Compensation Committee

The compensation committee shall establish the compensation of executive officers of the company and shall provide oversight of the company's global compensation philosophy. The committee shall also act as the governing committee with respect to the company's deferred compensation plans, management stock plans, and the company's bonus plans covering executive officers and other senior management.

Composition and Term
The committee shall consist of no fewer than three directors, all of whom must be independent as determined by the Board in accordance with its guidelines and applicable New York Stock Exchange listing requirements. Committee members shall also meet applicable independence requirements of Rule 16b-3 of the Securities Exchange Act of 1934 and the regulations under Section 162(m) of the Internal Revenue Code. No committee member shall be a former officer or employee of the company.

The committee members shall be appointed by the board for one-year terms, and shall serve such terms as the board may determine, or until their earlier resignation or death. The chairperson shall be designated by the board.

Administrative Matters
The committee shall meet at such times as it determines to be necessary or appropriate, but not less than twice each year. The committee shall meet in executive session at least once each year in connection with the assessment of the performance and compensation of the chief executive officer, and may meet in executive session at any other time it deems appropriate.

The committee shall report to the full board of directors at the next board meeting following each such committee meeting.

Supporting Corporate Staff
  Senior vice president responsible for human resources
  Global compensation and benefits
  Office of the corporate secretary

Duties and Responsibilities
The committee shall have the following duties and responsibilities:

1.                                Together with the other independent directors, review and approve corporate goals and objectives relevant to the compensation of the chief executive officer and evaluate the CEO's performance in light of those goals and objectives; then, based on that evaluation, exercise sole responsibility to determine the CEO's compensation level.

2.                                Establish the compensation of each other employee of the company who is an executive officer. The committee's responsibilities in connection with establishing the compensation of the CEO and other executive officers shall include:

o                                                        Reviewing and approving the company's statement of total compensation philosophy and strategy

o                                                        Approving the selection of peer companies to monitor the company's compensation competitiveness

o                                                        Approving any special benefits or perquisites provided to executive officers

o                                                        Approving any special employment, termination or retirement contracts, agreements or terms applicable to executive officers

o                                                        Approving any change-in-control provisions applicable to executive officers and other employees

3.                                Act as the governing committee with respect to the company's bonus plans covering senior management, the deferred compensation plans available to senior management, and the company's management stock plans (including selecting employees eligible to participate and the level of participation of each such employee and establishing the performance metrics for incentive plans). The committee may delegate authority with respect to these plans to members of senior management, except that no authority may be delegated with respect to (i) any element of the compensation of executive officers or (ii) the equity compensation of officers subject to Section 16(b) of the Securities Exchange Act of 1934.

4.                                Produce an annual committee report on executive compensation for the company's proxy statement in accordance with applicable rules and regulations.

5.                                Periodically review Lilly stock ownership of executive officers and, if appropriate, establish stock ownership and/or retention guidelines for executive officers.

6.                                Make recommendations to the Board with respect to incentive compensation plans, equity-based plans and other compensation matters coming before the Board or the shareholders.

7.                                Advise management on other employee compensation and benefits matters as requested by the chief executive officer or the senior vice president responsible for human resources.

8.                                Exercise sole authority to retain and terminate consulting firms to assist the committee in the evaluation of executive officer compensation, including sole authority to establish the relationship and roles and responsibilities and to approve the firm's fees and other retention terms.

9.                                Annually review and assess this charter and the performance of the committee.

The committee shall also undertake such additional activities within the scope of its primary functions as the committee may from time to time determine.