ELI LILLY & Co PRE 14A, filed Feb 24, 2023

ELI LILLY & Co (LLY)

PRE 14A 2023-02-24

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x						Preliminary Proxy Statement
o						Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o						Definitive Proxy Statement
o						Definitive Additional Materials
o						Soliciting Material Pursuant to §240.14a-12


Notice of 2023 Annual Meeting of Shareholders		1
Proxy Statement Summary		2
Governance		10
	Director Qualifications	1 0
	Director Nominations	2 6
	Item 1 - Election of Directors	28
	Working Dynamics	28
	Board Structure	30
	Governance Practices	33
	Board Alignment	41
	Communication with the Board of Directors	46
	Shareholder Engagement on Governance Issues	46
Ownership of Company Stock		48
Compensation		49
	Item 2 - Approval, on an Advisory Basis, of the Compensation Paid to the Company’s Named Executive Officers	49
	Talent and Compensation Committee Matters	49
	Compensation Discussion and Analysis	51
	Executive Compensation	70
	CEO Pay Ratio	79
	Pay versus Performance	80
	Item 3 - Advisory Vote on Frequency of Future Advisory Votes on Named Executive Officer Compensation	84
Audit Matters		85
	Item 4 - Ratification of the Appointment of the Independent Auditor	84
Management Proposals		87
	Item 5 - Proposal to Amend the Company’s Articles of Incorporation to Eliminate the Classified Board Structure	87
	Item 6 - Proposal to Amend the Company’s Articles of Incorporation to Eliminate Supermajority Voting Provisions	88
Shareholder Proposals		89
	Item 7 - Proposal to Publish an Annual Report Disclosing Lobbying Activities	89


	Item 8 - Proposal to Eliminate Supermajority Voting Requirements	92
	Item 9 - Proposal to Establish and Report on a Process by which the Impact of Extended Patent Exclusivities on Product Access Would be Considered in Deciding Whether to Apply for Secondary and Tertiary Patents	94
	Item 10 - Proposal to Report on Risks of Supporting Abortion	97
	Item 11 - Proposal to Disclose Lobbying Activities and Alignment with Public Policy Positions and Statements	99
	Item 12 - Proposal to Report on Effectiveness of the Company’s Diversity, Equity, and Inclusion Efforts	102
	Item 13 - Proposal to Adopt a Policy to Require Certain Third-Party Organizations to Annually Report Expenditures for Political Activities before Lilly Contributes to an Organization	104
Other Information		107
	Meeting and Voting Logistics	107
	Other Matters	111
Appendix A - Summary of Adjustments Related to the Annual Cash Bonus and Performance Award		A-1
Appendix B - Proposed Amendments to the Company’s Articles of Incorporation		B-1

	Frequently Referenced Topics


Board Diversity		11
Board Skills Matrix		12
Board and Committee Oversight of:
ESG		33
Cybersecurity		36
Human Capital Management		33
Political Activities		36
Lead Independent Director Duties		28
Share Ownership and Retention Guidelines		68
Compensation Recovery Policy (Clawback)		69
Hedging and Pledging Restrictions		69
Transactions with Related Persons		41


ITEMS OF BUSINESS
Item 1			Election of each of the four director nominees to serve three-year terms
Item 2			Approval, on an advisory basis, of the compensation paid to the company’s named executive officers
Item 3			Advisory vote on frequency of future advisory votes on named executive officer compensation
Item 4			Ratification of the appointment of Ernst & Young LLP as the independent auditor for 2023
Item 5			Approval of amendments to the company’s articles of incorporation to eliminate the classified board structure
Item 6			Approval of amendments to the company’s articles of incorporation to eliminate supermajority voting provisions
Item 7			Shareholder proposal to publish an annual report disclosing lobbying activities
Item 8			Shareholder proposal to eliminate supermajority voting requirements
Item 9			Shareholder proposal to establish and report on a process by which the impact of extended patent exclusivities on product access would be considered in deciding whether to apply for secondary and tertiary patents
Item 10			Shareholder proposal to report on risks of supporting abortion
Item 11			Shareholder proposal to disclose lobbying activities and alignment with public policy positions and statements
Item 12			Shareholder proposal to report on effectiveness of the company’s diversity, equity, and inclusion efforts
Item 13			Shareholder proposal to adopt a policy to require certain third-party organizations to annually report expenditures for political activities before Lilly contributes to an organization


