Executive Board compensation for 2023

The performance-related and performance-independent components of the compensation system for the Executive Board in fiscal 2023 are fully consistent with the Executive Board compensation system approved by the Annual General Meeting 2021 with a voting result of 87.08%. The compensation system for the Executive Board is published on our Website and applies to all members of the Executive Board since January 1, 2021. The Personnel Committee ensures compliance with the compensation system by deciding by resolution on the parameters of the compensation elements (e.g. target setting, determination of target achievement, etc.) as well as on 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 paid to individual members of the Executive Board (active and former members) in fiscal 2023 (compensation awarded) as well as all amounts legally due but not yet received (compensation due).

In addition, the compensation for which the members of the Executive Board have provided the underlying service in full by December 31, 2023, but whose payment will be made in the following year, is disclosed on a voluntary basis. This enables transparent information and ensures the link between performance and compensation in the fiscal year. This year, the voluntary reporting only concerns profit sharing for 2023. The Personnel Committee has provisionally determined the payout amounts of the profit-sharing by resolution and informed the members of the Executive Board accordingly. The final amount will be paid to the members of the Executive Board after the consolidated financial statements of E. Merck KG, Darmstadt, Germany, have been released. After amending the compensation system of the Executive Board effective January 1, 2021, an additional one-year holding period was introduced for the LTIP, which applies for the first time to the LTIP Tranche 2021. Therefore, the performance period of the LTIP tranche 2021 will run until the end of fiscal 2024 and payout will be made in April 2025. The LTIP tranche 2020, however, ran until the end of fiscal 2022 and was paid out in April 2023. As a result, payout of the LTIP tranche 2021 can only be reported on a voluntary basis in the Compensation Report 2024. The obligation to report on the LTIP tranche 2021 applies for the first time in the Compensation Report 2025.

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. There was no increase of the base salary in fiscal 2023.

Additional benefits

The additional benefits mainly include company cars for personal 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 relationship, Peter Guenter received upon the initial appointment in fiscal 2021 a commitment to compensation totaling € 1,500,000.00. The entitlement has been verified in the context of his initial appointment based on 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, the second installment was paid on July 1, 2022, and the third installment was paid on July 1, 2023. The final installment will be paid out on July 1, 2024, provided the employment relationship continues.

As part of the initial appointment as a member of the Executive Board, compensation commitments were agreed with Helene von Roeder to compensate for the loss of entitlements to both short-term and long-term variable compensation from her previous position on the Management Board at Vonovia SE. The loss of variable compensation claims against Vonovia SE were proven on the basis of corresponding supporting documents. The compensation for the loss of the short-term incentive for the year 2023 covers the period until her appointment to the Executive Board of Merck KGaA, Darmstadt, Germany, (January 1, 2023 to June 30, 2023) and amounts to € 257,125. The amount will be paid out in fiscal 2024. The compensation for the loss of long-term incentive fiscal 2023 covers the period until her appointment to the Executive Board of Merck KGaA, Darmstadt, Germany (January 1, 2023 to June 30, 2023) and is based on the Long-Term Incentive Plan Rules of Vonovia SE for the year 2023, whose performance period runs from the beginning of 2023 to the end of 2026. As a corresponding compensation payment, 50% of the gross amount that would have resulted from Helene von Roeder’s complete entitlement to the long-term incentive for the year 2023 is to be reimbursed. However, the maximum payout amount according to Vonovia’s Long-Term Incentive Plan Rules will be considered. Therefore, the amount can only be calculated after the publication of the 2026 annual financial statements of Vonovia SE and will be paid out in 2027. Should it not be possible to calculate the payout amount, 50% of the allocation value of Vonovia’s long-term incentive for 2023 will be paid out (€ 618,750). In this way, it is ensured that Helene von Roeder is only compensated for the actual loss of long-term incentive. The entitlement to the compensation payment has arisen in full. In fiscal 2023, provisions of € 695,549 were made regarding this compensation.

Pension entitlement

The members of the Executive Board are granted a pension obligation as a direct commitment. 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 German Regulation on the Principles Underlying the Calculation of the Premium Reserve (DeckRV). Once the pension event occurs, the amount in the benefit account is paid out either in ten annual installments or as a one-time payment. The pension event occurs upon retirement, in the event of occupational disability or death.

After leaving the Executive Board, Marcus Kuhnert retains a vested entitlement to the pension account, which will be granted to him upon the occurrence of the pension event. In fiscal 2023, no pension contributions were increased.

Performance-related compensation

Performance-related compensation comprises profit sharing as well as the Long-Term Incentive Plan (LTIP).

Profit sharing

As regards profit sharing, an individual profit-sharing rate is contractually 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. Fiscal 2023 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, which also include sustainability goals.

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 payout of the 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 fiscal 2023:

An average profit after tax 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 this threshold, the individual profit-sharing rates are staggered as illustrated in the following graphic:

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 both Marcus Kuhnert and Helene von Roeder. In fiscal 2023, the maximum payout for Marcus Kuhnert is € 1,650 thousand due to leaving the Executive Board on June 30, 2023, and for Helene von Roeder it amounts also to € 1,650 thousand due to her entry on July 1, 2023.

The three-year average that is relevant for fiscal 2023 was based on the profit after tax generated by the Group of E. Merck KG, Darmstadt, Germany, in 2021, 2022 and 2023 as illustrated in the following graphic and table:

The Personnel Committee has set the adjustment factor at 1.0 for all members of the Executive Board, taking into account individual performance and contribution to the sustainability targets against the background of the agreed criteria. This is in recognition of the achievements of the members of the Executive Board for fiscal 2023. The Executive Board faced many challenges as a result of difficult macroeconomic conditions, headwinds from competitors, and the fact that studies with Evobrutinib did not achieve the desired success in a late test phase. The Personnel Committee acknowledges that, thanks to the commitment of the members of the Executive Board, fiscal 2023 could be closed satisfactorily under the given conditions. In addition to the economic aspect, the members of the Executive Board continued to focus on our three key sustainability targets. Sustainable leadership and well-thought-out decisions by the Executive Board have ensured that the Group remains focused on long-term growth.

Considering the relevant three-year average of profit after tax for the Group of E. Merck KG, Darmstadt, Germany, the individual sharing rates and the performance factor, the profit sharing and the shareholding obligation for fiscal 2023 are as follows:

The profit-sharing 2023 will be paid out in April 2024, while one-third must be held in shares of Merck KGaA, Darmstadt, Germany, for at least four years. Further details of the investment obligation can be found under “Share Ownership Guideline”.

In fiscal 2023, the profit sharing for fiscal 2022 already explained in detail in the Compensation Report 2022 was paid out, which is thus reported as compensation awarded or due in fiscal 2023 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: