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TAG overview

Results

(This section is part of the Combined Management Report.)

Compensation philosophy

As the world’s oldest pharmaceutical and chemical company, we attach great importance to responsible governance and entrepreneurship. This is also reflected by the compensation of the members of the Executive Board of Merck KGaA, Darmstadt, Germany. Unlike management board members of stock corporations, they are not merely employed members of a corporate board. Rather, they are personally liable general partners of both Merck KGaA, Darmstadt, Germany, and the general partner E. Merck KG, Darmstadt, Germany, and in this capacity they receive profit sharing from E. Merck KG, Darmstadt, Germany. Owing to the legal form as a KGaA (corporation with general partners), the stipulations of the German Corporate Governance Code concerning the compensation of management board members of publicly listed German stock corporations as well as the individual disclosure thereof do not apply to the Executive Board members of Merck KGaA, Darmstadt, Germany. Nevertheless, we have decided to comply with the recommendations of the German Corporate Governance Code in the version dated February 7, 2017. The Compensation Report for the coming fiscal year and on the revised compensation system for the Executive Board will be based on the recommendations of the German Corporate Governance Code in the version dated December 16, 2019.

The compensation paid to the members of the Executive Board takes into account the responsibilities and duties of the individual Executive Board members, their status as personally liable partners, their individual performance, and the economic situation, as well as the performance and future prospects of the company. At the same time, the compensation should create a high long-term ambition for the members of the Executive Board while also protecting against disproportionality.

Furthermore, Executive Board compensation is oriented toward the external peer environment of Merck KGaA, Darmstadt, Germany, meaning in comparison with other German blue-chip (DAX®) companies as well as international competitors. The relationship between Executive Board compensation and the compensation of top management and the workforce as a whole continues to be taken into account, also in a multi-year assessment. The Personnel Committee regularly commissions an independent compensation consultant to review the appropriateness of the compensation.

The following principles are followed or taken into account when it comes to the specific structure of the compensation, the setting of individual compensation, the selection of the key performance indicators, and the structure of payout and allocation terms:

Regulatory requirements and principles of good corporate governance

The structure of the compensation system and the assessment of individual compensation are guided by the German Stock Corporation Act (AktG) and, with regard to compensation for 2020, by the German Corporate Governance Code in the version dated February 7, 2017, for the last time. The revised compensation system for the Executive Board of Merck KGaA, Darmstadt, Germany, will take into account the recommendations of the German Corporate Governance Code in the version dated December 16, 2019. Within the regulatory framework conditions, the objective is to offer the Executive Board members a competitive compensation package in line with market practice.

Long-term Group strategy

The execution of the long-term Group strategy is promoted through the selection of appropriate, ambitious key performance indicators for performance-related compensation. Against this background, our performance-related compensation components (profit sharing and Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany) are oriented toward the key performance indicators of the Group.

Long-term interests of our shareholders

The long-term interests of our shareholders are taken into account through a significantly high amount of variable, performance-related compensation as a proportion of total compensation as well as the compensation system’s strong focus on the share price. The performance of the Executive Board members should be properly recognized, with the failure to meet targets leading to a noticeable reduction in performance-related compensation (malus) or a potential reclaim (clawback).

In our company, unlike publicly listed German stock corporations, it is not the Supervisory Board, but the Board of Partners of E. Merck KG, Darmstadt, Germany, that decides on the amount and composition of compensation received by our Executive Board members. The Board of Partners has assigned this task to its Personnel Committee. The Personnel Committee is thus primarily responsible for the followings topics as they relate to our Executive Board and the compensation of its members:

  • Development and regular review of the compensation system
  • Structure and examination of the performance-independent and performance-related compensation elements
  • Contract terms of members of the Executive Board
  • Assumption of honorary offices, board positions, or other sideline activities
  • Distribution of responsibilities among Executive Board members
  • Granting of loans and salary advances

Our compensation system for the Executive Board was revised again in 2020 in view of another round of regulatory changes resulting from the entry into force of the German Act Implementing the Second Shareholder Rights Directive (ARUG II) and the German Corporate Governance Code reform. The revised compensation system is expected to be submitted to the Annual General Meeting for approval in 2021. All mentions of the German Corporate Governance Code in this Compensation Report refer to the version dated February 7, 2017.

Overview of the structure and the components of the compensation system

The compensation system for the Executive Board in the reporting year essentially comprises the three main components of fixed compensation, profit sharing, and the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany. It is complemented by contributions to the company pension plan as well as additional benefits. The components of the compensation system are as follows:

Compensation elements and compensation structure1

Compensation elements and compensation structure (Infographic)

1 Excluding additional benefits and company pension

Performance-independent compensation and additional benefits

Fixed compensation

The fixed compensation received by the members of the Executive Board comprises fixed and non-performance-related amounts that are paid in the form of 12 equivalent monthly installments.

Additional benefits

In addition, the members of the Executive Board receive non-performance-related additional benefits. These consist mainly of contributions to insurance policies, personal security expenses, and a company car, which they may use privately.

Performance-related compensation

Performance-related compensation comprises profit sharing as well as the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany. Both performance-related compensation components are based on multi-year steering parameters. The regulatory requirements of the German Stock Corporation Act and the German Corporate Governance Code are taken into account, and particular recognition is given for sustainable corporate development.