ADMISSION									WHEN 8:30 a.m. EDT Monday, May 1, 2023
The 2023 annual meeting of shareholders (the Annual Meeting) of Eli Lilly and Company will be held virtually via live webcast. The webcast is designed to provide shareholders the opportunity to participate virtually to facilitate shareholder attendance and to provide a consistent experience to all shareholders, regardless of location. You will be able to attend the Annual Meeting, vote, and submit questions virtually via live webcast by visiting virtualshareholdersmeeting.com/LLY2023. To be admitted to the Annual Meeting webcast, you must enter the 16-digit control number found on the proxy card, voting instruction form, or notice you received. For further information on Annual Meeting logistics, see the section titled “O ther Information —Meeting and Voting Logistics.” This proxy statement is dated March 17, 2023. We mailed a notice of internet availability of proxy materials on or about that date to our shareholders of record as of February 21, 2023 (other than those who previously requested electronic or paper delivery of our proxy materials and certain participants in The Lilly Employee 401(k) plan (401(k) Plan)).
									WHERE Virtually at www.virtualshareholder meeting.com/LLY2023
									RECORD DATE February 21, 2023
YOUR VOTE IS IMPORTANT
Every shareholder vote is important. Even if you plan to attend the Annual Meeting, we encourage you to vote promptly online, by telephone, or, if you received or requested paper copies of your proxy materials, by signing, dating, and returning your proxy card or voting instruction form by mail, so that a quorum may be represented at the meeting.


ELI LILLY AND COMPANY
(Name of Registrant as Specified In Its Charter)


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


Dear Fellow Shareholders, Thank you for your continued support of, and investment in, Eli Lilly and Company. We are proud of Lilly’s achievements in 2022. We made several key regulatory and pipeline advancements with the potential to help people with diabetes, immune disorders, neurodegenerative conditions, and cancer. In particular, we introduced an important new type 2 diabetes treatment and added new indications to currently marketed products. And finally, we worked hard to deliver value to you, our shareholders. We delivered strong total shareholder returns through December 31, 2022, in terms of both total share price appreciation and dividends. We also strengthened our initiatives in support of patients and communities, including collaborating to enhance sustainable access to affordable insulin in Africa, expanding our use of solar energy at global facilities, and partnering with UNICEF to help improve health outcomes for 10 million children and adolescents. Our board continues to prioritize meaningful engagement with our shareholders and other key stakeholders. Since our 2022 annual meeting, we have spoken with a number of investors on an array of subjects, including: drug pricing transparency and global access to our products; product quality and safety; key enterprise risks and environmental, social and governance topics. We appreciate the thoughtful and constructive feedback that we receive from our stakeholders. As a result of this input, and as in past years, the board is putting forward management proposals at the 2023 annual meeting of shareholders (the Annual Meeting) to eliminate the classified board structure and supermajority voting requirements in our articles of incorporation.
We remain committed to serving you and making life better for millions of people around the world. We look forward to welcoming you to the Annual Meeting.


IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD MAY 1, 2023: The annual report to shareholders and proxy statement are available at ProxyVote.com as well as on our website at lilly.com/policies-reports/annual-report.


	Operating Performance
$28.5 billion in 2022 revenue		$6.90 earnings per share (EPS) in 2022 on a reported basis, up from $6.12 in 2021	$7.94 EPS on a non-GAAP basis in 2022
Reported results were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. A reconciliation of EPS on a reported basis to EPS on a non-GAAP basis is included in Appendix A.


Name	Age	Director Since	Other Public Boards	Principal Occupation		Committee Membership
William G. Kaelin, Jr., M.D. Independent Director	65	2012	0	Sidney Farber professor of Medicine, Harvard Medical School; Professor, Dana-Farber Cancer Institute and Brigham and Women’s Hospital; Investigator, Howard Hughes Medical Institute	Science & Technology Directors & Corporate Governance
David A. Ricks Chair of the Board	55	2017	1	Chair, President and Chief Executive Officer, Eli Lilly and Company	None
Marschall S. Runge, M.D., Ph.D. Independent Director	68	2013	0	CEO, Michigan Medicine, Executive Vice President for Medical Affairs and Dean, Medical School, University of Michigan	Ethics & Compliance Science & Technology
Karen Walker Independent Director	61	2018	1	Operating Partner, The Goldman Sachs Group, Inc.	Talent and Compensation Audit


