DEF 14A 1 d766375ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

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  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to Section 240.14a-12

 

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Merck & Co., Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Table of Contents

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Table of Contents

Creating Long-Term Value for

Patients and Shareholders

 

Making Progress on Our Strategic Priorities

 

 

 

 

 
Unlocking the Commercial Potential of Our Portfolio1

 

+13%  

total sales growth in 2019

 

Global pharmaceutical sales grew +14%

 

Sales highlights across our key growth pillars include:

 

•  KEYTRUDA sales reached $11.1B, +58%

•  GARDASIL sales of $3.8B, +21%

•  BRIDION sales of $1.1B, +26%

•  Animal Health sales of $4.4B, + 9%

 

 

 
Balanced Approach to Capital Allocation

 

~$19B  

committed to capital investments

between 2019 and 2023

 

Capital allocation strategy allows Merck to invest in our business and create value for shareholders. In order of priority:

 

•  Research & Development

•  Capital Investments

•  Dividend

•  Business Development

•  Share Repurchase

 

 

 
Focusing on Strategic Business Development to Fuel Innovation

 

~80   transactions completed in 2019, spanning acquisitions, licensing and technology deals, as well as clinical collaborations
Merck has a strong track record of bolt-on acquisitions and strategic collaborations. In 2019, Merck spent ~$8B on business development transactions, including the ArQule acquisition (closed in 1Q2020).

 

MK-6482, the HIF-2a inhibitor acquired in the 2019 Peloton acquisition, is in Phase 3, and MK-1026, the BTK inhibitor acquired in the ArQule acquisition, is in Phase 3 (as of 1Q2020).

 

 
Advancing the Pipeline for Scientific Breakthroughs4

 

>300  

new KEYTRUDA indications and

line extensions worldwide

 

Oncology:

 

•  KEYTRUDA received 9 new approvals in the U.S., 5 in Europe, 3 in China and 3 in Japan

•  Lynparza2 received approvals in pancreatic cancer in the U.S. and in ovarian and breast cancer in other major markets

•  The first combination of KEYTRUDA and Lenvima3 received approval in endometrial carcinoma simultaneously in the U.S., Canada and Australia

 

Vaccines:

 

•  V114, our pneumococcal conjugate vaccine candidate, received Breakthrough Therapy Designation from the FDA in both adult and pediatric settings

•  ERVEBO, our Ebola vaccine, received approval in the U.S. and conditional approval in the EU

 

Hospital, Specialty and Other:

 

•  DELSTRIGO and PIFELTRO approved in U.S. for certain HIV patients who are on a stable antiretroviral regimen

•  RECARBRIO approved in U.S. for certain bacterial infections

•  ZERBAXA approved in U.S. for certain types of pneumonia

•  Results presented for Phase 3 VICTORIA trial studying vericiguat in patients with worsening heart failure with reduced ejection fraction

•  Top-line data announced from two Phase 3 trials studying gefapixant, our P2X3 antagonist, in chronic cough

•  Data presented at IAS and the European AIDS conference on Islatravir, a novel HIV asset currently in four Phase 3 trials in combination with doravirine

 

 

1.   Growth rates exclude the impact of foreign exchange

2.  In collaboration with AstraZeneca

3.  In collaboration with Eisai

4. As of 1Q2020

 

 


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Notice of Annual Meeting of Shareholders

To the Merck Shareholders: You are invited to the Annual Meeting of Shareholders of Merck & Co., Inc. on

          Tuesday, May 26, 2020, at 9:00 a.m., at the Bridgewater Marriott, located at

          700 Commons Way, Bridgewater, New Jersey 08807.

We will broadcast the Annual Meeting as a live webcast at https://investors.merck.com/events-and-presentations.

Due to the emerging public health impact of coronavirus disease 2019 (COVID-19), we are planning for the possibility that the Annual Meeting may be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance and will set forth details on how to participate in a press release available at merck.com.

 

     

The

purposes

of the

meeting

are to:

  

•  Elect the 13 Director nominees named in the proxy statement;

 

•  Consider and act upon a proposal to approve, by non-binding advisory vote, the compensation of our Named Executive Officers;

 

•  Consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2020;

 

  

•  Consider and act upon a shareholder proposal concerning a shareholder right to act by written consent, if properly presented at the meeting;

 

•  Consider and act upon a shareholder proposal regarding allocation of corporate tax savings, if properly presented at the meeting; and

 

•  Transact such other business as may properly come before the meeting.

 

Vote Right Away - Advance voting methods and deadlines

We encourage all shareholders of record to read this proxy statement with care and vote right away using any of the following methods, even if they intend to attend the Annual Meeting in person. Given the possibility that our Annual Meeting may be held solely by means of remote communication, it is even more important to vote right away. In all cases, have your proxy card or voting instruction form in hand and follow the instructions.

 

BY INTERNET*

 

  BY PHONE*   BY QR CODE   BY MAIL**
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www.proxyvote.com

 

In the U.S. or Canada

dial toll-free 1-800-690-6903

 

Scan this QR code to vote

with your mobile device

(may require free app)

 

 

Cast your ballot, sign your

proxy card and send

in our prepaid envelope

 

Only shareholders listed on the Company’s records at the close of business on March 27, 2020 are entitled to vote.

Merck began distributing its Notice of Internet Availability of Proxy Materials, proxy statement, the 2019 Annual Report on Form 10-K and proxy card/voting instruction form, as applicable, to shareholders and to employee benefit and stock purchase plan participants on April 6, 2020.

 

By order of the Board of Directors,

 

 

LOGO

Jennifer Zachary

Executive Vice President, General Counsel and Corporate Secretary

     

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON May 26, 2020:

The Notice of Annual Meeting of Shareholders, proxy statement and the 2019 Annual Report on Form 10-K are available free of charge at www.proxyvote.com.

     

*   The telephone and internet voting facilities will close at 11:59 p.m. Eastern Time on May 25, 2020.

 

**   You will need the 16-digit control number included on your proxy card, voting instruction form or Notice of Internet Availability of Proxy Materials.

 

   If your shares are held in a stock brokerage account or by a bank or other nominee, your ability to vote by telephone or over the internet depends on your broker’s voting process. Please follow the directions provided to you by your broker, bank or nominee.

 

Merck & Co., Inc. 2020 Proxy Statement


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Dear Merck Shareholders,

It is my pleasure to invite you to the 2020 Annual Meeting of Shareholders of Merck & Co., Inc. (“Merck,” known as “MSD” outside the United States and Canada).

The attached Notice of Annual Meeting of Shareholders and proxy statement will serve as your guide to the business to be conducted and provide details regarding the meeting.

 

“Our steadfast commitment to scientific discovery, combined with our focus on our growth pillars across our human and animal health businesses, enabled Merck to achieve exceptional results in 2019. We believe it is important to optimize the value patients and customers can derive from our entire portfolio of products, and this belief, combined with our financial strength, led to our decision to create a new publicly held company, Organon & Co.”

 

  

For nearly 130 years, the people of Merck have dedicated themselves to our company’s mission of saving and improving lives. Propelled forward by this mission, we aspire to be the premier research-intensive biopharmaceutical company. Our dedication to our mission has resulted in important new medicines and vaccines that are helping to address global health crises like AIDS, Ebola virus outbreaks, antibiotic-resistant bacterial infections, and preventable maternal mortality. Today we are dealing with a new crisis—the COVID-19 pandemic that is moving around the world with unprecedented speed. We are focused on protecting the safety of our employees and their families, sustaining the supply of our medicines and vaccines, and supporting our patients in clinical trials.

 

We have also convened a team of top scientists to assess the value that our vast array of antiviral assets and our vaccine know-how may have in the prevention or treatment of COVID-19. As we know from our experience with ERVEBO – our recently approved vaccine for preventing Ebola virus infection – the road to a new medicine or vaccine is never fast and never easy. But we also know that the world needs new medicines and vaccines – not only for the immense challenges of this pandemic, but also for the other great health challenges of our time.

 

Our steadfast commitment to scientific discovery, combined with our focus on our growth pillars across our human and animal health businesses, enabled Merck to achieve exceptional results in 2019. We believe it is important to optimize the value patients and customers can derive from our entire portfolio of products, and this belief, combined with our financial strength, led to our decision to create a new publicly held company, Organon & Co. (“Organon”). With its strategic intent of becoming a leader in women’s health, Organon will be a strong, independent company from the beginning, poised to reach more patients through its broad portfolio of trusted and medically important legacy products and a rapidly expanding biosimilars business. Creating Organon will help ensure that these products achieve their full potential and enable Merck to focus more fully on our key pillars and on investing in the next generation of biomedical breakthroughs.

 

KEYTRUDA, our market-leading anti-PD-1 therapy, is an example of how our focus on breakthrough innovation leads to value creation. In the five years KEYTRUDA has been on the market, it has been approved in 23 indications across 14 tumor types and is now established as a foundational immuno-oncology treatment. These approvals were the result of a broad clinical development program that consists currently of more than 1,150 clinical trials, including more than 800 trials that combine KEYTRUDA with other cancer treatments. Beyond KEYTRUDA, our success with Lynparza, a cancer therapy

 

Merck & Co., Inc. 2020 Proxy Statement


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on which we collaborate with AstraZeneca, and Lenvima, a cancer therapy on which we collaborate with Eisai, as well as our early pipeline of more than 20 investigational candidates, support our belief that we will be a leader in cancer care for many years to come.

 

Building on our rich legacy in vaccine research, we also have a broad vaccine pipeline addressing areas of significant unmet medical need. Notably, our Ebola virus vaccine, ERVEBO, gained approval in the United States and conditional approval in the European Union in 2019 – a testament to the relentless efforts of a broad and diverse team of people and organizations coming together to cooperate across the global biopharmaceutical ecosystem. To date, investigational doses of our Ebola vaccine have been administered to more than 300,000 people in the Democratic Republic of Congo, as part of efforts to contain the second deadliest outbreak of this virus in history.

 

Additionally, we are seeing continued growth with GARDASIL and GARDASIL 9, driven by increasing worldwide awareness of its role as a vaccine for the prevention of certain HPV-related cancers. We anticipate continued strong growth globally, especially as additional supply comes online, driven by higher vaccination rates and expansion into new geographies, like China, as well as gender-neutral vaccination programs.

 

Our portfolio of hospital products, including BRIDION and ZERBAXA, which was recently approved for the treatment of certain types of pneumonia, also continues to perform well. We have recently advanced, as part of a combination, islatravir, our novel investigational therapy for HIV, into phase three clinical trials.

 

In addition, our Animal Health business continues to deliver strong results. In 2019, we completed the acquisition of Antelliq, broadening our Animal Health offerings with digital technologies for both livestock and companion animals, one of the fastest growing segments in the industry.

 

These examples demonstrate how our research-focused strategy is the right one to continue providing value to shareholders, patients and society. While the biopharmaceutical industry faces some challenging headwinds, it is our responsibility as guardians of this company’s legacy to ensure we continue to deliver innovation that will enhance our pipeline and help patients.

 

We will continue our efforts to streamline our operating model and make it more efficient in order to foster the investments in innovation that are necessary to produce sustainable value for patients and you, our shareholders.

 

We hope you will participate in the Annual Meeting, either by attending and voting in person or by voting through other acceptable means as described in this proxy statement as promptly as possible. Your participation is important, so please exercise your right to vote.

 

Sincerely,

 

 

LOGO

Kenneth C. Frazier

Chairman, President and Chief Executive Officer

  

LOGO

 

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Merck & Co., Inc. 2020 Proxy Statement


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A Message from Merck’s Lead Independent Director

Dear Merck Shareholders,

Over its long history, Merck has been responsible for some of the most significant advancements and improvements in public health. Today, the Company focuses on breakthrough, innovative science to create long-term value for patients and shareholders, remaining committed to its mission of saving and improving lives. My fellow Directors and I remain committed to that mission, as well.

Our Board oversees business strategy and risk

As a Board, we are dedicated to effective oversight of the business and the key risks facing the Company. Our members draw on their leadership experiences and areas of expertise to provide guidance on corporate strategy and monitor its implementation in areas such as research and development, capital allocation, operating results, human capital management and global manufacturing. One important aspect of our oversight is having a productive partnership with management, and this was critical in the strategic decision to spin-off Merck’s women’s health business, along with a portfolio of trusted and medically important legacy products and a rapidly expanding biosimilars business. The spin-off of Organon & Co. will enhance Merck’s ability to focus more fully on its key growth pillars and future innovation, while allowing Organon & Co. to pursue the strategic intent of being a leader in women’s health.

Our Board values diverse perspectives

Our Board values shareholder perspectives and meaningful engagement. Hearing the perspectives of our shareholders helps enhance the Board’s understanding of key issues that matter to our various stakeholders. Longstanding believers in the business value of having diverse perspectives in the boardroom, we are committed to having the right mix of perspectives, skills and expertise to address the Company’s current and anticipated needs as opportunities and challenges facing the Company evolve.

We are thrilled to have welcomed Ms. Kathy J. Warden and Dr. Christine E. Seidman to the Board in March and to nominate Dr. Risa Lavizzo-Mourey to join the Board. Each of these women brings to the Board diverse perspectives, skills and expertise. Ms. Warden, Chairman, Chief Executive Officer and President, Northrop Grumman Corporation, brings global operational experience leading a research-intensive company, along with cybersecurity expertise. Dr. Seidman, the Thomas W. Smith Professor of Medicine and Genetics at Harvard Medical School and director of the Cardiovascular Genetics Program at Brigham and Women’s Hospital, brings deep scientific expertise. Dr. Lavizzo-Mourey, PIK Professor of Health Equity and Health Policy at the University of Pennsylvania, brings extensive strategic and health policy expertise.

Our Board exercises independent board leadership and is committed to strong governance practices

As independent Lead Director, I work closely with our Chairman and CEO, Ken Frazier, to ensure a productive partnership between management and the independent Directors. I am also responsible for the annual review of our Board’s effectiveness, as well as the evaluation of Mr. Frazier’s effectiveness. The process of planning and executing a smooth CEO transition is one of the Board’s most important responsibilities. Under my leadership, the Board continues to review Mr. Frazier’s performance, evaluate potential internal and external successors and to consider the appropriate time for a transition. As a Board, we are also committed to governance practices that serve the interests of the Company and its many stakeholders. Recently, the Board amended the Compensation and Benefits Committee’s charter to formalize its oversight of the Company’s programs and policies related to its management of human capital resources.