Profit sharing

Key performance indicator

 

Threeyear average of the profit after tax of the Group of E. Merck KG, Darmstadt, Germany

Cycle

 

Three years

Limit

 

Individual absolute capped amount

As part of profit sharing, at the end of a fiscal year the members of the Executive Board receive an individual per mille rate of the three-year average of profit after tax of the Group of E. Merck KG, Darmstadt, Germany. The current and the two preceding fiscal years are included in the calculation. The use of profit after tax as the key performance indicator, which also serves as the basis for dividend payments, ensures very close alignment with the shareholder interests. The amount of the individual per mille profit-sharing rates is staggered at intervals. Staggering means that achieving an average profit after tax of more than € 1 billion is more strongly incentivized than amounts below € 1 billion. Insofar as the average profit after tax is more than € 1.5 billion, however, the amount greater than € 1.5 billion is not taken into account when determining the profit-sharing payment. To appropriately take into account the individual performance of the Executive Board members, since fiscal year 2017 the Personnel Committee has been able to adjust the payment by applying a factor ranging from 0.7 to 1.3. The performance factor makes it possible to recognize superb performance of a member of the Executive Board by multiplying profit sharing by a value greater than 1.0 up to 1.3. Similarly, multiplying by a value less than 1.0 down to 0.7 can lower profit sharing if the case calls for it. The maximum profit-sharing payment is capped individually.

Profit sharing (Infographic)

Since fiscal year 2018, the Personnel Committee has resolved to define criteria applicable to the adjustment of profit sharing, for applying the factor in a range of between 0.7 and 1.3. Insofar as the adjustment increases or decreases the profit sharing of a member of the Executive Board, this is to be published in the Compensation Report.

Adjustment criteria for increasing profit sharing could include the following:

  • Extraordinary success in connection with M&A activities of the Group
  • Extraordinary success in the sustainable strategic, technical, product-related, or structural further development or reorganization of the Group
  • Extraordinary performance in the execution of especially important projects or the achievement of other exceptionally important objectives in the area of responsibility
  • Extraordinary performance leading to a clear over-achievement of targets for relevant key performance indicators in the area of responsibility
  • Extraordinary contributions to the aspirations and targets of the Group’s stakeholders (for example, employee satisfaction, customer satisfaction, Corporate Social Responsibility, implementation of diversity requirements)

Adjustment criteria for lowering profit sharing could include the following:

  • Violations of internal rules and guidelines (for example, our Code of Conduct), legislation, or other binding external requirements in the area of responsibility
  • Significant breaches of duty of care within the meaning of section 93 AktG, or other grossly non-compliant or unethical behavior
  • Behaviors or actions that are contradictory to our company values
  • Failure to implement particularly important projects or to reach other exceptionally important targets in the area of responsibility
  • Clear failure to achieve targets for relevant key performance indicators in the area of responsibility
Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany (LTIP)

Key Performance Indicators

 

  • Share price performance relative to the DAX® (50% weighting)
  • EBITDA pre margin (25% weighting)
  • Organic sales growth (25% weighting)

Cycle

 

Three years

Limit

 

Absolute capped amount totaling 250% of the individual grant

Reference price
(share price for conversion into numbers or for payment)

 

Average closing price of shares of Merck KGaA, Darmstadt, Germany, in Xetra® trading during the last 60 trading days prior to the beginning or the end of the performance cycle

The Long-Term Incentive Plan is based on a three-year future-oriented performance cycle. As part of the Long-Term Incentive Plan, the members of the Executive Board are eligible to receive a certain number of virtual shares – Share Units of Merck KGaA, Darmstadt, Germany (MSUs). The number of MSUs is calculated as follows:

At the beginning of the performance cycle, the Personnel Committee defines an individual grant in euros for each Executive Board member. This grant is then divided by the definitive reference share price at the beginning of the performance cycle, resulting in the number of MSUs they could be eligible to receive. The final number of MSUs that are actually allocated to the Executive Board members after the performance cycle has expired depends on the development of three weighted key performance indicators over the three-year performance cycle:

  • a) the performance of the share price of Merck KGaA, Darmstadt, Germany, compared with the performance of the DAX® with a weighting of 50%
  • b) the EBITDA pre margin, as a proportion of a defined target value with a weighting of 25%
  • c) the organic sales growth of the Group as a proportion of a defined target value with a weighting of 25%
Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany (LTIP) (Infographic)

The Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, thus links two key performance indicators derived from the strategy with an external, relative key performance indicator. In light of our diversified business, the comparison of the share price performance of of Merck KGaA, Darmstadt, Germany, with the DAX® as an external, relative key performance indicator is more suitable than a comparison with an individual industry-specific index, as well as being more independent than a comparison with a defined peer group of companies. On the one hand, the performance indicators create an incentive to achieve strategic objectives. On the other hand, the strong share price orientation takes into account the company’s long-term development prospects and the expectations of our shareholders. To prevent distortions as a result of exceptional factors as well as to directly reflect the performance of the Executive Board members, the EBITDA pre margin is used.

Depending on the performance of the key performance indicators, after the three-year performance cycle, between 0% and 150% of the provisionally promised MSUs are finally allocated. The value of these MSUs is paid out to the Executive Board in the year after the three-year performance cycle has ended. For this, the final allocated number of MSUs is multiplied by the definitive reference share price at the end of the performance cycle. The maximum increase in the share price is limited to 200% of the reference price at the beginning of the performance cycle, thus limiting participation in external effects that contribute to share price increases. Apart from setting a limit on the final number of allocated MSUs and on the applicable share price increase, the overall Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, payment is limited to 250% of the individual grant. If targets are clearly missed, it is also possible that absolutely no payment is made from the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany (0%).

Clawback provision

Through their status as personally liable general partners of Merck KGaA, Darmstadt, Germany, and E. Merck KG, Darmstadt, Germany, the Executive Board members bear a unique entrepreneurial responsibility. This is also reflected by the penalty criteria set forth in profit sharing and by the German statutory regulations on liability for damages stipulated in section 93 AktG.