•Lead Independent Director: We have a strong lead independent director empowered with clearly defined responsibilities. •Independent Committees: All standing board committees are composed solely of independent directors and led by independent committee chairs. •Executive Sessions: Our board holds executive sessions of the independent directors that are presided over by the lead independent director at every regular board meeting. •Access to Management & Advisors: Our independent directors actively engage in board meetings, have direct access to management, and, along with our board committees, have discretion to hire independent advisors at the company’s expense. •Conflict of Interest Management: Our conflict of interest policy requires disclosures of potential conflicts to Lilly and clarifies when Lilly board service must be disclosed to others. •CEO Selection and Compensation: Our independent directors lead the board’s process for selecting the CEO. Our Talent and Compensation Committee (and, in the case of our CEO,			Information as of the date of this proxy statement.


in consultation with other independent directors and our external compensation consultant) establishes the compensation for our CEO and other executive officers.
•Refreshment: We are committed to maintaining an active and insightful board and seek to balance continuity of experience with fresh perspectives.
•Robust Annual Assessment: Our board conducts a robust annual assessment of its performance led by the lead independent director, including an annual assessment of each director. These assessments help provide the board with valuable perspectives to drive effectiveness and leadership.


•Bonus Plan Result: In 2022, the company exceeded its annual cash bonus target for revenue and nearly achieved its target for EPS. We also made significant pipeline advances. For purposes of the bonus, the Talent and Compensation Committee adjusted revenue and adjusted non-GAAP EPS to exclude estimated savings from certain discrete and unplanned performance items. See the CD&A for further discussion of the Eli Lilly and Company Bonus Plan (Bonus Plan).			1.20 Bonus Plan Multiple
•2021-2023 Performance Award (PA) Result: We exceeded the two-year EPS growth target set for our PA program. The PA target is based on expected EPS growth of peer companies over a two-year period. As a result of exceeding the EPS growth target set for our PA program, the PA payout was above target. See the CD&A for further discussion on the PA program.			140% 2021-2023 PA Payout
•2020-2022 Shareholder Value Award (SVA) Result: Our total stock price growth exceeded the target range in our SVA program, which is based on expected large-cap company returns over a three-year period. This performance resulted in a SVA payout above target. See the CD&A for further discussion on the SVA program.			175% 2020-2022 SVA Payout
•2020-2022 Relative Value Award (RVA) Result: The RVA measures Lilly’s relative total shareholder return (TSR) against its peers. Lilly’s TSR performance exceeded the peer median TSR for the 2020-2022 performance period resulting in a payout above target. See the CD&A for further discussion on the RVA program.			175% 2020-2022 RVA Payout



ONLINE	BY TELEPHONE	BY MAIL	AT THE MEETING
Visit the website listed on your notice, proxy card, or voting instruction form	Call 1-800-690-6903 and follow the instructions provided	If you received or requested paper copies of your proxy materials, sign, date, and return your proxy card or voting instruction form	Attend the Annual Meeting, online by live webcast at virtualshareholdermeeting.com/LLY2023 on Monday, May 1, 2023, at 8:30 a.m. EDT


Diversity: The board strives to achieve diversity in the broadest sense, including persons diverse in geography, gender, ethnicity, age, and experience. 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 current 13 directors range in age from 50 to 72 and include five women and six minority group members (MGM).


7.8 Years Average Director Tenure						Tenure: 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. Mr. Tai, who joined the board in 2013, will retire from the board following the Annual Meeting.


Our directors are elected by the company’s shareholders to oversee the actions and results of the company’s management. The Directors and Corporate Governance Committee, together with our lead independent director, regularly assesses the effectiveness of the board to ensure that directors reflect the skill sets, experiences, diverse viewpoints and characteristics necessary to lead our complex and evolving business. Execution of our robust assessment and refreshment process, guided by key governance guidelines, has resulted in a mix of directors that balance experienced institutional knowledge and fresh perspectives, and reflect a broad range of backgrounds and viewpoints.


			In making its independence determinations, the board considered that Ms. Walker is affiliated with the Goldman Sachs Group, which the company may use for advisory, investment banking or similar services from time to time. In addition, the board considered that some of the current non-employee directors are affiliated with companies or entities to which the company sold products or made payments, or from which the company purchased products or services during the year. Drs. Baicker, Kaelin, Hedley, and Runge are employed at medical or academic institutions with which the company engages in clinical research,


2023 Nominees

William G. Kaelin, Jr., M.D. Independent Director	David A. Ricks Chair of the Board	Marschall S. Runge, M.D., Ph.D. Independent Director	Karen Walker Independent Director


We believe that high board effectiveness promotes the long-term interests of our shareholders, strengthens the accountability of the board of directors and management, and improves our standing as a trusted member of the communities we serve. In addition to having the right mix of directors, there are many factors involved in operating an effective board.