We thank you for your investment in Merck and your support for the Board. We remain committed to serving you and the patients around the world that depend on this Company’s life-saving work.

 

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LOGO

Leslie A. Brun

Lead Independent Director

 

April 6, 2020

 

Merck & Co., Inc. 2020 Proxy Statement


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Contents

 

Proxy Summary     6  
Corporate Governance     12  

Board’s Role in Strategic Planning

    12  

Independence of Directors

    13  

Board Leadership Structure

    15  

Lead Director

    15  

Criteria for Board Membership and Director Nomination Process

    16  

Succession Planning

    17  

Annual Board Evaluation

    17  

Risk Oversight

    18  

Related Person Transactions

    19  

Board Meetings and Committees

    19  

Compensation Consultants

    22  

Shareholder Engagement and Feedback

    23  

Shareholder Communications with the Board

    24  

Political Contributions and Lobbying Expenditure Oversight and Disclosure

    25  

Governance and Transparency Around Drug Pricing

    25  

Commitment to Corporate Responsibility

    26  
Stock Ownership Information     28  

Stock Ownership of Directors and Officers

    28  

Stock Ownership of Certain Beneficial Owners

    29  
Proposal 1. Election of Directors     30  

2020 Nominees for Director

    30  
Director Compensation     38  

2019 Director Compensation

    39  
Proposal 2. Non-Binding Advisory Vote to Approve the Compensation of Our Named Executive Officers     41  
Compensation Discussion and Analysis     42  

Executive Summary

    42  

Executive Compensation Program Objectives and Strategy

    43  

Say-on-Pay

    44  

Compensation Policies and Practices

    44  

Peer Groups

    45  

Detailed Discussion and Analysis

    46  

The Elements of 2019 Compensation

    48  

Compensation Risk Assessment

    56  

Compensation and Benefits Committee Report

    56  
Summary Compensation Table     57  
Grants of Plan-Based Awards     61  
Outstanding Equity Awards     63  
Option Exercises and Stock Vested     65  
Pension Benefits     66  
Nonqualified Deferred Compensation     69  
Potential Payments Upon Termination or a Change in Control     70  
Proposal 3. Ratification of Appointment of Independent Registered Public Accounting Firm for 2020     76  

Audit Committee’s Report

    77  

Pre-Approval Policy for Services of Independent Registered Public Accounting Firm

    77  

Fees for Services Provided by the Independent Registered Public Accounting Firm

    78  
Shareholder Proposals     79  
Proposal 4. Shareholder Proposal Concerning Shareholder Right to Act by Written Consent     79  
Proposal 5. Shareholder Proposal Regarding Allocation of Corporate Tax Savings     81  
Questions and Answers About the Annual Meeting and Voting     83  
Shareholder Proposals and Director Nominations for the 2021 Annual Meeting of Shareholders     88  
Forward Looking Statements     89  
Other Matters     89  
Appendix A — Non-GAAP Income and Non-GAAP EPS     90  
Appendix B — Explanation of Adjustments to Non-GAAP Results for Incentive Plans     92  
 

 

Merck & Co., Inc. 2020 Proxy Statement


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Proxy Summary

 

This summary highlights information contained elsewhere in this proxy statement and does not contain all of the
information that you should consider. You should read the entire proxy statement carefully before voting.

 

   

 

   

Date and Time

Tuesday, May 26, 2020

9:00 a.m. ET

 

Record Date

March 27, 2020

 

 

Location

Bridgewater Marriott

700 Commons Way

Bridgewater, NJ 08807

 

Also broadcast via webcast at https://investors.merck.com/events-and-presentations

 

 

Voting Matters

   Page   

Board’s

Recommendation

Proposal 1

Election of Directors

   30    FOR each
Nominee

Proposal 2

Non-binding Advisory Vote to

Approve the Compensation of

our Named Executive Officers

(Say-on-Pay)

   41    FOR

Proposal 3

Ratification of Appointment of Independent Registered Public Accounting Firm for 2020

   76    FOR

Shareholder Proposals

         

Proposal 4

Shareholder Proposal Concerning a Shareholder Right to Act by Written Consent

   79    AGAINST

Proposal 5

Shareholder Proposal Regarding Allocation of Corporate Tax Savings

   81    AGAINST

 

 

 

Business Highlights

 

 

LOGO   

 

$9.9B   GAAP investment in
R&D in 2019

 

 

Shareholder Value Creation

 

 

 

$10.5B

  Capital returned to Shareholders (dividends
and share repurchases)

 

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Total Shareholder Return(1)

 

Year-End 2019

 
1-Year   3-Year
22.3%   19.0%
  LOGO   
5-Year
13.3%

LOGO  

 

(1)   Relative Total Shareholder Return, a component of our Performance Share Unit program that is described on page 52, is calculated on a different basis.

 

 

 

Merck & Co., Inc. 2020 Proxy Statement


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Proxy Summary  

2019 NEOs and Compensation Highlights  

 

 

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2019 NEOs and Compensation Highlights (Page 46)

Below is a list of our 2019 Named Executive Officers, or “NEOs”, and select compensation highlights from 2019. For additional information on our elements of 2019 compensation, please refer to the Compensation Discussion and Analysis (“CD&A”), beginning on page 42.

 

                       

Annual Base

Salary

Increase%

 

     

Target

Annual

Incentive%

 

     

Target

Long-Term
Incentive$

 

     

 

Total Target

Direct
 Compensation 
Increase%*

 

   
       

2019 NEOs

 

                       
                                 
  LOGO  

Kenneth C. Frazier

Chairman, President and

Chief Executive Officer

 

 

      +3.1%     no change     +$2,000,000      +12.5%  
                   
  LOGO  

Robert M. Davis

Executive Vice President, Global Services and Chief Financial Officer

 

      +3.0       no change    

     +200,000

      +4.4    
                   
  LOGO  

Sanat Chattopadhyay

Executive Vice President

and President, Merck Manufacturing Division

 

 

      +3.6       no change    

     +500,000

    +17.5    
                   
  LOGO  

Roger M. Perlmutter, M.D., Ph.D.

Executive Vice President and President, Merck Research Laboratories

 

      +3.0       no change       +1,000,000     +17.0    
                   
 

LOGO

 

 

Jennifer Zachary

Executive Vice President, General Counsel and Corporate Secretary

 

      +9.4       no change          +350,000     +13.9    

* Total target direct compensation is the aggregate total of annual base salary, target annual cash incentive and target long-term incentive.

Variable Compensation is a Critical Component of Our Pay-For-Performance Objectives (Page 43)

Merck’s compensation programs are designed to align the interests of our executives with the interests of our shareholders. For this reason, a significant portion of our NEOs’ pay is variable and at-risk, subject to Company performance as measured against financial, operating and strategic objectives, as well as relative Total Shareholder Return (“R-TSR”). The Company’s variable incentives demonstrate a strong linkage between pay and performance.

Annual Cash Incentive

The Company Scorecard (described in more detail on page 50) focuses on our most critical business drivers — revenue, pre-tax income and pipeline — and is used to determine the payout of our annual incentive for all eligible employees, including our NEOs under the Executive Incentive Plan. Our Scorecard performance during 2019 resulted in above-target achievement of 184%.

Long-Term Incentive (“LTI”)

For grants issued in 2017, 70% of each Named Executive Officer’s annual target LTI was converted to Performance Share Units (“PSUs”) based on the closing price of Merck stock on the date of grant. The number of units ultimately earned is based on our performance against the pre-established Operating Cash Flow (“OCF”) and Earnings Per Share (“EPS”) targets and R-TSR performance. For the 2017-2019 performance period, three-year cumulative OCF and EPS were each weighted at 25%, and R-TSR versus our pharmaceutical peer group was weighted at 50%. The results of the combined performance resulted in an actual payout of 137% as illustrated in more detail on page 53.

 

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  Proxy Summary

   Say-On-Pay Advisory Vote  

 

   

 

Say-On-Pay Advisory Vote (Page 44)

 

In 2019, shareholders continued their support for our executive compensation programs with 93% of the votes cast in favor of approving the say-on-pay proposal. Consistent with the Company’s strong interest in shareholder engagement and our pay-for-performance approach, the Compensation and Benefits Committee has continued to examine our executive compensation program to ensure alignment between the respective interests of our executives and shareholders. No significant changes were made to our executive compensation program in 2019 as a result of the most recent say-on-pay vote.

 

We ask that our shareholders approve, on an advisory basis, the compensation of our NEOs as further described in Proposal 2 on page 41.

 

For additional information, please refer to the Compensation Discussion and Analysis in this proxy statement.

    

 

LOGO

Shareholder Engagement and Feedback (Page 23)

Merck communicates regularly with shareholders to better understand their perspectives and has established a shareholder engagement program that is both proactive and cross-functional. In addition, our Lead Director and Chair of our Governance Committee, Leslie Brun, participates in substantive engagements with some of the Company’s largest shareholders. In 2019, discussions with shareholders covered a wide range of topics of interest to shareholders, including the Board’s composition and leadership, management and director succession, executive compensation programs, ESG reporting, human capital management and other governance matters. These discussions provided valuable insights into shareholder views, and we heard from many shareholders that they greatly appreciated the opportunity to engage with our Company.

We will continue to engage with shareholders on a regular basis to better understand and consider their views on our executive compensation programs, corporate responsibility and corporate governance practices.

Board Composition and Refreshment

On an annual basis, the Governance Committee considers the size, structure and needs of the Board, reviews possible candidates for the Board and recommends Director nominees to the Board for approval.

In selecting Director nominees, the Board considers its composition, including its diversity, and the skills, areas of expertise and experience represented. The Board also considers the Company’s current and future global business strategies, opportunities and challenges. Such considerations have resulted in the election of four new Board members over the last three years and the nomination of a new director in this proxy statement. For more information, see “Criteria for Board Membership and Director Nomination Process” beginning on page 16.

Considering the factors noted above, in 2020 the Board elected two new independent Directors, Dr. Christine E. Seidman, Thomas W. Smith Professor of Medicine and Genetics at Harvard University, and Ms. Kathy J. Warden, Chairman, Chief Executive Officer and President of Northrop Grumman Corporation. In addition, the Board is nominating an additional independent Director to stand for election by shareholders at the 2020 Annual Meeting of Shareholders, Dr. Risa Lavizzo-Mourey, Penn Integrates Knowledge Professor of Health Equity and Health Policy at the University of Pennsylvania. Ms. Rochelle B. Lazarus will retire from the Board effective as of the 2020 Annual Meeting of Shareholders. Also, due to other commitments, Mr. Wendell Weeks will not be standing for re-election to the Board.

 

Merck & Co., Inc. 2020 Proxy Statement


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Proxy Summary  

Governance Highlights   

 

 

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Governance Highlights

We believe good corporate governance is essential to achieving long-term shareholder value. We are committed to governance policies and practices that serve the interests of our Company and its many stakeholders. For this reason, we devote considerable time and resources to making sure that:

 

 

our policies reflect our values and business goals;

 

 

we have an effective corporate governance structure; and

 

 

we operate in an open, honest and transparent way.

We highlight some significant aspects of our corporate governance practices below.

 

Independence

 

•  Twelve of our thirteen Director nominees are independent.

 

•  We have a strong independent lead director.

 

•  Our independent directors convene regular executive sessions.

 

•  All four of our standing Board committees (Audit, Compensation and Benefits, Governance and Research) are comprised solely of independent directors.

 

Accountability

 

•  Every director stands for re-election every year.

 

•  Directors are elected by majority vote.

 

Best practices

 

•  Our Board of Directors as a whole, and each individual Board committee, conducts a self-evaluation every year.

 

•  The Board actively engages in CEO succession planning.

 

•  The Board is diverse in terms of gender, ethnicity, experience and skills.

 

•  Our Board policies include an express Diversity Policy.

 

Transparency

 

•  We have strong control over our political spending and disclose corporate political activity.

 

•  We disclose aspects of our public policy engagement.

 

Board oversight

 

•  The full Board and each individual Board committee is responsible for overseeing risk.

 

•  The full Board oversees corporate strategy.

  

Alignment with shareholder interests

 

•  Our officers and directors are prohibited from engaging in hedging, pledging or short sale transactions involving Company stock.

 

•  Executives and directors must hold prescribed meaningful amounts of Company stock.

 

•  We have a robust shareholder engagement program.

 

•  We have a proxy access provision in our By-Laws under which shareholders who own 3% of our stock for at least three years may nominate up to 20% of the members of our Board.

 

•  Holders of 15% of our shares may call a special meeting.

 

•  We do not have a shareholder rights plan (also known as a poison pill).

 

•  We do not have any supermajority voting provisions.

 

Compensation practices

 

•  We have conducted an annual say-on-pay advisory vote since 2011.

 

•  All incentive compensation paid to executives is subject to a clawback policy.

 

•  Our incentive compensation awards are designed to align pay with performance.

 

•  Our Compensation and Benefits Committee uses an independent compensation consultant.

 

Citizenship

 

•  We have a longstanding commitment to corporate responsibility.

 

•  All of our employees must adhere to a robust Code of Conduct.

 

 

Merck & Co., Inc. 2020 Proxy Statement


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10   

 

 

 

  Proxy Summary

   Nominees for Director  

 

   

 

Nominees for Director (Page 30)

The following provides summary information about each Director nominee. Each Director stands for election annually. Detailed information about each individual’s background, skill set and areas of expertise can be found beginning on page 30.

 

                       Current Committee Memberships
                       Audit   Compensation
and Benefits
  Governance   Research
     Director Nominee   Age    Director
Since
   Title    LOGO   LOGO   LOGO   LOGO

 

LOGO

 

Leslie A. Brun

Lead Independent Director

  67    2008    Chairman and Chief Executive Officer, Sarr Group, LLC   

 

LOGO

     

 

LOGO

   

 

LOGO

  Thomas R. Cech, Ph.D.   72    2009    Distinguished Professor,
University of Colorado
  

 

LOGO

         

 

LOGO

 

LOGO

  Mary Ellen Coe   53    2019    President, Google Customer Solutions, Google Inc.   