In order to take even greater account of the prominent position of entrepreneurial responsibility in compensation, a clawback provision was included in the Long-Term Incentive Plan, effective January 1, 2018, allowing amounts allocated from the Long-Term Incentive Plan but not yet paid out to be retained. Cases in which the clawback provision may be applied include violations of internal rules and regulations (our Code of Conduct), legislation, other binding external requirements in the area of responsibility, significant breaches of duty of care within the meaning of section 93 AktG, and other grossly non-compliant or unethical behavior or actions that are contradictory to our company values.

To further increase the transparency of the Executive Board compensation system, the performance corridor for the key performance indicators used in the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, will subsequently be disclosed. However, the company will continue to refrain from publishing this performance corridor in advance as this could permit market-related and competitively relevant conclusions to be drawn about strategic objectives.

Share Ownership Guideline

A Share Ownership Guideline was introduced in 2017. This obligates the Executive Board members, for the duration of their employment relationship, to permanently hold shares of Merck KGaA, Darmstadt, Germany, in an amount equal to 100% of their annual gross fixed compensation. Owing to his position as Chairman of the Executive Board, Stefan Oschmann is obligated to hold a higher amount, that is at least 200% of his annual gross fixed compensation, in shares of Merck KGaA, Darmstadt, Germany. The duty to provide evidence of the complete number of shares must be met no later than on expiration of four years after having joined the Executive Board or after the introduction of the rule. The Share Ownership Guideline promotes even stronger alignment between the interests of the Executive Board members and those of our shareholders, and it additionally raises the entrepreneurial responsibility of the Executive Board members. Moreover, the introduction of the Share Ownership Guideline takes into account the widespread practice of share ownership among management and executive board members in international peer comparisons.

Outlook at the compensation system from 2021

The compensation system of the Executive Board has been revised effective January 1, 2021, and at the same time been integrated into the Agreements with the Executive Board members. The revised compensation system aims to create a high long-term ambition for the members of the Executive Board and at the same time to protecting against disproportionality. It will be presented to the Annual General Meeting on April 23, 2021 and will be subject to a “Say on Pay” on the Annual General Meeting 2021. The adjustments of the compensation system of the Executive Board include the following compensation components:

Profit sharing

  • Reduction of modifier range: In the future, the range of the modifier will be reduced to 0.8 – 1.2 (up to and including 2020, the range was 0.7 – 1.3).
  • Introduction of a threshold value and recalibration of the individual profit-sharing rates: A threshold value will be implemented for participating in the three-year average of the profit after tax of the Group of E. Merck KG, Darmstadt, Germany. If the three-year average of the profit after tax of the Group of E. Merck KG, Darmstadt, Germany, is below this threshold, no payment will be made.
  • Introduction of a mandatory personal investment as part of the new Share Ownership Guideline: In the future, the members of the Executive Board of Merck KGaA, Darmstadt, Germany, will be obliged to invest one-third of the profit-sharing payment (net) in shares of Merck KGaA, Darmstadt, Germany, and to hold these shares for at least four years. Consequently, the revised compensation system will comply with the German Corporate Governance Code on share-based variable compensation (G. 10) in the revised version dated December 16, 2019. The previous Share Ownership Guideline will be replaced by this new regulation.

Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany (LTIP)

  • Extension to a period of four years by introducing an additional one-year holding period: As before, target achievement will be determined after a three-year target achievement cycle. In addition, a one-year holding period will be added at the end of this target achievement cycle. This means that the LTIP is linked to the absolute share price performance of our shares for a performance cycle of four years in total. This ensures compliance with G. 10 of the German Corporate Governance Code in the revised version dated December 16, 2019, while also maintaining a uniform target achievement cycle for the LTIP for the members of the Executive Board and the other executives eligible to participate in the LTIP. Furthermore, the additional one-year holding period establishes an emphasized incentive regarding a sustainable increase of the share price of Merck KGaA, Darmstadt, Germany, in the long term.

Link to sustainability strategy

From 2021 onward, our sustainability strategy will also be integrated into the compensation system for the Executive Board. The following steps are planned:

Fiscal year 2021

The sustainability strategy of Merck KGaA, Darmstadt, Germany, will be integrated into the compensation system for the Executive Board via the modifier. The modifier, which will have a range of 0.8 – 1.2 in the future, also takes particular account of the ambitious sustainability targets developed for the Group in fiscal year 2020, which are geared toward non-financial performance criteria:

  • Human Progress
  • Sustainable value chains
  • Reduction of our ecological Footprint

Fiscal year 2022

It is intended to integrate the sustainability strategy into the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, from 2022 onward. The necessary concepts and performance indicators will be successively developed in fiscal year 2021. The integration of the sustainability strategy into the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, will be based on the Group-wide sustainability targets and is intended to generate a corresponding incentive to achieve these goals.

Overall compensation limit

Compensation is capped with respect to its performance-related compensation elements of profit sharing and the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, as well as having an overall cap. The maximum limits are presented in the following table.

Overall compensation limit

€ thousand

 

Fixed compensation

 

Maximum profit-sharing limit

 

Maximum limit for Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany

 

Maximum limit for overall compensation1

Member of the Executive Board

 

 

 

 

 

 

 

 

Stefan Oschmann

 

1,400

 

4,810

 

5,638

 

9,800

Udit Batra (left on: July 13, 2020)

 

1,100

 

3,640

 

4,263

 

8,000

Kai Beckmann

 

1,100

 

3,120

 

3,825

 

8,000

Belén Garijo

 

1,200

 

3,900

 

4,925

 

8,000

Marcus Kuhnert

 

1,000

 

3,120

 

3,300

 

8,000

1

Excluding additional benefits and company pension.