			Lead Independent Director Responsibilities and Characteristics


Members: •Mr. Alvarez* •Mr. Jackson* (Chair) •Ms. Sulzberger* •Mr. Tai* •Ms. Walker * Financial Experts Meetings in 2022: 6			Key responsibilities and areas of risk oversight: •oversees integrity of financial information provided to our shareholders and others •oversees management’s systems of internal controls and disclosure controls •oversees performance of internal and independent audit functions •establishes qualifications and determines independence of the company’s independent auditor •has sole authority to appoint or replace the independent auditor •oversees compliance with legal and regulatory requirements •oversees processes and procedures related to identifying and mitigating enterprise-level risks •oversees the company’s programs, policies, procedures, and risk management activities related to information security and data protection •together with the ethics and compliance committee, oversees the company’s compliance with the company’s code of ethics


Members: •Mr. Alvarez (Chair) •Mr. Fyrwald •Ms. Johnson •Mr. Luciano •Ms. Walker Meetings in 2022: 7			Key responsibilities and areas of risk oversight: •establishes the compensation of CEO (in consultation with independent directors and external compensation consultant) and other executive officers •oversees global compensation philosophy and human management capital efforts, including DEI efforts •has authority to appoint or replace the compensation consultant •acts as the oversight committee with respect to the company’s deferred compensation plans, management stock plans, and other management incentive and benefit programs •reviews succession plans for the CEO and other key senior leadership positions, including a broad review of our succession management •advises our management and the board regarding other human capital management, DEI efforts, and employee compensation and benefits matters •reviews, monitors, and oversees stock ownership guidelines for executive officers •oversees the company’s executive compensation recovery policy •oversees the company’s engagement with shareholders regarding executive compensation matters, including reviewing and evaluating the results of advisory votes on executive compensation


Members: •Dr. Kaelin •Mr. Luciano (Chair) •Ms. Sulzberger •Mr. Tai Meetings in 2022: 7			Key responsibilities and areas of risk oversight: •reviews and recommends to the board the size and composition of the board and its committees •leads the process for director recruitment, together with the lead independent director •reviews recommendations for nominees for the board of directors •oversees matters of corporate governance, including board performance, non-employee director independence and compensation, corporate governance guidelines, and shareholder engagement on governance matters •identifies and brings to the attention of the board as appropriate current and emerging environmental, social, political, and governance trends and public policy issues that may affect the business operations, performance, or reputation of the company •annually assesses the performance of the board, board committees and board processes, and reviews such findings with the board


Members: •Dr. Baicker (Chair) •Dr. Hedley •Mr. Jackson •Ms. Johnson •Dr. Runge Meetings in 2022: 4			Key responsibilities and areas of risk oversight: •reviews, identifies and, when appropriate, brings to the attention of the board legal and regulatory trends and issues, and compliance and quality matters that may have an impact on the business operations, financial performance, or reputation of the company •reviews, monitors, and makes recommendations to the board on corporate policies and practices related to compliance, including those related to employee health and safety •together with the audit committee, assists the board in its oversight of legal and regulatory compliance and oversees the company’s compliance with its code of ethics


Members: •Dr. Baicker •Mr. Fyrwald •Dr. Hedley •Dr. Kaelin (Chair) •Dr. Runge Meetings in 2022: 7			Key responsibilities and areas of risk oversight: •reviews and advises the board regarding the company’s long-term strategic goals and objectives and the quality and direction of the company’s research and development programs •reviews and advises the board and management on the company’s major technology positions and strategies relative to emerging technologies, emerging concepts of therapy and health care, and changing market requirements •monitors and evaluates developments, technologies, and trends in pharmaceutical research and development •regularly reviews the company’s product pipeline •assists the board with its oversight responsibility for enterprise risk management in areas affecting the company’s research and development


5	3	5	6
Women	MGMs	Women	MGMs
out of 15 current executive committee members	out of 15 current executive committee members	out of 13 current directors on our board	out of 13 current directors on our board


We are also committed to ensuring pay is administered equitably across our workforce. For more than 20 years, we have regularly conducted pay equity studies of our workforce in the United States and have more recently started conducting studies of our workforce outside of the United States. While minimal, we have made pay adjustments as warranted based on these analyses. We believe that pay equity is critical to our success in supporting a global, diverse, and inclusive workforce.						20
						Years
						of pay equity studies in the U.S.