 

LOGO

         

 

LOGO

 

LOGO

  Pamela J. Craig   63    2015    Former Chief Financial Officer, Accenture plc   

 

LOGO

     

 

LOGO

   

 

LOGO

 

Kenneth C. Frazier

Management

  65    2011    Chairman, President and Chief Executive Officer,
Merck & Co., Inc.
                

 

LOGO

  Thomas H. Glocer   60    2007    Former Chief Executive Officer, Thomson Reuters Corporation       

 

LOGO

 

 

LOGO

   

 

LOGO

  Risa J. Lavizzo-Mourey, M.D.*   65      

Penn Integrates Knowledge Professor of Health Equity and Health Policy, University of Pennsylvania

                

 

LOGO

  Paul B. Rothman, M.D.   62    2015    Dean of Medical Faculty and Vice President for Medicine, The Johns Hopkins University, and CEO, Johns Hopkins Medicine   

 

LOGO

         

 

LOGO

 

LOGO

  Patricia F. Russo   67    1995    Chairman, Hewlett Packard Enterprise Company; Former Chief Executive Officer and Director, Alcatel-Lucent       

 

LOGO

 

 

LOGO

   

 

LOGO

  Christine E. Seidman, M.D.   67    2020   

Thomas W. Smith Professor of Medicine and Genetics, Harvard Medical School, and Director, Cardiovascular Genetics Center, Brigham and Women’s Hospital

  

 

 

LOGO

         

 

 

LOGO

 

LOGO

  Inge G. Thulin   66    2018    Former Chairman of the Board, President and Chief Executive Officer, 3M Company       

 

LOGO

 

 

LOGO

 

   

 

LOGO

  Kathy J. Warden   48    2020   

Chairman, Chief Executive Officer and President, Northrop Grumman Corporation

  

 

LOGO

         

 

LOGO

 

LOGO

  Peter C. Wendell   69    2003    Managing Director, Sierra Ventures             

 

LOGO

   

 

LOGO

 

Number of Meetings in 2019

   9   7   4   4

* Dr. Lavizzo-Mourey is a Director nominee for election by shareholders at the Annual Meeting of Shareholders. If elected, Dr. Lavizzo-Mourey would serve as a member of the Compensation and Benefits Committee and Governance Committee.

LOGO   Committee Chair

 

Merck & Co., Inc. 2020 Proxy Statement


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Proxy Summary  

Our 2020 Director Nominees Snapshot  

 

 

   11

 

 

Our 2020 Director Nominees Snapshot

Our Director nominees possess broad expertise, skills, experience and perspectives that will facilitate the strong oversight and strategic direction required to govern the Company’s business and strengthen and support senior management. As illustrated by the following chart, our Director nominees are made up of individuals with expertise in fields that align with the Company’s business and long-term strategy and reflect a mixture of tenure that allows for both new perspectives and continuity.

 

 

Board Diversity and Independence

 

Gender   Independence   Tenure
LOGO   LOGO   LOGO

 

LOGO

 

LOGO

 

Merck & Co., Inc. 2020 Proxy Statement


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12   

 

 

 

    

    

   
   

 

Corporate Governance

 

   

 

The Board has the legal responsibility for overseeing the affairs of the Company and for the overall performance of the Company. The Board’s primary mission is to represent and protect the interests of our shareholders. To that end, the Board selects and oversees the senior management team, which is charged with conducting Merck’s daily business.

 

The Board has adopted corporate governance principles (the “Policies of the Board”) that, together with our Restated Certificate of Incorporation, By-Laws and Board committee charters, form the governance framework for the Board and its committees. The Policies of the Board cover a wide range of subjects, including the philosophy and functions of the Board, the composition of the Board, the independent Lead Director’s responsibilities, categorical independence standards, Director qualifications, assessment of the Board, committee responsibilities, Director transition and retirement, service on other boards, Director compensation, stock ownership guidelines, chairmanship of meetings, Director orientation and continuing education, incumbent Director resignation and related person transactions. From time to time, the Board revises the Policies of the Board and Board committee charters in response to changing regulatory requirements, evolving best practices and the perspectives of our shareholders and other constituents. For example, in 2019, the Board revised the Policies of the Board to include a formal diversity policy to guide the Director succession process. The Board also revised the Compensation and Benefits Committee’s charter to formalize its oversight of the Company’s programs, policies and practices related to its management of human capital resources.

 

Governance Materials

The following items relating to corporate governance at Merck are available on our website at merck.com/about/leadership:

 

    Restated Certificate of Incorporation

 

    By-Laws

 

    Policies of the Board — a statement of Merck’s corporate governance principles

 

    Merck Board Committee Charters

 

    Shareholder Communications with the Board

 

    Merck Code of Conduct — Our Values and Standards
 

 

Board’s Role in Strategic Planning

The Board — acting both as a whole and through its four standing committees — is fully involved in the Company’s strategic planning process. All of our Directors have an obligation to keep informed about the Company’s business and strategies, so they can provide guidance to management in formulating and developing plans and knowledgeably exercise their decision-making authority on matters of importance to the Company.

The Board’s oversight and guidance are inextricably linked to the development and review of the Company’s strategic plan. By exercising sound and independent business judgment on the strategic issues that are important to the Company’s business, the Board facilitates Merck’s long-term success.

 

Merck & Co., Inc. 2020 Proxy Statement


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Corporate Governance  

Independence of Directors  

 

 

   13

 

 

Our Strategic Planning Cycle

 

LOGO

Independence of Directors

The Policies of the Board require that a substantial majority of our Directors be independent. In making independence determinations, the Board observes all relevant criteria established by the U.S. Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange (the “NYSE”), as well as categorical independence standards set forth in the Policies of the Board. The Board considers all relevant facts and circumstances in making an independence determination.

To be considered independent, an outside director must meet the bright line independence tests established by the NYSE, and the Board must affirmatively determine that the director has no direct or indirect material relationship with the Company.

The Board also rigorously considers all relevant heightened independence requirements for members of the Audit Committee and the Compensation and Benefits Committee. The Governance Committee reviews the Board’s approach to determining director independence periodically and recommends changes, as appropriate, for consideration and approval by the full Board.

 

Merck & Co., Inc. 2020 Proxy Statement


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14   

 

 

 

  Corporate Governance

   Independence of Directors  

 

   

 

Independence Determinations

In accordance with the NYSE Corporate Governance Listing Standards and the categorical standards reflected in the Policies of the Board, the Board reviewed relationships between the Company and each Director and Director nominee. As a result of that review, the Board has determined that, with the exception of Kenneth C. Frazier, our Chairman and CEO, each Director and Director nominee has only immaterial relationships with the Company, and accordingly, each is independent under these standards. The Board also has determined that each member of the Audit Committee, the Compensation and Benefits Committee and the Governance Committee is independent within the meaning of the NYSE Corporate Governance Listing Standards and the rules of the SEC.

In making these determinations, the Board considered relationships that exist between the Company and other organizations where each Director (or Director nominee) serves, as well as the fact that in the ordinary course of business, transactions may occur between such organizations and the Company or one of our subsidiaries. The Board also evaluated whether there were any other facts or circumstances that might impair a Director’s or a Director nominee’s independence.

As previously disclosed, the Company and Corning Incorporated (“Corning”), for which Mr. Weeks serves as Chairman, Chief Executive Officer and President, are parties to a Joint Research and Development Agreement (“R&D Agreement”) aimed at developing new glass materials. In 2011, the R&D Agreement was first reviewed and approved by the Governance Committee and reviewed by the Board (other than Mr. Weeks) to confirm Mr. Weeks’ continued independence. In 2014, Merck and Corning entered into two follow-on agreements: a multi-year component supply agreement (“Supply Agreement”) with minimum volume commitments and a royalty agreement (“Royalty Agreement” and, together with the R&D Agreement and the Supply Agreement, the “Corning Agreements”). The Royalty Agreement also amended the R&D Agreement. Both agreements were reviewed and approved by the Governance Committee and the entire Board (again, with Mr. Weeks recusing himself). The Governance Committee has conducted regular oversight of the Corning Agreements.

In 2019, Merck and Corning amended the Corning Agreements to eliminate the previously agreed minimum volume commitments, provide for additional development work under the R&D Agreement and revise a payment date in the Supply Agreement. In connection with these amendments, Merck agreed to pay Corning an aggregate amount of up to $5 million per year until December 31, 2023. For the additional development work, Merck agreed to pay Corning an aggregate amount of up to $6.25 million per year until January 31, 2023. Finally, under the revised payment date in the Supply Agreement, Merck will pay to Corning by the end of 2023 the $15 million that had been agreed previously. The parties also agreed to negotiate and enter into a new supply agreement by the end of 2023 and, if they do not, Merck will pay to Corning an additional amount of $20 million. The amendments to the Corning Agreements were reviewed and recommended for approval by the Governance Committee. Mr. Brun, a member of the board of directors of Corning, did not participate in the review or recommendation by the Governance Committee. The amendments were then approved by the entire Board (with both Mr. Weeks and Mr. Brun recusing themselves).

Prior to 2019, Merck reimbursed Corning for an aggregate of $25.2 million for development costs incurred under the R&D Agreement and intellectual property filing costs. In 2019, Merck paid Corning an additional $1 million for development costs incurred under the R&D Agreement upon the achievement of agreed milestones. An additional $6 million of reimbursable costs remain to be paid upon the achievement of a milestone agreed to under the R&D Agreement. In 2019, Merck reimbursed Corning an additional approximately $600,000 for intellectual property filing costs incurred in 2018.

Merck expects to reimburse Corning for additional intellectual property filing costs in the future. In addition, in 2019, the Company made purchases from Corning in the ordinary course of business unrelated to the Supply Agreement. Commencing in 2020, the Company expects to begin receiving royalties under the Royalty Agreement.

Drs. Cech, Lavizzo-Mourey, Rothman and Seidman are employed at medical or academic institutions with which the Company engages in purchase and/or sale transactions in the ordinary course of business. In addition, Mr. Thulin was employed by 3M Company until June 1, 2019, and the Company engages in routine business transactions with 3M Company. The Board reviewed transactions with each of these entities and determined that the applicable individual Director or Director nominee had no role with respect to the Company’s decision to make any of the purchases or sales, and the aggregate amounts in each case were less than 2% of the consolidated gross revenues of the other organization and the Company.

 

Merck & Co., Inc. 2020 Proxy Statement


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Corporate Governance  

Board Leadership Structure  

 

 

   15

 

 

Board Leadership Structure

The Board of Directors is currently led by Kenneth C. Frazier, who serves as the Chairman of the Board, and by Leslie A. Brun, an independent Director, who serves as the Board’s Lead Director. The Board, made up of independent Directors (other than Mr. Frazier), is highly empowered and engaged. The independent Directors evaluate our Board leadership structure at least annually.

The Board meets in executive session without the Chairman and CEO at each in-person Board meeting. During these executive sessions, which are led by the independent Lead Director, the Directors discuss topics such as succession planning for the CEO, key management positions and points of follow-up with management on strategic issues.

Lead Director

Merck’s independent Lead Director is appointed by the independent members of the Board of Directors to a three-year term. The position of Lead Director has a clear mandate and significant authority and responsibilities — all set out in the Policies of the Board. These include:

 

Board Meetings and Executive

Sessions

  

•  The authority to call meetings of the independent members of the Board.

 

•  Presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent members of the Board.

Communicating with

Management

  

•  Serving as the principal liaison on Board-wide issues between the independent members of the Board and the Chairman/CEO.

Agendas

  

•  Approving meeting agendas and the information sent to the Board, including supporting material for meetings.

Meeting Schedules

  

•  Approving meeting schedules to ensure there is sufficient time for discussion of all agenda items.

Communicating with

Shareholders and Stakeholders

  

•  Being available for consultation and direct communication with major shareholders, as appropriate.

 

•  Serving as a liaison between the Board and shareholders on investor matters.

Board Performance Evaluation

  

•  Leading the annual performance evaluation of the Board.

 

Chairman and CEO

Performance Evaluations

  

•  Leading the annual performance evaluation of the Chairman/CEO.

CEO Succession

  

•  Leading the CEO succession planning process.

In addition to a Board Chairman and an independent Lead Director, the Board of Directors has four standing committees, each of which is composed solely of independent Directors and is led by an independent chair. These standing committees are described beginning on page 19. The Board believes the Company and its shareholders are well-served by this leadership structure. Having an independent Lead Director vested with key duties and responsibilities and four independent Board committees chaired by independent Directors promotes strong independent oversight of the Chairman and CEO and the rest of our management team.

The Board believes that having Mr. Frazier serve as Chairman and CEO adds substantial strategic and operational perspective to the Chairman role. Mr. Frazier’s years of senior management and executive leadership experience at Merck provide valuable business and cultural insight into the Company to the benefit of the Board and position Mr. Frazier to provide effective Board-level leadership.

 

Merck & Co., Inc. 2020 Proxy Statement


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16   

 

 

 

  Corporate Governance

   Criteria for Board Membership and Director Nomination Process  

 

   

 

Criteria for Board Membership and Director Nomination Process

The Governance Committee is responsible for screening and nominating director candidates considered for election by the Board. In this capacity, the Committee considers the composition of the Board, including the depth of experience, balance of professional skills, expertise represented and diversity of perspectives. The Committee also evaluates prospective nominees identified on its own initiative as well as candidates recommended by other Board members, management, shareholders or search consultants. In 2019, the Governance Committee retained a search firm to identify possible candidates who meet our qualifications, to interview and screen such candidates (including conducting reference checks) and to assist in scheduling candidate interviews with Board members.

To be considered for membership on the Board, a candidate must meet the following minimum criteria:

 

 

be of proven integrity with a record of substantial achievement in an area of relevance to the Company;

 

have demonstrated ability and sound judgment that usually will be based on broad experience;

 

be able and willing to devote the required amount of time to the Company’s affairs, including attendance at Board meetings, Board committee meetings and annual shareholder meetings;

 

possess a judicious and critical temperament that will enable objective appraisal of management’s plans and programs; and

 

be committed to building sound, long-term Company growth.

