Executive Board compensation for 2022

The performance-related and performance-independent compensation components of the compensation system of the Executive Board in the fiscal year 2022 are fully consistent with the Executive Board compensation system approved by the 2021 Annual General Meeting with a voting result of 87.08%. Compliance with the compensation system is ensured by the Personnel Committee. The compensation system for the Executive Board is published on our website. The Personnel Committee decides by resolution about the parameter of the compensation elements (e.g. setting of targets, determination of target achievement, etc.) as well as about the amounts to be paid out.

The following section reports on the compensation awarded or due in accordance with Section 162 (1) AktG. Accordingly, the following sections contain all amounts received by the individual members of the Executive Board (active and former members) in the fiscal year (compensation awarded) as well as all amounts legally due but not yet received (compensation due).

In addition, compensation is disclosed on a voluntary basis for which the members of the Executive Board have provided the underlying service completely by December 31, 2022, but for which payment will be made in the following year. This relates to the profit sharing for fiscal year 2022, as well as the 2020 LTI tranche, whose performance period ended on December 31, 2022. These amounts have been provisionally determined by the Personnel Committee by way of a resolution and subsequently communicated to the members of the Executive Board. The final amount will be paid to the members of the Executive Board after the preparation of the consolidated financial statements of E. Merck KG, Darmstadt, Germany. This enables transparent information and ensures the link between performance and compensation in the fiscal year.

Performance-independent compensation

Base salary

As base salary, the members of the Executive Board receive contractually fixed performance-independent amounts that are paid in the form of 12 equal monthly installments.

Additional benefits

The additional benefits mainly include company cars with private use, contributions to insurance policies and expenses for personal protection.

In addition, as compensation for the loss of entitlements to variable compensation from his previous employment, Peter Guenter received upon the initial appointment in the fiscal year 2021 a commitment to compensation totaling € 1,500,000.00 as a sign-on payment. The entitlement has been verified in the context of his initial appointment on the basis of supporting documents, and the amount has been determined accordingly. The compensation is to be paid in cash in four equal installments. The first installment was paid on July 1, 2021, and the second installment on July 1, 2022. The further installments will be paid on July 1, 2023, and July 1, 2024, provided the employment relationship continues.

Pension entitlement

The members of the Executive Board are granted a pension obligation as a direct commitment.¹ A fixed amount is paid into a benefit account every year, and interest is paid at the applicable statutory maximum technical interest rate for the life insurance industry in accordance with Section 2 (1) of the Regulation on the Principles Underlying the Calculation of the Premium Reserve (DeckRV). Once a member retires, the amount in the benefit account is paid out either in ten annual installments or as a one-time payment. In the fiscal year 2022 there was no increase of any pension contribution.

Performance-related compensation

Performance-related compensation comprises profit sharing as well as the Long-Term Incentive Plan (LTIP). Both compensation elements are based on multi-year performance periods and are tied to the company’s share price to a large extent.

Profit sharing

Regarding the profit sharing, an individual profit-sharing rate is defined for the members of the Executive Board as a per mille rate of the three-year average of the consolidated profit after tax of E. Merck KG, Darmstadt, Germany. The fiscal year 2022 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 shareholder interests.

To appropriately consider the individual performance of the Executive Board members, the Personnel Committee may modify the payment by applying a factor ranging from 0.8 to 1.2. In determining the level of this factor, the Personnel Committee applies the following criteria that also include ambitious sustainability targets.

The performance factor makes it possible to recognize outstanding performance by a member of the Executive Board by multiplying profit sharing by a value greater than 1.0 up to 1.2. Similarly, multiplying by a value less than 1.0 down to 0.8 can reduce profit sharing if the circumstances call for it.

The members of the Executive Board are obligated to hold one-third of the yearly total net amount from profit sharing in shares of Merck KGaA, Darmstadt, Germany, for at least four years. Further details are provided under the heading "Share Ownership Guideline".

The following illustration shows the profit sharing for the 2022 fiscal year:

An average profit of at least € 0.75 billion must be generated for the profit-sharing payment to be made. This minimum threshold reflects the “pay-for-performance” approach of the compensation system. If the profit exceeds such threshold, the individual profit sharing rates are staggered. The maximum profit-sharing payment is capped individually. It amounts to € 4,810 thousand for Belén Garijo, € 3,500 thousand for Kai Beckmann, € 3,900 thousand for Peter Guenter, € 3,900 thousand for Matthias Heinzel and € 3,300 thousand for Marcus Kuhnert.

The three-year average that is relevant for the 2022 fiscal year was based on the profit after tax generated by E. Merck KG, Darmstadt, Germany, in 2020, 2021 and 2022:

The Personnel Committee has set the adjustment factor at 1.0 for all members of the Executive Board, taking into account individual performance as well as the contribution to the sustainability targets based on the agreed criteria. This recognizes the performance of the members of the Executive Board which resulted in the successful fiscal year 2022.

The Executive Board faced the many challenges resulting from the war in Ukraine, Covid-19, and geopolitical tensions. The Personnel Committee recognizes that through the efforts of the Executive Board members, fiscal year 2022 was successfully concluded both in financial terms and value creation. All three business sectors, Life Science, Healthcare and Electronics, contributed significantly to our success in fiscal 2022. In addition to economic success, an equally strong focus was placed on sustainability. In this context, the decisions and actions of the Executive Board members were positively acknowledged.

Taking into account the relevant three-year average of the profit after tax of E. Merck KG, Darmstadt, Germany, the individual sharing rates and the performance factor, the profit sharing for fiscal year 2022 is as follows:

The profit-sharing payout will be made in cash in April 2023. One-third of the net payout amount must be held in shares of Merck KGaA, Darmstadt, Germany, for at least four years. Further details of the investment obligation can be found in the “Share Ownership Guideline” section.

In the fiscal year 2022, the profit sharing for the fiscal year 2021 already explained in detail in the Compensation Report 2021 was paid out, which was thus reported as compensation awarded or due in the fiscal year 2022 in accordance with Section 162 of the German Stock Corporation Act (AktG). Further details can be found in the following table from the previous year:

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