Pension entitlements

Effective January 1, 2017, for the Executive Board members Kai Beckmann, Belén Garijo and Marcus Kuhnert, the individual contractual pension agreements were changed from defined benefit to defined contribution pension obligations, maintaining the direct commitment modality1. A defined contribution pension agreement was also in place with Udit Batra. Within the scope of these defined contribution pension obligations, every year an amount of € 400,000 respectively € 450,000 is paid into a benefit account and interest is paid on this at standard market interest rates. Once the respective Executive Board members reach the contractually agreed age limit and are no longer employed by E. Merck KG, Darmstadt, Germany, the amount in the benefit account is paid out either in ten annual installments or as a one-time payment. The balance in the benefit account is disbursed as a one-time payment, possibly topped up by additional contributions (maximally ten contributions, up to the age of 60) in the event of permanent disability, or in the event of death to surviving dependents. The vested amount from the former defined benefit pension agreement was credited to the benefit account when the changeover took place.

There is a defined benefit pension obligation for Stefan Oschmann. The old-age pension is determined in accordance with a certain percentage of pensionable compensation. The percentages can be found in the table below. The individual contractual pension obligation grants Stefan Oschmann an entitlement to a lifelong old-age pension or surviving dependents’ pension in the event of reaching the individual contractually agreed age limit, permanent disability, or death. As an alternative to an old-age pension, the promised pension may be paid out as a one-time amount calculated on the basis of actuarial principles once the age limit stipulated in the relevant contract has been reached.

Moreover, surviving dependents receive a surviving dependents’ pension. For his spouse, this amounts to 60% of the pension entitlement. Dependent children are entitled to either a half-orphan’s or an orphan’s pension maximally until the age of 25.

The contribution amounts or pensionable compensation and the percentage obligation as well as the pension provisions and service costs, are listed in the following tables:

Defined contribution obligations

 

 

 

 

IFRS

 

 

Contribution level

 

Service cost of pension obligations earned in the current year

 

Present value of the defined contribution pension obligation as of Dec.

€ thousand

 

 

 

2019

 

2020

 

2019

 

2020

Member of the Executive Board

 

 

 

 

 

 

 

 

 

 

Udit Batra (left on: July 13, 2020)

 

400

 

393

 

147

 

1,406

 

1,532

Kai Beckmann

 

400

 

392

 

392

 

4,867

 

5,325

Belén Garijo

 

450

 

391

 

440

 

5,119

 

5,649

Marcus Kuhnert

 

400

 

414

 

409

 

3,419

 

3,860

Total

 

1,650

 

1,590

 

1,388

 

14,811

 

16,366

Defined benefit obligation

 

 

 

 

 

 

IFRS

 

 

Pensionable compensation

 

Percentage entitlement

 

Service cost of pension obligations earned in the current year

 

Present value of the defined contribution pension obligation as of Dec.

€ thousand

 

 

 

 

 

2019

 

2020

 

2019

 

2020

Member of the Executive Board

 

 

 

 

 

 

 

 

 

 

 

 

Stefan Oschmann1

 

800

 

68

 

1,372

 

1,611

 

14,524

 

17,344

1

The percentage entitlement increases until retirement by two percentage points per year of service up to 70%.

Benefits in the event of termination of duties as an Executive Board member

In the event of the early termination of the employment relationship, without notice for good cause, the employment contracts of the Executive Board members stipulate a cap on severance pay in accordance with the recommendations of the German Corporate Governance Code in the version dated February 17, 2017. Pursuant to this, payments in connection with the termination of an Executive Board member’s duties shall not exceed twice the annual total compensation, or constitute compensation for more than the remaining term of the employment contract (severance cap). If an Executive Board member’s duties prematurely end due to the termination of the employment contract either by the company or the Executive Board member before the performance cycle of an open tranche in the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, expires, the obligations resulting from the plan no longer apply as a matter of principle.

The employment contracts of Stefan Oschmann and Kai Beckmann contain a post-contractual non-competition clause, as did the employment contract with Udit Batra. During a two-year period, an amount totaling 50% of the contractual average benefits received by the Executive Board member in question within the last twelve months prior to their departure is provided as compensation for each year of the period of the non competition clause. During the period of the non competition clause, other employment income and pension payments will be credited against this compensation. Within certain time limits, E. Merck KG, Darmstadt, Germany, has the possibility to dispense with adherence to the non competition clause with the consequence that the obligation to make the compensation payments shall no longer exist. There was no payment of such compensation in the case of Udit Batra. The contracts of the Executive Board members also provide for the continued payment of fixed compensation to surviving dependents for a limited period of time in the event of death. Above and beyond existing pension obligations, no further obligations exist in the event of the termination of the contractual relationships of the Executive Board members.

Loans and advances

The members of the Executive Board did not receive any advances or loans in fiscal 2020.

Payments to former Executive Board members and their surviving dependents

Payments to former members of the Executive Board or their surviving dependents are made for a limited period of time and represent continued payment of fixed compensation in the event of death, as well as pension payments. In fiscal 2020, these amounted to € 13,849 thousand (previous year: € 13,448 thousand). Pension provisions amounted to € 177,037 thousand in 2020 (previous year: € 163,617 thousand).

Other

The total compensation of the Executive Board of Merck KGaA, Darmstadt, Germany, includes both the compensation received from E. Merck KG, Darmstadt, Germany, as well as possibly also from subsidiaries consolidated in the Group financial statements. Should members of the Executive Board be held liable for financial losses while executing their duties, this liability risk is covered by a D&O insurance policy from Merck KGaA, Darmstadt, Germany, under certain circumstances. The D&O insurance policy has a deductible in accordance with the legal requirements and the recommendations of the German Corporate Governance Code.

Performance-related compensation in 2020

The compensation system for our Executive Board is geared to suitably rewarding the performance of Executive Board members in terms of sustainable corporate development and the creation of shareholder value, whereas the failure to meet targets leads to a noticeable decrease in performance-related compensation. In response to the suggestions from our shareholders and to further increase the transparency of the Executive Board compensation system, the following tables present the average individual profitsharing rates and the performance corridors for the key performance indicators used in the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany.