Individual Experience, Qualifications, Attributes and Skills

In its regular discussions regarding Board composition — and especially in conjunction with the annual Board and committee evaluations — the Governance Committee works with the Board to determine the appropriate mix of professional experience, expertise, educational background and other qualifications that are particularly desirable in light of our current and future business strategies. The Governance Committee uses this input in its planning and Director search process. In addition to the five broad criteria listed above, the following chart highlights the background, experience and skills the Board takes into account for future candidates. These attributes are amply represented by our current Director nominees.

 

LOGO

Diversity

Diversity is an important factor considered when identifying prospective nominees for our Board and, in 2019, the Board added a formal diversity policy to the Policies of the Board. The policy reflects the Board’s longstanding commitment to ensure that Directors represent diverse perspectives and areas of expertise important to fostering the Company’s business success. The policy provides that the Board does not discriminate against potential Directors on the basis of gender, race, age, sexual orientation or ethnic and national background and that having a board composed of diverse individuals is an important contributor to the Board’s overall effectiveness.

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents
   

 

Corporate Governance  

Succession Planning  

 

 

   17

 

 

Shareholder Recommendations of Director Candidates

The Governance Committee will consider recommendations for Director candidates made by shareholders and will evaluate those individuals using the same criteria applied to other candidates. Shareholder recommendations must be sent to the Office of the Secretary, Merck & Co., Inc., 2000 Galloping Hill Road, K1-4157, Kenilworth, New Jersey 07033 U.S.A., and must include detailed background information regarding the recommended candidate that demonstrates how that candidate meets the Board membership criteria.

Candidates are evaluated initially based on materials submitted by them or on their behalf. If a proposed or recommended candidate continues to be of interest to the Governance Committee, we obtain additional information through inquiries to various sources and, if warranted, interviews.

Succession Planning

The Board regularly reviews short- and long-term succession plans for the CEO and other executive officers. In assessing possible CEO candidates, the independent Directors identify the skills, experience and attributes they believe are required for an effective CEO in light of the Company’s global business strategies, opportunities and challenges. The Board also ensures that Directors have substantial opportunities to engage with possible succession candidates and have access to external consultants, as needed.

In 2018, the Board eliminated the existing policy regarding mandatory retirement of the CEO at age 65. Eliminating this policy allows the Board appropriate flexibility in determining the optimal timing of the succession process.

The Board also considers its own composition and succession plans. Discussion of these topics is an important part of the annual Board evaluation process. In Director succession planning, the Governance Committee and the Board consider, among other things, the needs of the Board and the Company in light of the overall composition of the Board, with a view toward achieving a balance of the skills, experience and attributes that are essential to the Board’s oversight role. In addition, the Policies of the Board provide that Directors may not be nominated for re-election to our Board after they reach the age of 72. The Governance Committee considers this policy and the schedule of upcoming Director retirements in determining the right approach to maintaining a strong composition of Director skills and experience. Although the Board believes this policy promotes regular refreshment of the Board, in 2019, the Board waived this policy with respect to the Chair of the Research Committee, Dr. Cech, for a period of one year as the Board onboards additional members to the Research Committee.

Annual Board Evaluation

The Board conducts an evaluation of its performance and effectiveness, as well as that of the four standing committees, on an annual basis. The purpose of the evaluation is to track progress in certain areas targeted for improvement and to identify ways to enhance the overall effectiveness of the Board and its committees. The evaluation process is led by the independent Lead Director. The Governance Committee also periodically engages an independent third party to manage the process to ensure it remains as thorough and transparent as possible. In 2019, the evaluation was conducted in 3 phases.

 

LOGO

 

The Board evaluation process resulted in a number of recommendations, including recommendations regarding priority agenda

topics for the Board to address in 2020. The feedback highlighted that Directors were pleased to have had additional time

allotted to full-Board discussion of Director succession priorities in 2019. A key recommendation is to continue this practice.

 

 

Merck & Co., Inc. 2020 Proxy Statement


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18   

 

 

 

  Corporate Governance

   Risk Oversight  

 

   

 

Risk Oversight

The Board of Directors has two primary methods of overseeing risk. The first method is through its Enterprise Risk Management (“ERM”) process, which allows for full Board oversight of the most significant risks facing the Company. The second is through the functioning of the Board committees.

Management has established an ERM process to ensure a complete Company-wide approach to evaluating risk over six distinct but overlapping risk areas:

 

Responsibility and Reputation

  

Risks that may impact the well-being of the Company, its employees, customers, patients, communities or reputation

 

Strategy

   Macro risks that may impact our ability to achieve long-term business objectives

Operations

   Risks in operations and cybersecurity that may impact our ability to achieve business objectives

Compliance

   Risks related to compliance with laws, regulations and Company values, ethics and policies

Reporting

   Risks to maintaining accurate financial statements and timely, complete financial disclosures

Safety

   Risks to employee, patient or community health and safety

The goal of the ERM process is to provide an ongoing review, implemented across the Company and aligned to Company values and ethics, to identify and assess risk and to monitor risk and agreed-upon mitigating action. Furthermore, if a risk transforms into an incident, the ERM process ensures that effective response and business continuity plans are in place. If the ERM process identifies a material risk, it will be elevated through the CEO and the Executive Committee to the full Board of Directors for consideration. The Audit Committee periodically reviews the ERM process to ensure it is robust and functioning effectively.

Through the ERM process, each Board committee oversees specific areas of risk relevant to the committee through direct interactions with the CEO, members of the Company’s Executive Committee and the heads of business divisions and corporate functions. A committee may address risks directly with management or, where appropriate, may elevate a risk for consideration by the full Board or another Board committee. The following are examples of Board committees’ responsibilities in risk oversight:

 

   

the Audit Committee has primary responsibility for overseeing the Company’s risk-management program relating to cybersecurity, although, the full Board participates in periodic reviews and discussion dedicated to the Company’s cyber risks, threats and protections. The Audit Committee also oversees risk relating to finance, business integrity and Sarbanes-Oxley reporting through its interactions with the Chief Financial Officer, Chief Compliance Officer, Controller and the Head of Internal Audit;

 

   

the Compensation and Benefits Committee (the “C&B Committee”) and senior management continually evaluate the relationship between risk and reward as it relates to our executive compensation program. When setting incentive plan targets each year, the C&B Committee is aware of the risk associated with drug pricing, among other things, and ensures our plans do not incentivize risky behavior in order to meet targets;

 

   

the Governance Committee oversees the Company’s corporate governance, including the practices, policies and procedures of the Board and its committees, considers the size, structure and needs of the Board, reviews possible candidates for the Board and recommends Director nominees to the Board for approval; and

 

   

the Research Committee oversees the overall strategy, direction and effectiveness of the Company’s research and development operations.

The separate ERM process and Board committee approach to risk management leverages the Board’s leadership structure to ensure the Board oversees risk on both a Company-wide approach and through specific areas of competency.

 

Merck & Co., Inc. 2020 Proxy Statement


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Corporate Governance  

Related Person Transactions  

 

 

   19

 

 

Related Person Transactions

Related Person Transaction Policy

The Board of Directors has adopted a written Related Person Transaction Policy (the “Policy”) that is incorporated into the Policies of the Board and administered by the Governance Committee. The Policy governs the review and approval of any transactions involving amounts exceeding $120,000 to which the Company or a subsidiary is a party and in which a “related person” has a direct or indirect material interest. A “related person” is any Director, Director nominee, executive officer or holder of more than 5% of any outstanding class of the Company’s voting securities, as well as immediate family members or certain affiliated entities of any of the foregoing persons.

Pursuant to the Policy, management determines whether a transaction requires review by the Governance Committee, in which case the transaction, along with all material information, will be disclosed to the Governance Committee for review, approval, ratification or termination. In the event a related person transaction is approved by the Governance Committee, such transaction will be subject to ongoing monitoring to ensure that the transaction remains fair and reasonable to the Company. For additional information, the full Policy is available on the Company’s website at merck.com/about/leadership.

Certain Related Person Transactions

Each Director, Director nominee and executive officer of Merck annually completes and submits to the Company a Director & Officer (“D&O”) Questionnaire. The D&O Questionnaire requests, among other things, information regarding whether any Director, Director nominee, executive officer or their immediate family members had an interest in any transaction or proposed transaction with Merck or its subsidiaries or has a relationship with a company that has entered or proposes to enter into such a transaction.

After review of the D&O Questionnaires by the Office of the Secretary, the responses are collected, summarized and distributed to responsible areas within the Company to identify any potential transactions. All relevant relationships and any transactions, along with payables and receivables, are compiled for each person and affiliation. Management submits a report of the affiliations, relationships, transactions and appropriate supplemental information to the Governance Committee for its review. Based on this information for 2019, the Governance Committee has determined that no transactions require disclosure under Item 404(a) of SEC Regulation S-K.

 

Board Meetings and Committees

 

In 2019, the Board of Directors met six times. Under the Policies of the Board, Directors are expected to attend regular Board meetings, applicable Board committee meetings and annual shareholder meetings.

 

The independent Directors of the Board met in 12 executive sessions in 2019. Mr. Brun, Lead Director of the Board, presided over the executive sessions. Eleven of the then twelve Directors attended the 2019 Annual Meeting of Shareholders.

     

 

All Directors attended at least 75% of the meetings of the Board and of the committees on which they served in 2019.

  

The Board of Directors has four standing committees, each of which is made up solely of independent Directors: Audit Committee; Compensation and Benefits Committee; Governance Committee; and Research Committee. In addition, the Board from time to time establishes special purpose committees. All of our standing committees are governed by Board-approved charters, which are available on our website at merck.com/about/leadership/board-of-directors. The committees evaluate their performance and review their charters annually. Additional information about the committees is provided below. As a non-independent director, Mr. Frazier is not a member of any Board committee.

 

Merck & Co., Inc. 2020 Proxy Statement


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  Corporate Governance

   Board Meetings and Committees  

 

   

 

Audit Committee

 

 

 

  LOGO

  

 

 

 

LOGO

 

 

Pamela J. Craig

Chair

    

  Overview                                                                                                                         

 

The Audit Committee oversees our accounting and financial reporting processes, internal controls
and audits and consults with management, the internal auditors and the independent auditors on,
among other items, matters related to the annual audit, the published financial statements and
the accounting principles applied. The Audit Committee has established policies and procedures
for the pre-approval of all services provided by the independent auditors (as described on page 77
of this proxy statement) and for the approval of the annual internal audit plan as executed by the
Internal Audit organization.

 

The Audit Committee’s Report is included on page 77 of this proxy statement.

 

  The Primary Functions of this Committee are to:                                                       

 

•   Appoint, evaluate and retain our independent auditors;

•   Maintain direct responsibility for the compensation, termination and oversight of our
independent auditors and evaluate the independent auditors’ qualifications, performance and
independence;

•   Monitor compliance with the Foreign Corrupt Practices Act and the Company’s policies on
ethical business practices and report on these items to the Board;

•   Establish procedures for the receipt, retention and treatment, on a confidential basis, of
complaints received by the Company (as described under “Shareholder Communications with
the Board” on page 24 of this proxy statement); and

•   Oversee the ERM process.

 

    

 

Other Members

Leslie A. Brun

Thomas R. Cech, Ph.D.

Mary Ellen Coe

Paul B. Rothman, M.D.

Christine E. Seidman, M.D.(1)

Kathy J. Warden(1)

       
      
 

Number of Meetings in 2019:

9

  
      
 

Financial Experts on Audit Committee

 

The Board has determined that each of Mr. Brun, Ms. Craig and Ms. Warden is an “audit committee financial expert” as defined by the SEC and has accounting or related financial management expertise as required by NYSE Corporate Governance Listing Standards.

  
      
(1)

Joined the Board of Directors on March 16, 2020.

 

Compensation and Benefits Committee

 

 

 

  LOGO

  

 

 

 

LOGO

 

 

Thomas H. Glocer

Chair

    

  Overview                                                                                                                         

 

The C&B Committee annually reviews and approves corporate goals and objectives relevant to the
total direct compensation opportunity for the Chairman and CEO and certain other officers;
evaluates their performance against these goals and objectives; and, based on this evaluation,
sets their total target direct compensation and determines payouts under our variable
compensation plans. The details of the processes and procedures involved are described in the
Compensation Discussion and Analysis beginning on page 42. The independent members of the
full Board ultimately make the final decisions regarding the Chairman and CEO’s total direct
compensation.

 

The C&B Committee Report is included on page 56 of this proxy statement.

 

  The Primary Functions of this Committee are to:                                                      

 

•   Establish and maintain a competitive portfolio of executive compensation and benefits
programs designed to attract, motivate and retain the talent necessary to execute the
Company’s long-term strategic plan;

•   Discharge the Board’s responsibilities for compensating our officers;

•   Oversee/monitor

–  The competence and qualifications of our executive officers,

–  Officer succession,

–  The soundness of the organizational structure,

–  The Company’s programs, policies and practices related to its management of human
capital resources, and

–  Other related matters necessary to ensure the effective management of the business; and

•   Review the Compensation Discussion and Analysis for inclusion in our proxy statement.

    

 

Other Members

Rochelle B. Lazarus(1)

Patricia F. Russo

Inge G. Thulin

Peter C. Wendell

       
      
 

Number of Meetings in 2019:

7

  
      
 

Compensation and Benefits Committee Interlocks and Insider Participation

 

There were no C&B Committee

interlocks or insider (employee)

participation during 2019.

  
      
(1)

Retiring from the Board effective as of the 2020 Annual Meeting.

 

Merck & Co., Inc. 2020 Proxy Statement


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Corporate Governance  

Board Meetings and Committees  

 

 

   21

 

 

Governance Committee

 

 

 

  LOGO

  

 

 

 

LOGO

 

 

Leslie A. Brun

Chair | Lead Director

    

  Overview                                                                                                                         

 

The Governance Committee oversees the Company’s corporate governance, including the
practices, policies and procedures of the Board and its committees. Further, the Governance
Committee annually reviews the size, structure and needs of the Board and Board committees,
reviews possible candidates for the Board and recommends Director nominees to the Board for
approval. The details of the review process and assessment of candidates are described under
“Criteria for Board Membership and Director Nomination Process” beginning on page 16 of this
proxy statement.

