2,814,000
$1,347,991
 
$84,000
$15,845,991
2016
N/A
N/A
N/A
 
N/A
N/A
N/A
 
N/A
N/A
Joshua L. Smiley
2018
$875,000
$0
$2,704,800
 
$0
$1,438,063
$174,980
 
$52,500
$5,245,343
Senior Vice President and
Chief Financial Officer
2017
N/A
N/A
N/A
 
N/A
N/A
N/A
 
N/A
N/A
2016
N/A
N/A
N/A
 
N/A
N/A
N/A
 
N/A
N/A
Michael J. Harrington
2018
$860,300
$0
$2,998,800
 
$0
$1,190,655
$338,947
 
$51,618
$5,440,320
Senior Vice President and
General Counsel
2017
$856,130
$0
$2,760,000
 
$0
$917,771
$1,657,718
 
$51,368
$6,242,987
2016
$827,400
$0
$2,300,000
 
$0
$774,446
$1,441,954
 
$49,644
$5,393,444
Enrique A. Conterno
2018
$794,683
$0
$3,057,600
 
$0
$1,099,842
$0
 
$47,681
$4,999,806
Senior Vice President and
President, Lilly Diabetes and President, Lilly USA
2017
$762,002
$0
$6,000,000
 
$0
$816,866
$999,426
 
$45,720
$8,624,014
2016
$727,960
$0
$2,200,000
 
$0
$681,371
$935,408
 
$43,678
$4,588,417
Daniel M. Skovronsky, M.D., Ph.D.
2018
$837,500
$0
$2,806,000
 
$0
$1,376,431
$75,717
 
$50,250
$5,145,898
Senior Vice President and Chief Scientific Officer
2017
N/A
N/A
N/A
 
N/A
N/A
N/A
 
N/A
N/A
2016
N/A
N/A
N/A
 
N/A
N/A
N/A
 
N/A
N/A
Jeffrey N. Simmons
2018
$775,185
$0
$2,530,654
2 
$1,119,445
$907,450
$0
 
$46,511
$5,379,245
President, Chief Executive Officer and Director Elanco Animal Health, Inc.
2017
N/A
N/A
N/A
 
N/A
N/A
N/A
 
N/A
N/A
2016
N/A
N/A
N/A
 
N/A
N/A
N/A
 
N/A
N/A

1 This column shows the grant date fair value of performance awards and shareholder value awards computed in accordance with FASB ASC Topic 718. See Note 11 of the consolidated financial statements in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, for additional detail regarding assumptions underlying the valuation of equity awards. All values in the “Stock Awards” column were based upon the probable outcome of performance conditions as of the grant date, which vary year to year.

For purposes of comparison, the supplemental table below shows the total target grant values approved by the Compensation Committee:
Name
2016 Total Equity
2017 Total Equity
2018 Total Equity
Mr. Ricks
N/A
$8,500,000
$9,000,000
Mr. Smiley
N/A
N/A
$2,300,000
Mr. Harrington
$2,300,000
$2,300,000
$2,550,000
Mr. Conterno
$2,200,000
$2,500,000
$2,600,000
Dr. Skovronsky
N/A
N/A
$2,300,000
Mr. Simmons
N/A
N/A
$1,200,000

For Mr. Simmons, in addition to the Lilly grant values shown above, the “Stock Awards” column also includes a founders’ award for Elanco restricted stock units for Mr. Simmons. This award was granted after the Elanco IPO on October 20, 2018, and it will vest on October 20, 2021. The grant date fair value was $1,119,454 for Mr. Simmons.