Profit sharing

As part of profit sharing, the members of the Executive Board receive an individual per mille rate of the threeyear average of profit after tax of the Group of E. Merck KG, Darmstadt, Germany, at the end of the fiscal year. The three-year average is based on the current year and the two preceding years.

Key performance indicator (€ million)

 

2017

 

2018

 

2019

 

2020

Profit after tax of the Group of E. Merck KG, Darmstadt, Germany

 

2,549

 

3,324

 

1,255

 

1,915

Three-year average profit after tax of the Group of E. Merck KG, Darmstadt, Germany (2016 – 2018)

 

2,376

 

 

Three-year average profit after tax of the Group of E. Merck KG, Darmstadt, Germany (2017 – 2019)

 

 

 

2,165

The amount of the individual per mille profit-sharing rates is staggered at intervals. This staggering incentivizes the achievement of an average profit after tax of more than € 1 billion more strongly than amounts below € 1 billion. However, insofar as the average profit after tax is more than € 1.5 billion, the amount greater than € 1.5 billion is not taken into account when determining the profit-sharing payment. The average profit-sharing rates in per mille for the members of the Executive Board in 2020 were as follows:

Member of the Executive Board

 

Average profit-sharing rate in per mill in 2020

 

Performance factor for individual performance 2020

Stefan Oschmann

 

1.88

 

1.2

Udit Batra (left on: July 13, 2020)

 

0.63

 

1

Kai Beckmann

 

1.22

 

1.2

Belén Garijo

 

1.52

 

1.2

Marcus Kuhnert

 

1.22

 

1.2

The adjustment factor for the profit-sharing amount for Stefan Oschmann, Belén Garijo, Kai Beckmann and Marcus Kuhnert has been set to 1.2. This is to recognize the extraordinary contributions by these members of the Executive Board to the aspirations and targets of the Group’s stakeholders during the Covid-19 pandemic. The extraordinary handling of the pandemic situation has led to a remarkable success in terms of employee well-being, strong financial results, steady business operations as well as a very positive share price development in the fiscal year 2020. Specifically, the aforementioned members of the Executive Board distinguished themselves through the following achievements under the difficult conditions of the crisis.

In his role as CEO, Stefan Oschmann made the following objectives his top priority from the very beginning of the pandemic: the health and safety of all employees, business continuity in all three sectors, and a contribution to society via the provision of materials, e.g. for vaccine production. By establishing both a well-organized global task force and local crisis teams and connecting them very efficiently, it was always ensured that high safety standards were applied at all sites in all countries. Well thought-out hygiene measures were introduced quickly and efficiently, applied and communicated transparently. As a result, both the health situation at our sites and the economic success of the Group were always ensured. Additionally, Stefan Oschmann took over the responsibility for the Life Science sector ad interim. In addition to his regular duties, he successfully managed the business and ensured that the disproportionate increase in demand for life science products for diagnostics and vaccination could be responded to in a timely and demand-oriented manner.

Belén Garijo ensured that business operations could continue uninterrupted by setting clear priorities, communicating transparently, planning flexibly, and networking the crisis teams on critical issues. As member of the Executive Board being responsible for EQ (Environment, Health, Safety, Security and Quality), she held a leading role in the global management of the crisis. In addition, the Healthcare sector, under her leadership, ensured the supply of vital medicines to patients. The identification and development of drugs for the treatment of Covid-19 was given special priority.

The pandemic decisively changed living and working conditions around the world – a crisis situation in which the Performance Materials sector, with its materials for the electronics industry, was particularly important. In order to meet this rapidly and significantly increased demand, Kai Beckmann set the decisive course in the Performance Materials sector to be able to drive forward digitization in a new dimension worldwide. As the Executive Board member responsible for Germany, Kai Beckmann played a key role in talks with government representatives to initiate suitable measures in companies. In addition, within his area of responsibility for Site Management worldwide, Kai Beckmann ensured that both the health and safety of employees and business operations were always safeguarded.

In his role as Chief Financial Officer for the Group, Marcus Kuhnert made the necessary decisions to maintain the economic performance and liquidity of the Group. Through his efforts, business operations were able to continue steadily without the need for government financial support. Beyond his contributions as CFO, Marcus Kuhnert, with his additional responsibilities for IT and the global Shared Services organization, has secured seamlessly the delivery of accounting, procurement and HR administrative and transactional services throughout the pandemic on a global scale. Challenges in the procurement process as securing critical materials to keep employees healthy and safe were handled efficiently and resolved quickly. In the IT function measures were taken on quickly and efficiently in adjusting the infrastructure to ensure remote working for a vast number of employees while keeping business processes running without disruptions. This has allowed the businesses of Healthcare, Life Science and Performance Materials to continue to operate without disruption and secured business continuity for customers and patients worldwide.

Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany

Until the beginning of fiscal 2017, payment from the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, was based on the achievement of specific targets with respect to the development of the share price of Merck KGaA, Darmstadt, Germany, compared with the DAX® as well as the development of the EBITDA pre margin during the three-year performance cycle. Since fiscal year 2017, organic sales growth of the Group has been included as an additional key performance indicator. The tables below show the target values that lead to 100% target achievement relative to the respective key performance indicator. Below the lower target corridor limit, target achievement for the respective key performance indicator is 0%. Above the upper target corridor limit, target achievement no longer increases. The performance corridor for the key performance indicators will be published retrospectively, as publication in advance would allow market- and competition-relevant conclusions about strategic targets.