 

  The Primary Functions of this Committee are to:                                                       

 

•   Coordinate an annual evaluation of Board performance, and review Board compensation,
related person transactions and D&O indemnity and fiduciary liability insurance coverage for
the Company’s officers and non-employee Directors;

•   Oversee the Board’s Incumbent Director Resignation Policy;

•   Review the Company’s: Good Manufacturing Practice compliance, including internal and
external audits; Environmental, Health and Safety practices; supply chain manufacturing
strategy and governance, as well as its third-party sourcing program; business continuity
plans; and privacy policies and practices;

•   Review social, political and economic trends that affect our business; review the positions and
strategies we pursue to influence public policy;

•   Monitor and evaluate our corporate citizenship programs and activities, including the support
of charitable, political and educational organizations and political candidates and causes; and

•   Review legislative, regulatory, privacy and other matters that could impact our shareholders,
customers, employees and the communities in which we operate.

 

    

 

Other Members

Pamela J. Craig

Thomas H. Glocer

Rochelle B. Lazarus(1)

Patricia F. Russo

Inge G. Thulin

       
      
 

Number of Meetings in 2019:

4

  
      
    
      
(1)

Retiring from the Board effective as of the 2020 Annual Meeting.

 

Research Committee

 

 

 

  LOGO

  

 

 

 

LOGO

 

 

Thomas R. Cech, Ph.D

Chair

    

  Overview                                                                                                                         

 

The Research Committee oversees the overall strategy, direction and effectiveness of the
Company’s operations for the research and development of pharmaceutical products and
vaccines. As part of this oversight, the Research Committee focuses on a variety of areas,
including drug and vaccine discovery, licensing and development strategies, decision-making
procedures and outcomes, as well as processes and procedures for identifying, evaluating and
capitalizing on cutting edge scientific developments and advancements and enabling technologies.

 

  The Primary Functions of this Committee are to:                                                       

 

•   Identify areas and activities that are critical to the success of our product and vaccine
discovery, development and licensing efforts and evaluate the effectiveness of our strategies
and operations in those areas;

•   Keep the Board apprised of this evaluation process and findings and make appropriate
recommendations to the President of Merck Research Laboratories and to the Board on
modifications of strategies and operations; and

•   Assist the Board in its oversight responsibilities to ensure compliance with the highest
standards of scientific integrity in the conduct of Merck research and development.

    

 

Other Members

Mary Ellen Coe

Paul B. Rothman, M.D.

Christine E. Seidman, M.D.(1)

Kathy J. Warden(1)

Wendell P. Weeks(2)

Peter C. Wendell

       
      
 

Number of Meetings in 2019:

4

  
      
    
      
(1)

Joined the Board of Directors on March 16, 2020.

(2)

Not standing for re-election as a Merck Director in 2020.

 

 

Merck & Co., Inc. 2020 Proxy Statement


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22   

 

 

 

  Corporate Governance

   Compensation Consultants  

 

   

 

Compensation Consultants

Role of Compensation Consultants

The C&B Committee retains the services of a compensation consultant to serve as an objective third-party advisor on the reasonableness of compensation levels and on the appropriateness of the compensation program structure in supporting our business strategy and human resource objectives. Since 2008, the C&B Committee has retained FW Cook as its compensation consultant. In addition, FW Cook is periodically retained by the Governance Committee to assist with a review of the Directors’ compensation program.

Independence of Compensation Consultant

The C&B Committee annually reviews the services provided by FW Cook and has concluded that FW Cook is independent in providing executive compensation consulting services. The C&B Committee conducted a specific review of its relationship with FW Cook in 2019, and, consistent with the guidance provided under the Dodd-Frank Act and by the SEC and the NYSE, determined that FW Cook’s work for the C&B Committee did not raise any conflicts of interest. In making this determination, the C&B Committee reviewed information provided by FW Cook on the following factors:

 

  the provision of other services to Merck by FW Cook;

 

  the fees received from Merck by FW Cook as a percentage of the total revenue of FW Cook;

 

  the policies and procedures of FW Cook that are designed to prevent conflicts of interest;

 

  any business or personal relationship between any member of FW Cook’s consulting team advising the C&B Committee or any other employee of FW Cook and a member of the C&B Committee;

 

  any business or personal relationship between any member of FW Cook’s consulting team advising the C&B Committee or any other employee at FW Cook and an executive officer of Merck; and

 

  any stock of Merck owned by any member of FW Cook’s consulting team advising the C&B Committee or any other employee at FW Cook or their immediate family members.
 

 

In particular, the C&B Committee noted that (i) FW Cook provided no other services to Merck, other than occasional assistance to the Human Resources staff arising from FW Cook’s C&B Committee-related duties; and (ii) FW Cook’s work is performed directly on behalf of the Board working in cooperation with management, to assist both the C&B Committee and the Governance Committee with executing their respective responsibilities.

Services Performed During 2019

During 2019, FW Cook supported the C&B Committee and/or the Governance Committee by:

 

  reviewing our competitive market data with respect to the CEO’s and other senior executives’ compensation;

 

  conducting a competitive assessment of the Company’s non-employee Director compensation program;

 

  providing guidance and analysis on executive compensation plan design, market trends, regulatory developments and best practices;

 

  assisting with design and setting of performance goals in the variable incentive plans;
  assisting in determining the CEO’s total target direct compensation and payouts under the Executive Incentive Plan;

 

  assisting with the preparation of public filings related to executive compensation, including the Compensation Discussion and Analysis, CEO pay ratio and the accompanying tables and footnotes; and

 

  assisting with spin-off preparation including executive compensation analysis for Organon & Co. executive committee.
 

 

Since 2010, management has retained Pay Governance LLC to provide consulting services on an as-needed basis. Although Pay Governance did not provide any services during 2019, they will perform their biennial risk assessment of our compensation programs in November 2020.

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents
   

 

Corporate Governance  

Shareholder Engagement and Feedback  

 

 

   23

 

 

Shareholder Engagement and Feedback

Merck regularly communicates with shareholders to better understand their perspectives and has established a shareholder engagement program that is proactive and cross-functional. Throughout the year, members of our Investor Relations department, the Office of the Secretary, the Human Resources department and the Office of Corporate Responsibility, as well as other subject-matter experts within the Company, engage with our shareholders to remain well-informed regarding their perspectives on current issues and to address any questions or concerns. These teams serve as liaisons between shareholders, members of senior management and the Board.

In addition, we conduct an extensive shareholder outreach program twice a year focused on governance and executive compensation. We believe it is most productive to discuss governance and compensation issues well in advance of the Annual Meeting so management and the Board can gather information about investor perspectives and make educated and deliberate decisions that are balanced and appropriate for Merck’s diverse shareholder base and in the best interest of the Company. Given our large shareholder base, we concentrate our outreach efforts on our largest 30 shareholders, which represented approximately 42% of our ownership as of December 31, 2019.

During 2019, we held discussions with a number of our shareholders in the spring before the Annual Meeting and once again in late fall. Our Lead Director and Chair of the Governance Committee, Leslie Brun, participated in substantive engagements with some of the Company’s shareholders. We also regularly seek to take advantage of other engagement opportunities and events. We discussed a number of topics with shareholders in 2019.

 

 

Topics Discussed with Shareholders during 2019

 

•  Company strategy

 

•  Board leadership, composition and refreshment

 

•  Management succession

 

•  Board and management diversity

 

•  Director overboarding

 

•  Director tenure

 

  

 

•  Board evaluation process

 

•  Risk oversight

 

•  Cybersecurity

 

•  Executive compensation programs

 

•  Policy and pricing environment

 

•  Global access to Merck products

 

  

 

•  Merck Animal Health

 

•  ESG reporting

 

•  Merck culture

 

•  Reputation

 

•  Human Capital Management

 

•  Director onboarding

Some key themes emerged as part of our various engagements as set forth below.

 

LOGO  What We Heard   LOGO  What We Did

Shareholders are interested to know more about how our Board oversees human capital management.

  The Board amended the C&B Committee charter to formally codify the Board’s oversight of the Company’s programs, policies and practices related to its management of human capital resources, including talent and diversity.

Board composition and refreshment are important to shareholders, particularly as it pertains to diversity of individuals and perspectives.

  The Board has nominated three women in 2020, each of whom brings to the Board diverse perspectives, skills and expertise as further described on pages 30-37.

Shareholders are interested in knowing more about the Board’s oversight of risk, including with respect to public concern over drug pricing.

  We have included additional disclosures on pages 18 and 25.

Merck also hosted an investor day in 2019. Members of the Company’s leadership team outlined the Company’s strategic priorities to generate sustainable value for patients and shareholders.

 

Merck & Co., Inc. 2020 Proxy Statement


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24   

 

 

 

  Corporate Governance

   Shareholder Communications with the Board  

 

   

 

Proxy Access

After engaging with a number of our largest shareholders, our Board of Directors proactively amended our By-Laws in 2015 to give shareholders a right to proxy access for Director nominations. Our By-Laws allow a shareholder (or a group of no more than twenty shareholders) who has maintained continuous qualifying ownership of at least 3% of the Company’s outstanding common stock for at least three years to include Director nominees constituting up to 20% of the Board in the Company’s proxy materials for an annual meeting of shareholders. Our By-Laws, which prescribe additional requirements for proxy access, are available on our website at merck.com/about/leadership.

Shareholder Communications with the Board

The Board of Directors welcomes input from shareholders and other interested parties and has established a process to receive these communications. Shareholders and interested parties may communicate directly with the Board, the independent Lead Director, the non-management or independent Directors as a group or other members of the Board by writing to the following address:

Board of Directors

Merck & Co., Inc.

2000 Galloping Hill Road, K1-4157

Kenilworth, NJ 07033 U.S.A.

In order to manage efficiently the volume of correspondence received, communications will be reviewed by the Office of the Secretary for the purpose of determining whether the contents are appropriate for submission to the entire Board, the Chairman, the independent Lead Director or the Chair of a particular committee. The Office of the Secretary will not transmit:

 

 

communications that advocate that the Company engage in illegal activity;

 

 

communications that, under community standards, contain offensive or abusive content;

 

 

communications that have no relevance to the role of the Board or to the business of the Company;

 

 

resumes or other job-related inquiries; and

 

 

mass mailings, solicitations and advertisements.

Comments or questions regarding the nomination of Directors and other corporate governance matters will be referred to the Chair of the Governance Committee. Comments or questions regarding executive compensation will be referred to the Chair of the C&B Committee.

In addition, the Audit Committee has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or auditing matters. These procedures are described in the Merck Code of Conduct — Our Values and Standards.

The Merck Code of Conduct and general information on communications to the Board are available on our website at merck.com/about/leadership.

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents
   

 

Corporate Governance  

Political Contributions and Lobbying Expenditure Oversight and Disclosure  

 

 

   25

 

 

Political Contributions and Lobbying Expenditure Oversight and Disclosure

Merck is committed to participating constructively and responsibly in the policymaking process and to providing information and analysis on the issues that affect our business and patient care. As described on our website, our participation in the public policy debate is focused on two key objectives: encouraging innovation and improving patient access to quality healthcare. The Company’s public policy positions are determined by senior management with oversight by the Governance Committee. Our political contributions are made in accordance with all applicable laws and Company policies and procedures and are overseen by senior management. The Governance Committee monitors all such contributions, and the full Board receives a bi-annual report. In addition, the Company publicly discloses and regularly updates information regarding its public policy positions and advocacy expenditures on our website at merck.com/ about/views-and-positions and msdresponsibility.com/our-approach/public-policy.

Governance and Transparency around Drug Pricing

In order to provide information about the Company’s pricing practices, the Company annually posts on its website its Pricing Transparency Report for the United States. The report provides the Company’s average annual list price, net price increases and average discounts across the Company’s U.S. portfolio dating back to 2010. In 2019, the Company’s gross U.S. sales were reduced by approximately 44% as a result of rebates, discounts and returns. Our process around pricing our products includes regular presentations to the Board on drug pricing strategies. In addition, on balance, over the last few years, our revenue growth has been primarily attributable to increased volume arising from increased demand for our products rather than price increases.

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents

26   

 

 

 

  Corporate Governance

   Commitment to Corporate Responsibility  

 

   

 

 

“The amount of good we can do in the world is directly correlated to the strength of our business. Merck’s long-term focus is anchored on a foundation of corporate responsibility. We believe this approach fuels our pursuit of medical breakthroughs that benefit patients, our shareholders, and society.”

 

— Kenneth C. Frazier, Chairman, President and Chief Executive Officer

 

 

 

Commitment to Corporate Responsibility

Operating responsibly as a business is at the very heart of our ability to deliver sustainable impact – driving long-term value for our company and society.

Our approach to corporate responsibility is about the health, economic, social and environmental impact we have on individuals and communities around the world.

We hold ourselves accountable to our many stakeholders, including patients, employees, customers and shareholders, whose perspectives help to define our corporate responsibility priorities.

Reflecting our commitment to managing environmental, social and governance (ESG) issues, we continue to focus our approach to corporate responsibility in four primary areas that are of greatest relevance to our business and society: Access to Health, Employees, Environmental Sustainability and Ethics & Values.

Reporting

Our annual corporate responsibility report is a web-based, ESG reporting platform that represents our commitment to widely recognized reporting frameworks that reflect environmental, social and governance issues.

In 2019, we continued to advance our reporting strategy with the publication of our inaugural Environmental, Social and Governance Progress Report. We prepared this report using the Global Reporting Initiative (GRI) Standards: Core Option and the Sustainability Standards Board Standards (SASB). A copy of this report is available on our website.

 

To learn more about our corporate responsibility approach, progress and commitments, please visit: MSDresponsibility.com

 

 

 

External Recognition

Our commitment to responsibility continues to earn us external recognition. Below is a selection of the awards and recognition Merck received over the past year.