62% Board Service Compensation linked to the long-term performance of Lilly stock			5x Annual Board Retainer share ownership requirement for non-employee directors			CAP on total annual compensation for non-employee directors


Compensation Element	Payment or Value		Changes for 20232
Board Service1
Annual board retainer	$110,000		$110,000
Annual equity grant3	$180,000 in deferred stock units		$200,000 in deferred stock units
Lead independent director	$35,000		$40,000
Committee Service1
Annual Committee Retainer2	Chair	Member	Chair	Member
Audit Committee	$22,000	$6,000	$26,000	$6,000
Science and Technology Committee	$18,000	$6,000	$18,000	$6,000
Talent and Compensation Committee	$17,000	$3,000	$17,000	$3,000
Ethics and Compliance Committee	$17,000	$3,000	$17,000	$3,000
Directors and Corporate Governance Committee	$17,000	$3,000	$17,000	$3,000
Total Compensation Value Cap of $800,0004


Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)1	All Other Compensation and Payments ($)2	Total ($)3
Mr. Alvarez	$136,000	$180,000	$0	$316,000
Dr. Baicker	$136,000	$180,000	$0	$316,000
Mr. Fyrwald	$119,000	$180,000	$24,882	$323,882
Dr. Hedley	$74,855	$120,000	$0	$194,855
Mr. Jackson	$141,000	$180,000	$0	$321,000
Ms. Johnson	$116,000	$180,000	$0	$296,000
Dr. Kaelin	$137,000	$180,000	$9,500	$326,500
Mr. Luciano	$162,288	$180,000	$0	$342,288
Dr. Runge	$119,000	$180,000	$0	$299,000
Ms. Sulzberger	$119,000	$180,000	$0	$299,000
Mr. Tai	$119,000	$180,000	$30,000	$329,000
Ms. Walker	$119,000	$180,000	$20,000	$319,000

Former Director:
Mr. Eskew4	$46,065	$75,000	$27,500	$148,565


	Common Stock1
Beneficial Owners	Shares Owned2	Stock Units Distributable Within 60 Days3	Percent of Class	Stock Units Not Distributable Within 60 Days4
Ralph Alvarez	—	—	*	52,772
Anat Ashkenazi	38,305	—	*	11,499
Katherine Baicker, Ph.D.	—	—	*	22,154
J. Erik Fyrwald	100	—	*	70,539
Anat Hakim	22,189	—	*	4,442
Mary Lynne Hedley	—	—	*	623
Jamere Jackson	—	—	*	8,392
Kimberly H. Johnson	—	—	*	2,010
Patrik Jonsson	43,417	—	*	4,124
William G. Kaelin, Jr., M.D.	—	—	*	20,525
Juan R. Luciano	—	—	*	14,783
David A. Ricks	644,144	—	*	29,611
Marschall S. Runge, M.D., Ph.D.	202	—	*	15,928
Daniel Skovronsky, M.D., Ph.D.	175,587	—	*	9,941
Gabrielle Sulzberger	—	—	*	1,614
Jackson P. Tai	47,592	—	*	15,864
Karen Walker	—	—	*	5,529
All directors and current executive officers as a group (27 people):	1,212,249	5,271	*	341,071


Name and Address		Number of Shares Beneficially Owned	Percent of Class*
Lilly Endowment Inc. (the Endowment) 2801 North Meridian Street Indianapolis, IN 46208	1	102,948,810	10.8%
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355	2	73,429,863	7.7%
BlackRock, Inc. 55 East 52nd Street New York, NY 10055	3	65,467,793	6.9%
The PNC Financial Services Group, Inc. 300 Fifth Avenue Pittsburgh, PA 15222	4	51,829,873	5.5%


Name and principal occupation
			David Ricks Chair, President, and CEO
			Anat Ashkenazi Executive Vice President and Chief Financial Officer
			Daniel Skovronsky, M.D., Ph.D. Executive Vice President, Chief Scientific and Medical Officer and President, Lilly Research Laboratories
			Anat Hakim Executive Vice President, General Counsel and Secretary
			Patrik Jonsson Executive Vice President and President, Lilly Immunology, Lilly USA and Chief Customer Officer


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


Name	2021 Annual Base Salary Effective March 7, 2021		2022 Annual Base Salary Effective March 6, 2022	Increase
Mr. Ricks	$1,500,000		$1,500,000	0	%
Ms. Ashkenazi	$900,000		$950,000	5.6	%
Dr. Skovronsky	$1,000,000		$1,250,000	25.0	%
Ms. Hakim	$775,000		$900,000	16.1	%
Mr. Jonsson	N/A	1	$750,000	N/A		1