Key performance indicator1

 

Lower target corridor limit

 

Target

 

Upper target corridor limit

 

Actually achieved value of LTIP of Merck KGaA, Darmstadt, Germany, tranche 2016

 

Target achievement of LTIP of Merck KGaA, Darmstadt, Germany, tranche 2016

Share price performance relative to the DAX® (external key performance indicator)

 

-20.0%

 

0.0%

 

50.0%

 

0.7%

 

100.7%

EBITDA pre margin
(internal key performance indicator)

 

24.0%

 

27.0%

 

30.0%

 

28.1%

 

118.4%

1

The key performance indicator organic sales growth became a component of the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany in 2017 and is therefore not relevant for target achievement of the tranche in fiscal 2016.

Key performance indicator

 

Lower target corridor limit

 

Target

 

Upper target corridor limit

 

Actually achieved value of LTIP of Merck KGaA, Darmstadt, Germany, tranche 2017

 

Target achievement of LTIP of Merck KGaA, Darmstadt, Germany, tranche 2017

Share price performancerelative to the DAX® (external key performance indicator)

 

-20.0%

 

0.0%

 

50.0%

 

-9.5%

 

52.5%

EBITDA pre margin
(internal key performance indicator)

 

24.7%

 

27.7%

 

30.7%

 

27.1%

 

80.0%

Organic sales growth

 

2.5%

 

5.5%

 

8.5%

 

5.0%

 

83.4%

Total compensation

According to the German Commercial Code (HGB), the total compensation of the members of the Executive Board of Merck KGaA, Darmstadt, Germany, broken down by performance-related and performance-independent compensation components, is as follows:

 

 

 

 

Performance-independent components

 

Performance-related components

 

Total

 

Expense recorded for the period for share-based compensation4

 

 

 

 

Fixed compensation

 

Additional benefits

 

Profit sharing (without Long-Term incentive effect)1

 

Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany (with Long-Term incentive effect)

 

 

 

 

 

 

 

 

(€ thousand)

 

(€ thousand)

 

(€ thousand)

 

Grant value (€ thousand)

 

Number of MSUs2

 

Fair value3 (€ thousand)

 

(€ thousand)

 

(€ thousand)

Member of the Executive Board

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stefan Oschmann

 

2020

 

1,400

 

269

 

4,069

 

2,255

 

21,371

 

1,969

 

7,707

 

4,848

 

2019

 

1,400

 

721

 

4,810

 

2,255

 

24,054

 

1,520

 

8,451

 

1,859

Udit Batra (left on: July 13, 2020)

 

2020

 

636

 

4

 

1,364

 

1,705

 

16,159

 

1,489

 

3,493

 

2,575

 

2019

 

1,100

 

7

 

2,800

 

1,705

 

18,187

 

1,149

 

5,056

 

1,368

Kai Beckmann

 

2020

 

1,100

 

21

 

2,640

 

1,530

 

14,500

 

1,336

 

5,097

 

3,187

 

2019

 

1,100

 

30

 

2,400

 

1,530

 

16,320

 

1,031

 

4,561

 

1,202

Belén Garijo

 

2020

 

1,200

 

66

 

3,299

 

1,970

 

18,670

 

1,720

 

6,285

 

4,065

 

2019

 

1,100

 

49

 

3,000

 

1,870

 

19,947

 

1,260

 

5,409

 

1,541

Marcus Kuhnert

 

2020

 

1,000

 

25

 

2,640

 

1,320

 

12,510

 

1,153

 

4,818

 

2,838

 

2019

 

942

 

26

 

2,284

 

1,320

 

14,080

 

890

 

4,142

 

1,088

Total

 

2020

 

5,336

 

385

 

14,012

 

8,780

 

83,210

 

7,667

 

27,400

 

17,513

 

2019

 

5,642

 

833

 

15,294

 

8,680

 

92,588

 

5,850

 

27,619

 

7,058

1

Date of granting (date of legally binding commitment).

2

Number of potential MSUs subject to target achievement. The actual number of MSUs to be granted after the expiration of the three year performance cycle may deviate from this.

3

Fair value on the grant date (date of the legally binding entitlement). This does not determine the amount of any payment. Payment is subject to target achievement and is made on a specified date after the expiration of the threeyear performance cycle. The fair value of the obligations was calculated using a Monte Carlo simulation based on the previously described KPIs. The expected volatilities are based on the implicit volatility of shares of Merck KGaA, Darmstadt, Germany and the DAX® in accordance with the remaining term of the LTIP tranche. The dividend payments incorporated into the valuation model are based on medium-term dividend expectations.

4

In accordance with IFRS, the expense recorded for 2020 includes the amounts for the 2018, 2019, and 2020 LTIP tranches. In accordance with IFRS, the expense recorded for 2019 includes the amounts for the 2017, 2018, and 2019 LTIP tranches.

Information in accordance with the requirements of the German Corporate Governance Code

In accordance with the requirements of the German Corporate Governance Code, the following tables present the compensation granted for 2020, including additional benefits, contributions to the company pension plan, and the achievable minimum and maximum values of the variable compensation components, as well as the allocation of the respective compensation components for the fiscal year. The maximum amounts shown are purely arithmetical values. When compensation is allocated to the members of the Executive Board, the applicable overall compensation limit applies.

Benefits granted for the fiscal year

 

 

Stefan Oschmann

 

Udit Batra

 

 

Chairman of the Executive Board

 

Member of the Executive Board
(left on: July 13, 2020)

Benefits granted (€ thousand)

 

2019

 

2020

 

2020 (min.)

 

2020 (max.)

 

2019

 

2020

 

2020 (min.)

 

2020 (max.)