 

LOGO  

ENERGY STAR

Partner of the Year Sustained Excellence Award

  LOGO   Forbes’ and JUST Capital’s The Just 100 list of America’s best corporate citizens   LOGO   Newsweek list of America’s Most Responsible Companies   LOGO  

National Association of Female Executive’

“Top Companies for Executive Women”

             
LOGO  

People Magazine’s “50 Companies that Care” list

  LOGO   FTSE4Good Index Constituent Member   LOGO   Fast Company’s “50 Best Workplaces for Innovators” list   LOGO   American Heart Association Workplace Health Achievement Index Gold recognition

 

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents
   

 

Corporate Governance  

Commitment to Corporate Responsibility  

 

 

   27

 

 

Our Corporate Responsibility Focus Areas

We continue to focus our approach to corporate responsibility in four primary areas that are of greatest relevance to our business and society: Access to Health, Employees, Environmental Sustainability and Ethics & Values.

 

     LOGO   

Access To Health

 

     357 M    

people reached through our

major programs

and partnerships in 2018

We believe it is our responsibility to address the health needs of patients and society through transformational science: inventing vaccines, medicines and animal health products to help millions around the world. Expanding access to health is a business imperative for optimizing and sustaining our business over the long term. We also recognize that barriers to quality care and medical treatment — such as a lack of trained health care professionals, weak infrastructure, political uncertainty, civil strife and a shortage of safe water in many parts of the world — make even basic health care delivery difficult at best. These challenges go well beyond what we can address alone. Through a range of policies, programs and partnerships, we are focused on transforming the future of human and animal health.

 

 

     LOGO   

Employees

 

     LOGO    

of our management

roles in 2018 were held

by women

     LOGO    

of new U.S. hires in roles in 2018 were members of underrepresented ethnic groups

A positive, inclusive and high-performing work environment is essential in order for our employees to feel welcome, valued and able to fully contribute to the business objectives of their teams.

 

Harnessing the knowledge and insights of a globally diverse workforce requires leadership, a corporate culture of respect and full engagement and a thoughtful and strategic approach to workplace inclusion and employee development and well-being — physical, emotional, social and financial.

 

 

     LOGO   

Environmental

Sustainability

     LOGO    

reduction of water use since 2015

The world’s resources are limited, and over the next few decades the demand for energy, clean water and other natural resources will increase substantially due to population growth and economic development. Climate change is projected to significantly impact human health and could present long-term risks to our business. As a global company, we believe we have a responsibility to use resources wisely and drive innovations that will enable global development while protecting and preserving the planet and the communities in which we live and work.

 

 

     LOGO   

Ethics & Values

 

     LOGO    

score on the Human Rights Campaign’s Corporate Equality Index

Our Company’s reputation, and the trust that our stakeholders place in us, depends on how we conduct ourselves as a business. Operating with ethics, integrity and respect for human rights is critical to our success. We disclose information through a variety of mechanisms, including our financial disclosures, our annual corporate responsibility report, and participation in voluntary efforts such as CDP, formerly the Carbon Disclosure Project, as well as through the media and direct stakeholder engagement.

 

 

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents

28   

 

 

 

  

   

 

   

 

Stock Ownership Information

Stock Ownership of Directors and Officers

The table below reflects the number of shares of Merck common stock beneficially owned by (a) each of our Directors; (b) each of our executive officers named in the Summary Compensation Table; and (c) all Directors and executive officers as a group. As of February 29, 2020, 2,532,395,794 shares of Merck common stock were issued and outstanding. Unless otherwise noted, the information is stated as of February 29, 2020, and the beneficial owners exercise sole voting and/or investment power over their shares. In addition, unless otherwise indicated, the address for each person named below is c/o Merck & Co., Inc., 2000 Galloping Hill Road, Kenilworth, New Jersey 07033.

 

     Company Common Stock         

Name of Beneficial Owner(1)

  

Shares

Beneficially

Owned(2)

   

Right to Acquire Beneficial

Ownership Under
Options/Stock Units

Exercisable/Distributable

Within 60 Days(3)

    

Percent

of Class

    

Phantom

Stock Units(4)

 

Kenneth C. Frazier

     787,729       3,267,516        *         

Leslie A. Brun

     1,948       5,000        *        42,808  

Thomas R. Cech

     100              *        37,469  

Mary Ellen Coe

     10              *        3,615  

Pamela J. Craig

     1,715              *        13,777  

Thomas H. Glocer

     5,100              *        67,769  

Rochelle B. Lazarus(5)

     6,351 (7)             *        87,206  

Paul B. Rothman

     100              *        13,777  

Patricia F. Russo

     13,148              *        35,766  

Inge G. Thulin

     100              *        7,788  

Wendell P. Weeks(6)

     100       5,000        *        92,096  

Peter C. Wendell

     1,000              *        93,177  

Sanat Chattopadhyay

     77,632       267,442        *        14,014  

Robert M. Davis

     171,055       406,043        *           

Roger M. Perlmutter

     214,428       874,813        *           

Jennifer Zachary

     3,689       24,397        *           

All Directors and Executive Officers as a Group
(25 individuals)

     1,535,449       5,655,978        *        511,393  

 

 *

Less than 1% of the Company’s outstanding shares of common stock.

 

(1)

Dr. Seidman and Ms. Warden were elected to the Board effective March 16, 2020 and are not included in this table.

 

(2)

Includes equivalent shares of common stock held by the Trustee of the Merck U.S. Savings Plan, for the accounts of individuals as follows: Mr. Frazier — 4,110 shares, and all Directors and executive officers as a group — 8,286 shares.

 

(3)

This column reflects the number of shares that could be acquired within 60 days of February 29, 2020, through the exercise of outstanding stock options.

 

(4)

Represents phantom shares denominated in Merck common stock under the Plan for Deferred Payment of Directors’ Compensation or the Merck Deferral Program.

 

(5)

Ms. Lazarus is retiring from the Board effective as of the 2020 Annual Meeting of Shareholders.

 

(6)

Mr. Weeks is not standing for re-election as a Merck Director in 2020.

 

(7)

Includes shares of common stock in which the beneficial owners share voting and/or investment power as follows: 1,757 shares held by Ms. Lazarus’ spouse.

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents
   

 

Stock Ownership Information  

Stock Ownership of Certain Beneficial Owners  

 

 

   29

 

 

Stock Ownership of Certain Beneficial Owners

The table below reflects the number of shares beneficially owned by persons or entities known to us to own more than 5% of the outstanding shares of Merck common stock as of December 31, 2019. As of December 31, 2019, 2,539,026,391 shares of Merck common stock were issued and outstanding.

 

Name and Address of Beneficial Owner

   Amount and Nature of
Beneficial Ownership
       Percent of Class  

The Vanguard Group

100 Vanguard Blvd., Malvern, PA 19355

     210,542,333(1)          8.26%  

BlackRock, Inc.

55 East 52nd Street, New York, NY 10055

     190,783,225(2)          7.50%  

 

(1)

As reported on Amendment No. 4 to Schedule 13G (the “Vanguard filing”) filed with the SEC on February 6, 2020. According to the Vanguard filing, of the 210,542,333 shares of Merck common stock beneficially owned by The Vanguard Group (“Vanguard”), as of December 31, 2019, Vanguard has the sole power to vote or direct the vote with respect to 3,937,834 shares, shared power to vote or direct the vote with respect to 747,586 shares, sole power to dispose or to direct the disposition of 206,086,318 shares, and shared power to dispose or to direct the disposition of 4,456,015 shares.

 

(2)

As reported on Amendment No. 10 to Schedule 13G (the “BlackRock filing”) filed with the SEC on February 5, 2020. According to the BlackRock filing, of the 190,783,225 shares of Merck common stock beneficially owned by BlackRock, Inc. (“BlackRock”), as of December 31, 2019, BlackRock has the sole power to vote or direct the vote with respect to 165,094,002 shares and sole power to dispose or to direct the disposition of 190,783,225 shares.

 

Merck & Co., Inc. 2020 Proxy Statement


Table of Contents

30   

 

 

 

    

    

   
   

 

Proposal 1

 

Election of Directors

 

   

 

The Board has recommended 13 nominees for election as Directors at this Annual Meeting: Mr. Leslie A. Brun, Dr. Thomas R. Cech, Ms. Mary Ellen Coe, Ms. Pamela J. Craig, Mr. Kenneth C. Frazier, Mr. Thomas H. Glocer, Dr. Risa Lavizzo-Mourey, Dr. Paul B. Rothman, Ms. Patricia F. Russo, Dr. Christine E. Seidman, Mr. Inge G. Thulin, Ms. Kathy J. Warden and Mr. Peter C. Wendell. All nominees, other than Mr. Frazier, our Chief Executive Officer, satisfy the NYSE independence requirements.

Each of Dr. Seidman and Ms. Warden was elected to the Board effective March 16, 2020 to serve until the 2020 Annual Meeting and to stand for election by shareholders at the meeting. Dr. Lavizzo-Mourey is being nominated to stand for election by shareholders at the meeting. All other nominees currently serve on the Board and were elected by the shareholders at the 2019 Annual Meeting. Dr. Seidman was first identified as a possible Director candidate by the Chair of the Research Committee, and each of Ms. Warden and Dr. Lavizzo-Mourey was first identified as a possible Director candidate by a third-party search firm. Each of Dr. Seidman, Ms. Warden and Dr. Lavizzo-Mourey was recommended to the Board by the Governance Committee and met with various members of the Board leading up to her election or nomination, as applicable.

Mr. Wendell Weeks has served on the Board since 2004 with a distinguished history of insightful contributions. The Board has benefited from his extensive management, commercial, operational and financial expertise. Due to other commitments, Mr. Weeks will not be standing for re-election as a Merck Director in 2020. Ms. Rochelle Lazarus will retire from the Board effective as of the Annual Meeting in accordance with the Board’s retirement policy. Ms. Lazarus has brought extensive expertise in management, marketing and communications and made valuable contributions since joining the Board in 2004. In 2019, the Board waived its retirement policy with respect to Dr. Cech, Chair of the Research Committee, for a period of one year as the Board onboards additional members to the Research Committee.

All the Director nominees named in this proxy statement meet the Board’s criteria for membership and were recommended by the Governance Committee for election by shareholders at this Annual Meeting. All of the nominees hold, or have held, senior leadership positions in large, complex organizations, including multi-national corporations, medical or academic institutions, or charitable organizations. In these positions, our nominees have demonstrated their leadership, intellect and analytical skills and gained deep experience in core disciplines significant to their oversight responsibilities at Merck. Their roles in these organizations also enable them to offer quality advice and counsel to the Company’s management. If elected, each nominee will serve until the 2021 Annual Meeting of Shareholders or until a successor has been duly elected and qualified.

Any nominee who does not receive a majority of the votes cast with respect to his or her election will not be re-elected as a Director of the Company. However, under the New Jersey Business Corporation Act, incumbent Directors who are not re-elected in an uncontested election because of a failure to receive a majority of the votes cast in favor of their re-election will be “held over” and continue as Directors of the Company until they resign, or their successors are elected at the next election of directors. Our Incumbent Director Resignation Policy, included in the Policies of the Board, provides that an incumbent Director who is not re-elected must submit a resignation. The Governance Committee will evaluate whether to accept such resignation and make a recommendation to the full Board, which must act on the recommendation no later than 90 days following certification of the shareholder vote.

If any nominee becomes unavailable for election (which we do not expect), votes will be cast for such substitute nominee or nominees as may be designated by the Board of Directors, unless the Board of Directors reduces the size of the Board.

There are no family relationships among Merck’s executive officers and Directors.

We provide biographical information for each Director nominee below, including the key experience and some of the qualifications and skills each Director brings to the Board that are important in light of our current needs and business priorities.

LOGO

 

Merck & Co., Inc. 2020 Proxy Statement


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LOGO

 

Leslie A. Brun

Independent Lead Director

 

 

    

  

 

Age: 67

 

 
             
  

 

Director Since: 2008

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
   Audit   

Governance

(Chair)

 

    
             

 

Experience

 

 

Mr. Brun has extensive management, investment banking, commercial banking and financial advisory experience in a highly-regulated industry, as well as demonstrated success throughout his tenure as the Chairman and CEO of Sarr Group, LLC and Chairman, CEO and founder of Hamilton Lane. Mr. Brun’s depth of financial expertise also derives from his experience as a Managing Director and co-founder of the investment banking group of Fidelity Bank. In addition, his directorships at other public companies, including service as the Non-executive Chairman of CDK Global, Inc. and Lead Director of Broadridge Financial Solutions, Inc. provide him with extensive experience on corporate governance issues.

 

Career Highlights

 

 

Sarr Group, LLC, an investment holding company

•  Chairman and Chief Executive Officer (2006-present)

G100 Companies, executive and educational convening organization

•  Senior Advisor (2016-present)

CCMP Capital Advisors, LLC, global private equity firm

•  Managing Director and Head of Investor Relations (2011-2013)

Hamilton Lane, private equity firm

•  Chairman and Chief Executive Officer (1991-2005)

 

 

Other Public Directorships

 

 

Current

•  Broadridge Financial Solutions, Inc.
(since 2007), Non-executive Chairman (2011-2019)

•  CDK Global, Inc. (since 2014),
Non-executive Chairman (2014)

•  Corning Incorporated (since 2018)

Former

•  Hewlett Packard Enterprise Company (2015-2018)

 

 

 

 

    

  

 

LOGO

 

Thomas R. Cech, Ph.D.

Independent

 

 

    

  

 

Age: 72

 

 
             
  

 

Director Since: 2009

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
   Audit   

Research

(Chair)

 

       
             

 

 

Experience

 

 

Dr. Cech has extensive scientific expertise relevant to the pharmaceutical industry, including being a Nobel Prize-winning chemist and a Professor at the University of Colorado. In addition, his role as the former President of the Howard Hughes Medical Institute provides Dr. Cech with extensive managerial experience with direct relevance to scientific research.