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The table below shows the minimum, target, and maximum payouts (using the grant date fair value) for the 2018-2019 performance award and the 2018-2020 performance award included in the Summary Compensation Table.
Name
Payout Date
Minimum Payout
Target Payout
Maximum Payout
Mr. Ricks
January 2021
$0
$3,600,000
$5,400,000
Mr. Smiley
January 2021
$0
$920,000
$1,380,000
Mr. Harrington
January 2021
$0
$1,020,000
$1,530,000
Mr. Conterno
January 2021
$0
$1,040,000
$1,560,000
Dr. Skovronsky
January 2021
$0
$1,150,000
$1,725,000
Mr. Simmons
January 2021
$0
$480,000
$720,000

The table below shows the minimum, target, and maximum payouts (using the grant date fair value) for the 2018-2020 shareholder value award in the Summary Compensation Table. As described above in the “Performance Goals for 2018 Incentive Programs” section, since Dr. Skovronsky was not an executive officer at the time of the annual grant, his maximum payout is 150 percent, while the other named executive officers’ maximum payouts are 180 percent.

Name
Payout Date
Minimum Payout
Target Payout
Maximum Payout
Mr. Ricks
January 2021
$0
$5,400,000
$9,720,000
Mr. Smiley
January 2021
$0
$1,380,000
$2,484,000
Mr. Harrington
January 2021
$0
$1,530,000
$2,754,000
Mr. Conterno
January 2021
$0
$1,560,000
$2,808,000
Dr. Skovronsky
January 2021
$0
$1,150,000
$1,725,000
Mr. Simmons
January 2021
$0
$720,000
$1,296,000

2 Following Elanco's initial public offering, Elanco leadership received founders' awards. Mr. Simmons received Elanco stock options, which are Elanco nonqualified stock options with a three-year vesting period followed by a seven-year exercise period.

3 Payments under the Lilly bonus plan or, with respect to Mr. Simmons, the Elanco bonus plan, for performance in the years represented.

4 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 2018 were driven to a large extent by a higher discount rate which decreased the net present value of pensions. The design of the pension benefit plan did not change. See the Pension Benefits in 2018 table below for information about the standard actuarial assumptions used. No named executive officer received preferential or above-market earnings on deferred compensation. In 2018, the net present value of the pension benefits for Mr. Conterno and Mr. Simmons reflect no change from the previous year due to an increase in the discount rate over the prior year. For the other named executive officers, increases in pensionable earnings offset the impact of the 2018 increased discount rate.
 
5 The amounts in this column are company matching contributions into each individual's 401(k) and nonqualified savings plan contributions. The company does not reimburse executives for taxes outside of the limited circumstance of taxes related to employee relocation or a prior international assignment. There were no reportable perquisites or personal benefits.

Grants of Plan-Based Awards During 2018
The compensation plans under which the grants in the following table were made are described in the CD&A above and consist of the Lilly and Elanco bonus plans (each, a non-equity incentive plan), the Amended and Restated 2002 Lilly Stock Plan (which provides for performance awards, shareholder value awards, and restricted stock units), and the 2018 Elanco Stock Plan.

To receive a payout under the performance award or the shareholder value award, a participant must remain employed with the company through the end of the relevant award period (except in the case of death, disability, retirement, or plant closing or reduction in workforce). No dividends accrue on either performance awards or shareholder value awards during the performance period. For performance awards, non-preferential dividends accrue during the 13-month service-vesting period (following the two-year performance period) and are paid upon vesting.



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Name
Award
 
Grant Date2
Compensation Committee Action Date
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards
1
Estimated Possible and Future
Payouts Under Equity
Incentive Plan Awards
All Other
Stock or Option Awards:
Number of
Shares of Stock,
Options, or Units
Exercise or Base Price of Option Awards
Grant Date
Fair Value
of Equity
Awards
Threshold
($)
Target
($)
Maximum
($)
Threshold
(# shares)
Target
(# shares)
Maximum
(# shares)
Mr.
Ricks
 
 
__ 
__ 
$525,000
$2,100,000
$4,200,000
 
 
 
 
 
 
 
2018-2020 PA
3 
2/9/2018
12/11/2017
 
 
 
25,129
50,258
75,387
 
 
$5,184,000
 
2018-2020 SVA
4 
2/9/2018
12/11/2017
 
 
 
52,414
131,036
235,865
 
 
$5,400,000
 
 
 
 
 
 
 
 
 
 
 
0
 
 
Mr.
Smiley
 
 
__ 
__