Fixed compensation

 

1,400

 

1,400

 

1,400

 

1,400

 

1,100

 

636

 

585

 

585

Additional benefits

 

721

 

269

 

269

 

269

 

7

 

4

 

55

 

55

Total

 

2,121

 

1,669

 

1,669

 

1,669

 

1,107

 

640

 

640

 

640

Profit sharing

 

4,810

 

4,069

 

0

 

4,810

 

2,800

 

1,364

 

0

 

3,640

Multi-year variable compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LTI 2019 (2019 to 2021)

 

1,520

 

 

 

 

 

 

 

1,149

 

 

 

 

 

 

LTI 2020 (2020 to 2022)

 

 

 

1,969

 

0

 

5,638

 

 

 

1,489

 

0

 

4,263

Total

 

8,451

 

7,707

 

1,669

 

12,117

 

5,056

 

3,493

 

640

 

8,543

Service cost

 

1,372

 

1,611

 

1,611

 

1,611

 

393

 

147

 

147

 

147

Total compensation

 

9,823

 

9,318

 

3,280

 

13,728

 

5,449

 

3,640

 

787

 

8,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kai Beckmann

 

Belén Garijo

 

 

Member of the Executive Board

 

Member of the Executive Board

Benefits granted (€ thousand)

 

2019

 

2020

 

2020 (min.)

 

2020 (max.)

 

2019

 

2020

 

2020 (min.)

 

2020 (max.)

Fixed compensation

 

1,100

 

1,100

 

1,100

 

1,100

 

1,100

 

1,200

 

1,200

 

1,200

Additional benefits

 

30

 

21

 

21

 

21

 

49

 

66

 

66

 

66

Total

 

1,130

 

1,121

 

1,121

 

1,121

 

1,149

 

1,266

 

1,266

 

1,266

Profit sharing

 

2,400

 

2,640

 

0

 

3,120

 

3,000

 

3,299

 

0

 

3,900

Multi-year variable compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LTI 2019 (2019 to 2021)

 

1,031

 

 

 

 

 

 

 

1,260

 

 

 

 

 

 

LTI 2020 (2020 to 2022)

 

 

 

1,336

 

0

 

3,825

 

 

 

1,720

 

0

 

4,925

Total

 

4,561

 

5,097

 

1,121

 

8,066

 

5,409

 

6,285

 

1,266

 

10,091

Service cost

 

392

 

392

 

392

 

392

 

391

 

440

 

440

 

440

Total compensation

 

4,953

 

5,489

 

1,513

 

8,458

 

5,800

 

6,725

 

1,706

 

10,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marcus Kuhnert

 

 

 

 

 

 

 

 

 

 

Member of the Executive Board

 

 

 

 

 

 

 

 

Benefits granted (€ thousand)

 

2019

 

2020

 

2020 (min.)

 

2020 (max.)

 

 

 

 

 

 

 

 

Fixed compensation

 

942

 

1,000

 

1,000

 

1,000

 

 

 

 

 

 

 

 

Additional benefits

 

26

 

25

 

25

 

25

 

 

 

 

 

 

 

 

Total

 

968

 

1,025

 

1,025

 

1,025

 

 

 

 

 

 

 

 

Profit sharing

 

2,284

 

2,640

 

0

 

3,120

 

 

 

 

 

 

 

 

Multi-year variable compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LTI 2019 (2019 to 2021)

 

890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LTI 2020 (2020 to 2022)

 

 

 

1,153

 

0

 

3,300

 

 

 

 

 

 

 

 

Total

 

4,142

 

4,818

 

1,025

 

7,445

 

 

 

 

 

 

 

 

Service cost

 

414

 

409

 

409

 

409

 

 

 

 

 

 

 

 

Total compensation

 

4,556

 

5,227

 

1,434

 

7,854

 

 

 

 

 

 

 

 

Allocation for the fiscal year

 

 

Stefan Oschmann

 

Udit Batra

 

Kai Beckmann

 

 

Chairman of the Executive Board

 

Member of the Executive Board
(left on: July 13, 2020)

 

Member of the Executive Board

Allocation (€ thousand)

 

2019

 

2020

 

2019

 

2020

 

2019

 

2020

Fixed compensation

 

1,400

 

1,400

 

1,100

 

636

 

1,100

 

1,100

Additional benefits

 

721

 

269

 

7

 

4

 

30

 

21

Total

 

2,121

 

1,669

 

1,107

 

640

 

1,130

 

1,121

Profit sharing

 

4,810

 

4,069

 

2,800

 

1,364

 

2,400

 

2,640

Multi-year variable compensation

 

 

 

 

 

 

 

 

 

 

 

 

LTI 2016 (2016 to 2018)

 

2,261

 

 

 

1,708

 

 

 

1,617

 

 

LTI 2017 (2017 to 2019)

 

 

 

1,670

 

 

 

1,262

 

 

 

1,059

Total

 

9,192

 

7,408

 

5,615

 

3,266

 

5,147

 

4,820

Service cost

 

1,372

 

1,611

 

393

 

147

 

392

 

392

Total compensation

 

10,564

 

9,019

 

6,008

 

3,413

 

5,539

 

5,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Belén Garijo

 

Marcus Kuhnert

 

 

 

 

 

 

Member of the Executive Board

 

Member of the Executive Board

 

 

 

 

Allocation (€ thousand)

 

2019

 

2020

 

2019

 

2020

 

 

 

 

Fixed compensation

 

1,100

 

1,200

 

942

 

1,000

 

 

 

 

Additional benefits

 

49

 

66

 

26

 

25

 

 

 

 

Total

 

1,149

 

1,266

 

968

 

1,025

 

 

 

 

Profit sharing

 

3,000

 

3,299

 

2,284

 

2,640

 

 

 

 

Multi-year variable compensation

 

 

 

 

 

 

 

 

 

 

 

 

LTI 2016 (2016 to 2018)

 

1,922

 

 

 

1,492

 

 

 

 

 

 