 

Awards

•  National Medal of Science (1995)

•  Nobel Prize in Chemistry (1989)

 

Career Highlights

 

 

University of Colorado

•  Distinguished Professor, Chemistry and Biochemistry (1990-present)

•  Director, BioFrontiers Institute
(2009-present)

Howard Hughes Medical Institute,
non-profit medical research organization

•  President (2000-2009)

•  Investigator (1988-present)

 

 

Other Public Directorships

 

 

Current

•  None

Former

•  None

 

 

 

 

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LOGO

 

Mary Ellen Coe

Independent

 

 

    

  

 

Age: 53

 

 
             
  

 

Director Since: 2019

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
   Audit   

Research

 

    
             

 

Experience

 

 

Ms. Coe has a deep understanding of the digital landscape, as well as global strategy and operations, due to her experience as a senior leader at Google Inc. She also has extensive consumer marketing and sales expertise from her leadership position at McKinsey and other global marketing consulting firms.

 

Career Highlights

 

 

Google Inc.

•  President, Google Customer Solutions (2017-present)

•  Vice President, Go-to-Market Operations and Strategy (2012-2017)

 

 

Other Public Directorships

 

 

Current

•  None

Former

•  Whole Foods Market, Inc. (2016-2017)

 

 

 

 

    

  

 

LOGO

 

Pamela J. Craig

Independent

 

 

    

  

 

Age: 63

 

 
             
  

 

Director Since: 2015

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
  

Audit

(Chair)

 

  

Governance

 

    
             

 

Experience

 

 

Ms. Craig has extensive finance, management, operational, technology and international business expertise, including her history of accomplishment and executive ability as Chief Financial Officer of Accenture plc. In addition, her directorships at other public companies, including her service as a member of the Audit and Finance Committees of 3M Company and as a member of the Compensation Committee of Progressive Insurance, provide her with valuable experience on governance issues facing public companies.

 

Career Highlights

 

 

Accenture plc, global management consulting, technology services and outsourcing company

•  Chief Financial Officer (2006-2013)

•  Senior Vice President, Finance (2004-2006)

•  Group Director, Business Operations and Services (2003-2004)

•  Managing Partner, Global Business Operations (2001-2003)

 

 

Other Public Directorships

 

 

Current

•  3M Company Inc. (since 2019)

•  Progressive Insurance (since 2018)

Former

•  Akamai Technologies, Inc. (2011-2019)

•  Wal-Mart Stores, Inc. (2013-2017)

 

 

 

 

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LOGO

 

Kenneth C. Frazier

Management

 

 

    

  

 

Age: 65

 

 
             
  

 

Director Since: 2011

 

 
             
  

 

    

 

 
                       
                    
             

 

Experience

 

 

Mr. Frazier has broad managerial and operational expertise and deep institutional knowledge, as well as a track record of achievement, integrity and sound judgment demonstrated prior to, and during, his long tenure with Merck. In addition, his role as the Chair of the Board Affairs Committee of Exxon Mobil Corporation has provided him with important experience on governance issues facing public companies.

 

Career Highlights

 

 

Merck & Co., Inc.

•  Chairman and Chief Executive Officer (2011-present)

•  President (2010-present)

•  Executive Vice President and President, Global Human Health (2007-2010)

•  Executive Vice President and General Counsel (2006-2007)

•  Senior Vice President and General Counsel (1999-2006)

 

 

Other Public Directorships

 

 

Current

•  Exxon Mobil Corporation (since 2009)

Former

•  None

 

 

 

 

    

  

 

LOGO

 

Thomas H. Glocer

Independent

 

 

    

  

 

Age: 60

 

 
             
  

 

Director Since: 2007

 

 
             
  

 

Committees:

 

 
   LOGO       LOGO     
  

Compensation and Benefits

(Chair)

 

   Governance     
             

 

Experience

 

 

Mr. Glocer has extensive management, operational, technology and international business expertise, including his history of accomplishment and executive ability as CEO and a Director of Thomson Reuters Corporation. In addition, his directorships at other public companies, including his service as Lead Director and as a member of the Operations and Technology Committee at Morgan Stanley, provide him with valuable experience on governance issues facing public companies.

 

Career Highlights

 

 

Angelic Ventures LP, a family office investing in early-stage technology and data companies

•  Founder and Managing Partner (2012-present)

Thomson Reuters Corporation, multi-national media and information firm

•  Chief Executive Officer (2008-2011)

•  Chief Executive Officer, Reuters Group PLC (2001-2008)

 

 

Other Public Directorships

 

 

Current

•  Morgan Stanley (since 2013)

•  Publicis Groupe (since 2016)

Former

•  None

 

 

 

 

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LOGO

 

Risa Lavizzo-Mourey, M.D.

Independent

 

 

    

  

 

Age: 65

 

 
             
  

 

Director Nominee

 

 
             
  

 

Committees:(1)

 

 
   LOGO       LOGO     
  

Compensation and Benefits

 

   Governance     
             

 

Experience

 

 

Dr. Lavizzo-Mourey has extensive health policy experience, serving as the PIK Professor of Health Equity and Health Policy and formerly as President and Chief Executive Officer of Robert Wood Johnson Foundation, the nation’s largest healthcare-focused philanthropic organization. Her role at Robert Wood Johnson Foundation provided her with deep management, strategic, human capital and talent development expertise. In addition, her directorships at other public companies, including her service as Chair of the Governance Committee at GE and the Chair of the Compensation and Management Development Committee at Hess Corporation, provide her with extensive experience on corporate governance matters. Dr. Lavizzo-Mourey was elected to the National Academy of Medicine, American Academy of Arts and Sciences and The American Philosophical Society.

 

 

Career Highlights

 

 

University of Pennsylvania

•  Penn Integrates Knowledge Professor of Health Equity and Health Policy (2018-present)

Robert Wood Johnson Foundation

•  President Emerita (2017-present)

•  President and Chief Executive Officer (2003-2017)

•  Senior Vice President and Director (2001-2002)

 

 

Other Public Directorships

 

 

Current

•  General Electric Company (since 2017)

•  Hess Corporation (since 2004)

•  Intel Corporation (since 2018)

Former

•  None

 

 

 

(1)

If elected, Dr. Lavizzo-Mourey will serve on these committees.

 

    

  

 

LOGO

 

Paul B. Rothman, M.D.

Independent

 

 

    

  

 

Age: 62

 

 
             
  

 

Director Since: 2015

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
  

Audit

   Research     
             

 

Experience

 

 

Dr. Rothman has extensive expertise in patient care, science and medicine relevant to the pharmaceutical industry, including through his positions as the CEO of Johns Hopkins Medicine and the Dean of Medical Faculty and Vice President for Medicine, The Johns Hopkins University, and his past experience as Dean and Head of Internal Medicine at Carver College of Medicine at the University of Iowa. In addition, his vast operational and management experience of a large-scale medical organization provide him with a deep understanding of the complexities of the U.S. healthcare delivery system and policy environment.

 

 

Career Highlights

 

 

Johns Hopkins University

•  Dean of the Medical Faculty and Vice President for Medicine (2012-present)

Johns Hopkins Medicine

•  Chief Executive Officer (2012-present)

Carver College of Medicine at the University of Iowa

•  Dean (2008-2012)

•  Head of Internal Medicine (2004-2008)

 

 

Other Public Directorships

 

 

Current

•  None

Former

•  None

 

 

 

 

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LOGO

 

Patricia F. Russo

Independent

 

 

    

  

 

Age: 67

 

 
             
  

 

Director Since: 1995(1)

 

 
             
  

 

Committees:

 

 
   LOGO       LOGO     
  

Compensation and Benefits

 

   Governance  
             

 

Experience

 

 

Ms. Russo has extensive management, operational, international business and financial expertise, as well as a broad understanding of the technology industry, which includes her career achievements during her tenure as CEO and Director of Alcatel-Lucent and Lucent Technologies Inc. In addition, her directorships at other public companies, including her roles as the Non-executive Chairman of Hewlett Packard Enterprise Company and Chair of the Governance and Corporate Responsibility Committee of General Motors, provide her with deep experience on governance issues facing large public companies.

 

 

Career Highlights

 

 

Hewlett Packard Enterprise Company, technology company

•  Non-executive Chairman (2015-present)

Alcatel-Lucent, global telecommunications equipment company

•  Chief Executive Officer and Director (2006-2008)

•  Chairman, Lucent Technologies Inc. (2003-2006)

•  President and Chief Executive Officer, Lucent Technologies Inc. (2002-2006)

 

 

Other Public Directorships

 

 

Current

•  General Motors Company (since 2009)

•  Hewlett Packard Enterprise Company (since 2015), Non-executive Chairman (2015)

•  KKR Management Inc. (the managing partner of KKR & Co., L.P.) (since 2011)

Former

•  Arconic, Inc. (2016-2018) formerly Alcoa, Inc. (2008-2016)

 

 

 

(1)

Ms. Russo was on the Board of Directors of Schering-Plough Corporation from 1995 until 2009 when the Company became Merck & Co., Inc.

 

    

  

 

LOGO

 

Christine E. Seidman, M.D.

Independent

 

 

    

  

 

Age: 67

 

 
             
  

 

Director Since: 2020

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
   Audit   

Research

 

    
             

 

Experience

 

 

Dr. Seidman has extensive scientific experience relevant to the biopharmaceutical industry, including being the Thomas W. Smith Professor of Medicine and Genetics at Harvard Medical School and the director of the Cardiovascular Genetics Center. In addition, her role leading the Seidman Laboratory, a research laboratory that focuses on integrating clinical medicine and molecular technologies to define disease-causing gene mutations and genetic variations that increase disease risk, provides Dr. Seidman with managerial experience relevant to scientific research. The recipient of many honors, Dr. Seidman was elected to the American Society for Clinical Investigation, the National Academy of Sciences, American Academy of Arts and Sciences and the National Academy of Medicine.

 

Awards

•  The Ray C. Fish Award for Scientific Achievement (2020)

•  American Heart Association Medal for Genomic and Precision Medicine (2019)

•  Vanderbilt Prize in Biomedical Sciences (2019)

 

Career Highlights

 

 

Harvard Medical School/Brigham and Women’s Hospital (Harvard University)

•  Thomas W. Smith Professor of Medicine and Genetics (2005-present)

•  Professor of Genetics and Medicine (1998-2005)

•  Professor of Medicine (1997-1998)

Howard Hughes Medical Institute, non-profit medical research organization

•  Investigator (1994-present)

Brigham and Women’s Hospital

•  Director, Cardiovascular Genetics Center (1992-present)

•  Attending Physician, Cardiovascular Division (1987-present)

 

 

Other Public Directorships

 

 

Current

•  None

Former

•  None

 

 

 

 

Merck & Co., Inc. 2020 Proxy Statement


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LOGO

 

Inge G. Thulin

Independent

 

 

    

  

 

Age: 66

 

 
             
  

 

Director Since: 2018

 

 
             
  

 

Committees:

 

 
   LOGO       LOGO     
  

Compensation and Benefits

 

   Governance  
             

 

Experience

 

 

Mr. Thulin has extensive management, operational, technology and international business expertise, as demonstrated by a track record of success leading 3M Company. Mr. Thulin possesses broad industry experience drawn from 3M’s diverse businesses, commitment to research and strong life sciences division. He also brings valuable insight into driving innovation, based on his experience with new product development and manufacturing. In addition, his previous directorships at other public companies provide him with deep experience on governance issues facing large public companies.

 

Career Highlights

 

 

3M Company, global technology company

•  Executive Chairman (2018-2019)

•  Chairman, President and Chief Executive Officer (2012-2018)

•  President and Chief Executive Officer (2012)

•  Executive Vice President and Chief Operating Officer (2011-2012)

•  Executive Vice President, International Operations (2004-2011)

 

 

Other Public Directorships

 

 

Current

•  None

Former

•  3M Company (2012-2019)

•  Chevron Corporation (2015-2019)

 

 

 

 

    

  

 

LOGO

 

Kathy J. Warden

Independent

 

 

    

  

 

Age: 48

 

 
             
  

 

Director Since: 2020

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
  

Audit

   Research     
             

 

Experience

 

 

Ms. Warden has broad experience in operational leadership at Northrop Grumman Corporation, an innovative company using science, technology and engineering to create and deliver products and services. Ms. Warden has extensive expertise in strategy, performance and business development in government and commercial markets, as well as cybersecurity expertise. Prior to joining Northrop Grumman, Ms. Warden held leadership roles at General Dynamics and Veridian Corporation. In addition, Ms. Warden is the Chair of the Board of Directors of the Federal Reserve Bank of Richmond and a member of the Board of Visitors of James Madison University.

 

Career Highlights

 

 

Northrop Grumman Corporation, global security company

•  Chairman, Chief Executive Officer and President (2019-present)

•  President and Chief Operating Officer (2018)

•  Corporate Vice President and President, Mission System Sector (2016-2017)

•  Corporate Vice President and President, Information Systems Sector (2013-2015)

•  Vice President, Cyber Intelligence Division (2011-2012)

 

 

Other Public Directorships

 

 

Current

•  Northrop Grumman Corporation
(since 2018)

Former

•  None

 

 

 

 

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LOGO

 

Peter C. Wendell

Independent

 

 

    

  

 

Age: 69

 

 
             
  

 

Director Since: 2003

 

 
             
  

 

Committees:

 

 
   LOGO       LOGO     
  

Compensation and Benefits

 

   Research  
             

 

Experience

 

 

Mr. Wendell has extensive management, financial and venture capital expertise as demonstrated by his positions as a Managing Director of Sierra Ventures, his service as a board member and Senior Advisor at WestBridge Capital, his status as a Lecturer in strategic management at the Stanford University Graduate School of Business for over 20 years, and his former Chairmanship of the Princeton University endowment.

 

 

Career Highlights

 

 

Sierra Ventures, technology-oriented venture capital firm

•  Managing Director (1982-present)

Stanford University

•  Faculty, Stanford University Graduate School of Business (1991-present)

 

 

Other Public Directorships

 

 

Current

•  None

Former

•  None

 

 

 

 

 

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Director Compensation

Our non-employee Directors receive cash compensation, as well as cash-settled equity compensation in the form of deferred stock units, for their Board service. During 2019, non-employee Directors were compensated for their Board service as shown in the chart below.

