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Review of the 2022 fiscal year

The fiscal year 2022 was a year of continued growth, both financially and in terms of value creation for patients, customers, and investors. At the same time, the market environment was characterized by tensions due to the war in Ukraine, Covid-19, the progressive effects of climate change and geopolitical tensions. This was also reflected on the stock markets. Our share price has been influenced by major fluctuations over the fiscal year 2022.

All three business sectors, Life Science, Healthcare and Electronics, contributed significantly to our success in the fiscal year 2022. Our "Big 3", Process Solutions and Life Science Services, new Healthcare products, and Semiconductor Solutions, were key to growth, combined with the strong performance of established portfolio products. Thanks to the strong growth, we now have excellent financial flexibility, enabling the implementation of our very ambitious investment and growth plans.

In addition to commercial success, we strongly focused on sustainability as integrated component of our strategy in 2022. We set clear sustainability goals, which were linked to the LTIP 2022 by the sustainability factor. In 2022, the independent Science Based Targets Initiative (SBTi) confirmed that our 2030 emissions targets are in line with the current state of climate science. We are thus contributing to limiting global warming to 1.5 °C and thus fulfilling the requirements of the Paris Climate Agreement.

In the fiscal year 2022, severe inflation, the energy crisis and ongoing disruptions to global supply chains were a major challenge for us. Rising costs impacted our business, our customers, and our employees. Regarding employee compensation, we continuously monitor the markets and take appropriate targeted action as needed to ensure that our compensation remains competitive. We are aware of the pressures and significant social impacts on our employees –particularly those with lower incomes. We closely monitored inflation and wage trends and took proactive measures in selected markets by adjusting salaries during the year. We also introduced other supportive benefits for our employees. This is an ongoing process, and we will continue to ensure that we provide appropriate salary adjustments to all employees. We will look for ways to protect our lower-income employees who are most affected by the rising cost of living.

In the fiscal year 2022 there was no increase of the contractually agreed compensation of the Executive Board. We have met the challenges with strong economic performance which is reflected in the payouts of the variable compensation components. This follows the "pay for performance" principle of the compensation system, which means that excellent performance is rewarded while missed targets are taken into account accordingly. Further details can be found in the Compensation System approved by the Annual General Meeting 2021 and published on our website.

Furthermore, during the fiscal year 2022 the composition of the Executive Board remained unchanged and stable. There were no personnel changes. In the Supervisory Board there was one change of mandate. Effective May 15, 2022, Edeltraud Glänzer left the Supervisory Board and as of July 14, 2022 Birgit Biermann took over.

Approval of the Compensation Report 2021

At the Annual General Meeting 2022, the Compensation Report 2021 was approved with a voting result of 84.73%. Only shares traded in the free float are entitled to vote at the Annual General Meeting.

In relation to the Annual General Meeting 2022 and in ten investor meetings after the Annual General Meeting, We obtained feedback from investors and all relevant shareholder associations and proxy advisors regarding the compensation of the Executive Board and its presentation in the Compensation Report 2021. Similar to the voting results, we received mostly positive feedback to last year’s revision of the Compensation Report. In particular, the increasingly transparent presentation was positively highlighted.

We have implemented the suggestion to present the individual maximum amount of the profit sharing and to explain the adjustment factor for increasing or reducing the profit sharing in this compensation report. While the criteria of the adjustment factor are already described in the Compensation System, we are additionally including them again in this Compensation Report to increase transparency even more. With this in mind, this year we are also publishing the target corridor of the respective indicators of the sustainability factor in the Long-Term Incentive Plan (LTIP) already at the beginning of the performance period for the first time.

We received further suggestions related to the LTIP. Regarding the performance indicator, which measures the relative performance of the share price compared to the DAX®, a more ambitious definition of the targets and, in isolated cases, a longer performance period overall are desired. The current tranches show a strong share performance, which according to the system leads to a performance-related payout. Furthermore, the current plan design reflects common market practice in Germany. However, we will consider such advice in the regular review of the compensation system and discuss them as part of a possible adjustment to the LTIP.

It was also made clear that potential adjustments of the Executive Board compensation as well as payments compensating forfeited compensation from a previous employment (sign-on payment) should be explained appropriately. In this regard, we will ensure an even more transparent explanation in the future. In the fiscal year 2022 there were no compensation adjustments.

Concerning the compensation tables, we follow the same approach as last year with the same interpretation of Section 162 (1) of the German Stock Corporation Act (AktG). In this context, we observe the practice of other companies and actively follow the decisions in connection with possible model tables of the EU Commission.

Involving our investors is an important and ongoing process. We will continue to maintain dialogue with investors in relation to the Annual General Meeting 2023 and beyond. Consequently, we can ensure that we receive constructive and valuable feedback which can be incorporated into both the design of the compensation system and the decisions of the Personnel Committee. Accordingly, we will report on the feedback received in the next Compensation Report.

Compensation for fiscal year 2022 – Summary

Summary of the compensation for the Executive Board members’ performance up to December 31, 2022 – voluntary diclosure

Summary of the compensation for the Executive Board members’ performance up to December 31, 2022 – voluntary diclosure (Infographic)
1 The compensation of Kai Beckmann and Marcus Kuhnert is included in the average calculation of the further members of the Executive Board. Peter Guenter and Matthias Heinzel joined the Executive Board in the fiscal year 2021 and therefore did not receive any compensation from the LTIP 2020. Taking their compensation into account would therefore lead to a distorted presentation.

Compensation for fiscal year 2022 – Chronological overview

Compensation for fiscal year 2022 – Chronological overview (Infographic)

Relevant key performance indicators for profit sharing and Long-Term Incentive Plan (LTIP)

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

Profit after tax (Bar chart)

Share price development

Share price development (2020-2022) (Line chart)

LTIP 2020

LTIP 2020 (Infographic)

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