LTI 2017 (2017 to 2019)

 

 

 

1,385

 

 

 

977

 

 

 

 

Total

 

6,071

 

5,950

 

4,744

 

4,642

 

 

 

 

Service cost

 

391

 

440

 

414

 

409

 

 

 

 

Total compensation

 

6,462

 

6,390

 

5,158

 

5,051

 

 

 

 

Compensation for the Supervisory Board members of Merck KGaA, Darmstadt, Germany

The compensation of the Supervisory Board members is defined by article 20 of the Articles of Association of Merck KGaA, Darmstadt, Germany. The members of the Supervisory Board receive fixed compensation of € 47,000 per year. The Chairman receives double and the Vice Chairman receives one and a half times this amount. Moreover, the members receive additional compensation of € 750 per meeting. The individual values are presented in the following table:

 

 

Fixed compensation

 

Compensation for meeting attendance

 

Total compensation

 

2020

 

2019

 

2020

 

2019

 

2020

 

2019

Wolfgang Büchele (Chairman)

 

94,000.00

 

94,000.00

 

3,000.00

 

3,750.00

 

97,000.00

 

97,750.00

Michael Fletterich (Vice Chairman) (until April 26, 2020)

 

19,057.53

 

70,500.00

 

1,500.00

 

3,750.00

 

20,557.53

 

74,250.00

Sascha Held (Vice Chairman) (since April 26, 2019)

 

70,500.00

 

32,191.78

 

3,000.00

 

3,000.00

 

73,500.00

 

35,191.78

Crocifissa Attardo (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Mechthild Auge (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Gabriele Eismann

 

47,000.00

 

47,000.00

 

3,000.00

 

3,750.00

 

50,000.00

 

50,750.00

Edeltraud Glänzer

 

47,000.00

 

47,000.00

 

3,000.00

 

3,000.00

 

50,000.00

 

50,000.00

Jürgen Glaser (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

3,000.00

 

50,000.00

 

35,191.78

Michaela Freifrau von Glenck (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Siegfried Karjetta (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Michael Kleinemeier (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

2,250.00

 

50,000.00

 

34,441.78

Renate Koehler (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

3,000.00

 

50,000.00

 

35,191.78

Anne Lange (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

2,250.00

 

50,000.00

 

34,441.78

Albrecht Merck (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Peter Emanuel Merck (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

3,000.00

 

50,000.00

 

35,191.78

Dietmar Oeter

 

47,000.00

 

47,000.00

 

3,000.00

 

3,750.00

 

50,000.00

 

50,750.00

Alexander Putz (until April 26, 2019 and since May 28, 2020)

 

27,942.47

 

14,936.99

 

1,500.00

 

750.00

 

29,442.47

 

15,686.99

Christian Raabe (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

3,000.00

 

50,000.00

 

35,191.78

Helene von Roeder (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

3,000.00

 

50,000.00

 

35,191.78

Helga Rübsamen-Schaeff

 

47,000.00

 

47,000.00

 

3,000.00

 

3,000.00

 

50,000.00

 

50,000.00

Gregor Schulz (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Theo Siegert (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Daniel Thelen (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

3,000.00

 

50,000.00

 

35,191.78

Simon Thelen (since April 26, 2019)

 

47,000.00

 

32,191.78

 

3,000.00

 

3,000.00

 

50,000.00

 

35,191.78

Tobias Thelen (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Veit Ulshöfer (until April 26, 2019)

 

-

 

14,936.99

 

-

 

750.00

 

-

 

15,686.99

Total

 

822,500.00

 

823,787.70

 

48,000.00

 

57,000.00

 

870,500.00

 

880,787.70

As a member of the corporate bodies of E. Merck KG, Darmstadt, Germany, the Supervisory Board member Wolfgang Büchele received an additional payment of € 140,000 for performing this function in 2020 (2019: € 140,000).

As a member of the corporate bodies of E. Merck KG, Darmstadt, Germany, the Supervisory Board member Helga Rübsamen-Schaeff received an additional payment of € 150,000 for performing this function in 2020 (2019: € 150,000).

As a member of the corporate bodies of E. Merck KG, Darmstadt, Germany, the Supervisory Board member Michael Kleinemeier received an additional payment of € 140,000 for performing this function in 2020.

As a member of the corporate bodies of E. Merck KG, Darmstadt, Germany, the Supervisory Board member Helene von Roeder received an additional payment of € 150,000 for performing this function in 2020.

As a member of the corporate bodies of E. Merck KG, Darmstadt, Germany, the Supervisory Board member Peter Emanuel Merck received an additional payment of € 80,000 for performing this function in 2020 (2019: € 80,000).

As a member of the corporate bodies of E. Merck KG, Darmstadt, Germany, the Supervisory Board member Daniel Thelen received an additional payment of € 140,000 for performing this function in 2020 (2019: € 130,246).

As a member of the corporate bodies of E. Merck KG, Darmstadt, Germany, the Supervisory Board member Simon Thelen received an additional payment of € 140,000 for performing this function in 2020 (2019: € 137,151).

Loans, advances or liabilities

The members of the Supervisory Board did not receive any loans or advances in the fiscal year 2020. Similarly, no liability was entered into in favor of the members of the Supervisory Board in the fiscal year 2020.

Ownership, purchase, or sale of shares in the company by members of the Executive Board and the Supervisory Board

As of December 31, 2020, the members of the Executive Board and of the Supervisory Board held fewer than 1% of the issued shares of Merck KGaA, Darmstadt, Germany. Transactions executed by members of the Executive Board and of the Supervisory Board are disclosed on our website at https://www.emdgroup.com/en/investors/corporate-governance/directors-dealings.html.

1 For accounting purposes, this corresponds to a defined-benefit obligation within the meaning of IAS 19.8.