2019 Schedule of Director Fees

 

Compensation Element(1)

   Director Compensation Program

Annual Retainer

   $ 115,000, which may be deferred, at the Director’s election

Annual Mandatory Deferral

  

$ 185,000 credit to Director’s Merck common stock account under

    the Plan for Deferred Payment of Directors’ Compensation

Committee Chair Retainer

   $ 30,000 for the Audit Committee(2)
   $ 20,000 for the Governance Committee(3)
   $ 20,000 for the Compensation and Benefits Committee
     $ 20,000 for the Research Committee

Audit Committee Member Retainer

   $ 10,000(2)

Lead Director Retainer

   $ 30,000(3)
(1)

All annual retainers are paid in quarterly installments.

(2)

The Audit Committee Chair retainer includes the Audit Committee Member retainer fee in the amount of $10,000.

(3)

The independent Lead Director is the Chairperson of the Governance Committee as prescribed by the committee charter. As a result of the combined responsibility, the Lead Director retainer totals $50,000 in the aggregate.

 

Directors’ Deferral Plan

Annual Retainer

Under the Merck & Co., Inc. Plan for Deferred Payment of Directors’ Compensation (“Directors’ Deferral Plan”), each Director may elect to defer all or a portion of cash compensation from retainers. Any amount so deferred is, at the Director’s election, valued as if invested in investment measures offered under the Merck U.S. Savings Plan, including our common stock, and is payable in cash installments or as a lump sum no sooner than one year after service as a Director ceases.

Annual Mandatory Deferral

In addition to the annual retainer, upon election (or re-election) at the Annual Meeting of Shareholders, each Director will receive a credit valued at $185,000 in the form of phantom shares denominated in Merck common stock to the Director’s account under the Directors’ Deferral Plan. Directors who join the Board after that date are credited with a pro-rata portion. All distributions from the Directors’ deferred account are payable in cash installments or as a lump sum no sooner than one year after service as a Director ceases.

Expenses and Matching Gift Program

We reimburse all Directors for travel and other necessary business expenses incurred in the performance of their

services for us. We also extend coverage to Directors under our travel accident and directors’ and officers’ indemnity insurance policies. Directors are also eligible to participate in the Merck Foundation Matching Gift Program. The maximum gift total for an active Director participating in the matching gift program is $30,000 in any calendar year.

Director Stock Ownership Guidelines

Upon joining the Board, each Director must own at least one share of Merck common stock. Directors must attain a target Merck common stock ownership level having a value equal to five times the annual cash retainer within five years of joining the Board, or as soon thereafter as practicable. Deferred stock units held in the Merck common stock account under the Directors’ Deferral Plan are counted toward the target goal. Any Director may request that the Governance Committee consider whether the target ownership level is appropriate in view of such Director’s personal circumstances.

As of December 31, 2019, all Directors serving at least five years have either met or exceeded these stock ownership requirements. Mr. Thulin joined the Board effective March 1, 2018, Ms. Coe joined the Board effective March 18, 2019 and Dr. Seidman and Ms. Warden joined the Board effective March 16, 2020. Each of these Directors is making progress toward meeting the stock ownership guidelines.

 

 

Merck & Co., Inc. 2020 Proxy Statement


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Director Compensation  

2019 Director Compensation  

 

 

   39

 

 

2019 Director Compensation

The table below summarizes the annual compensation for our non-employee Directors for the fiscal year ended December 31, 2019.

Mr. Frazier is the only Director who is an officer and employee of the Company, and he does not receive any additional compensation for his Board service.

 

       Director Compensation for Fiscal Year Ended December 31, 2019           

Name(1)

    

Fees Earned or

Paid in Cash

($)

      

Option

Awards

($)(4)

      

All Other

Compensation

($)(5)

      

Total

($)

 

Leslie A. Brun

     $ 175,000                 $ 185,000        $ 360,000  

Thomas R. Cech

       145,000                   215,000          360,000  

Mary Ellen Coe(2)

       98,454                   191,398 (6)         289,852  

Pamela J. Craig

       145,000                   203,500          348,500  

Thomas H. Glocer

       135,000                   210,000          345,000  

Rochelle B. Lazarus

       115,000                   215,000          330,000  

John H. Noseworthy(3)

       47,917                   20,000          67,917  

Paul B. Rothman

       125,000                   215,000          340,000  

Patricia F. Russo

       115,000                   185,000          300,000  

Inge G. Thulin

       115,000                   185,000          300,000  

Wendell P. Weeks

       115,000                   215,000          330,000  

Peter C. Wendell

       115,000                   215,000          330,000  

 

(1)

Dr. Seidman and Ms. Warden were elected to the Board effective March 16, 2020 and are not included in this table.

 

(2)

Ms. Coe was elected to the Board effective March 18, 2019.

 

(3)

Dr. Noseworthy retired from the Board effective May 28, 2019.

 

(4)

No grants have been made under the 2010 Non-Employee Directors Stock Option Plan since 2011 and no further grants are permitted. Stock options previously issued to Directors under the 2010 Non-Employee Directors Stock Option Plan and any predecessor plans became exercisable in substantially equal installments on the first, second and third anniversaries of the grant date. All stock options previously issued to Directors are fully vested and exercisable. All options expire on the day before the tenth anniversary of their grant. The exercise price of the options is the closing price of our common stock on the grant date as quoted on the NYSE.

 

    

On December 31, 2019, the number of option awards outstanding for each Director who served during 2019 were:

 

Director Name

  

Outstanding Option

Awards at 12/31/19

 

L.A. Brun

     5,000  

W.P. Weeks

     5,000  

 

Merck & Co., Inc. 2020 Proxy Statement


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40   

 

 

 

  Director Compensation

   2019 Director Compensation

 

   

 

(5)

Represents credits in the form of deferred stock units (phantom shares) of Merck common stock to the Directors’ Deferral Plan. Dr. Noseworthy did not receive a credit to the Directors’ Deferral Plan because he retired from the Board at the 2019 Annual Meeting of Shareholders, which occurred prior to the award date.

 

    

Figures also include charitable contributions made by the Merck Foundation under its matching gift program on behalf of the following Directors:

 

Director Name

  

Matched Charitable

Contribution

($)

 

T.R. Cech

   $ 30,000  

P.J. Craig

     18,500  

T.H. Glocer

     25,000  

R.B. Lazarus

     30,000  

J.H. Noseworthy

     20,000  

P.B. Rothman

     30,000  

W.P. Weeks

     30,000  

P.C. Wendell

     30,000  

 

(6)

During 2019, Ms. Coe received a prorated portion of the 2018 credit under the Directors’ Deferral Plan when she joined the Board on March 18, 2019, as well as the full 2019 portion.

Changes to Non-Employee Director Compensation Program effective 2020

The Governance Committee reviews the Company’s non-employee Director compensation program on a biennial basis. In 2019, the Governance Committee conducted such a review in consultation with FW Cook, the Compensation and Benefits Committee’s independent compensation consultant.

The review included FW Cook’s analysis of both compensation levels and program design compared to Merck’s two peer groups that are used for executive compensation competitive benchmarking—a U.S. pharmaceutical peer group and a supplemental peer group comprised of the Dow Jones Industrial Average companies, excluding financial services companies (as described on page 45). The findings from this review indicated that the competitive positioning with respect to the design of Merck’s overall program continued to align with market peer best practice corporate governance policies, but the compensation level was below the median of both peer groups.

The Governance Committee submitted its findings to the full Board in November 2019 and recommended that the full Board approve changes to the non-employee Director compensation program to more closely align with the market median. Based on the results of FW Cook’s analysis and the Governance Committee’s recommendation, the Board approved the following changes to the non-employee Director compensation program effective January 1, 2020:

 

Increased annual cash retainer from $115,000 to $120,000;

 

Increased lead director retainer from $30,000 to $40,000; and

 

Increased annual mandatory deferral credit from $185,000 to $200,000.

The above increases combined represent a 6.7% increase (excluding the lead director retainer increase) in total non-employee Director compensation and align this compensation more closely with the market median. No changes were made to the Committee-related retainers. The Governance Committee will continue to conduct, on a biennial basis, a competitive assessment of our non-employee Director compensation program with the goal of maintaining it at or near the median of our external peer groups.

 

Merck & Co., Inc. 2020 Proxy Statement


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   41

 

   

Proposal 2

 

Non-Binding Advisory Vote to
Approve the Compensation of
Our Named Executive Officers

 

   

 

We are pleased to provide our shareholders the opportunity to vote on a non-binding, advisory resolution to approve the compensation of our Named Executive Officers as disclosed in this proxy statement, including the Compensation Discussion and Analysis, compensation tables and the narrative discussion accompanying the tables, beginning on page 42. As described in the Compensation Discussion and Analysis, our executive compensation programs are principally designed to reward executives based on the achievement of Company and individual performance objectives which, as a whole, are intended to drive sustainable long-term value creation for shareholders and reflect and maintain our position as an industry leader in the development of innovative medicines. The compensation of our NEOs is also designed to enable us to attract, engage and retain talented, high-performing and experienced executives in a competitive market.

In order to align executive pay with operational performance and the creation of long-term shareholder value, a significant portion of compensation paid to our NEOs is allocated to annual cash and long-term equity incentives, which are directly linked to Company and/or stock price performance. For 2019, approximately 91% and 81%, respectively, of the CEO’s and other NEOs’ annual total target direct compensation was variable based on our operating performance and/or our stock price.

In addition, management and the C&B Committee continually review the compensation programs for the NEOs to ensure they achieve the desired goals of reinforcing alignment of officer incentives with the interests of shareholders and linking compensation to performance as measured by operational results. As a result, we have adopted the policies and practices described on page 44 to further align pay with operational performance and increases in long-term shareholder value while minimizing excessive risk-taking.

We are asking shareholders to indicate their support for the NEO compensation as described in this proxy statement. Accordingly, the following resolution will be submitted for approval by shareholders at the 2020 Annual Meeting:

“Resolved, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and the narrative discussion described in pages 42 - 75 of this proxy statement, is hereby APPROVED on an advisory basis.”

The shareholder vote on this resolution will not be binding on management or the Board and will not be construed as overruling any decision by management or the Board. However, the Board and the C&B Committee value the opinions of our shareholders as expressed through their votes and other communications. In 2019, shareholders continued their support of our executive compensation programs with 93% of the votes cast for approval of a similar proposal. We will continue to give careful consideration to the outcome of the advisory vote on executive compensation and to the opinions of our shareholders when making compensation decisions.

At our 2017 Annual Meeting, our shareholders voted in support of annual advisory votes on future executive compensation proposals. The Board has adopted a practice providing for annual say-on-pay advisory votes. The Board expects that the next say-on-pay vote will occur in 2021.

 

LOGO

 

Merck & Co., Inc. 2020 Proxy Statement


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42   

 

 

 

    

    

   
   

 

Compensation Discussion
and Analysis

 

   

 

The following Compensation Discussion and Analysis or “CD&A” describes the material elements of compensation for our 2019 Named Executive Officers.

Executive Summary

2019 was a significant year for Merck as we executed against our strategic initiatives and drove growth and innovation in the key pillars of oncology, vaccines, hospital and animal health.

In the context of our Scorecard results for 2019, we exceeded our targets, delivering 10% revenue and 12% pre-tax income growth over our Scorecard results for 2018, excluding the impact of foreign exchange and certain other items, consistent with plan design. Our strong pipeline performance continued with major market approvals for KEYTRUDA, including in the U.S. in Adjuvant Therapy for Melanoma, first line Head and Neck Cancer and first line Renal Cell Carcinoma and in China, for first line Non-Small Cell Lung Cancer. We also received approvals in the U.S. for ZERBAXA for the treatment of certain types of bacterial hospital acquired pneumonia and RECARBRIO for the treatment of certain bacterial infections. Additionally, ERVEBO, our Ebola virus vaccine, received approval in the U.S. and conditional approval in the EU marking a critical advance in preparedness in the fight against the deadly virus and evidencing the passion, dedication and commitment of our employees to save and improve lives.

We continue to reshape our portfolio through business development transactions and strategic collaborations including the acquisitions of ArQule, Immune Design, Peloton Therapeutics and Tilos Therapeutics – to expand our oncology and non-oncology pipeline and bolster our capabilities in the development of vaccines. Our Animal Health business acquired Antelliq, a company focused on using digital technology to monitor and promote the health and well-being of livestock and companion animals.

In February, we announced our plan to spin-off our women’s health, trusted legacy brands and biosimilars businesses into a new company, to be called Organon & Co. The spin-off of Organon will enhance our ability to focus on growth and innovation in our key pillars while allowing Organon to pursue its strategic intent to become a leader in women’s health. The separation of the two companies is expected to provide additional value for patients and shareholders.

As a science-based biopharmaceutical company, our mission is to improve the quality of human and animal life. We enter 2020 with a strengthened resolve to continue our legacy of tackling urgent global health challenges. In connection with the COVID-19 pandemic, we have convened a team of our top scientists to assess the value that our vast array of assets and our vaccine know-how may have in the prevention or treatment of COVID-19.

 

 

Scorecard Performance 2019(1)

 

   

Financial Performance

     
         Target($B)     Actual($B)     Weighting%   Score%    
 

Revenue

  $ 44.23     $ 46.98       40     80  
 

Pre-Tax Income

  $ 15.04     $ 16.27       40     71  
   

Non-Financial Performance

     
 

Pipeline

                    20     33  
 

Overall Payout

 

                    184  

 

PSU Performance (2017–2019)(1)

 

         Peer Median     Merck     Result     Weighting     Payout      
 

3-Year R-TSR

    15.7%       17.3%       108%       50%       54%    
        Target($B)     Actual($B)     Result     Weighting     Payout      
 

3-Year Cum. OCF

    $37.8       $40.8       177%       25%       44%    
 

3-Year Cum. EPS

    $12.15       $12.93       155%       25%       39%    
 

Overall Payout

 

                    100%       137%    

 

 

 

(1)   Excluding the impact of foreign exchange and certain other items, consistent with plan design; rounded

 

Merck & Co., Inc. 2020 Proxy Statement


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Compensation Discussion and Analysis  

Executive Compensation Program Objectives and Strategy  

 

 

   43

 

 

Executive Compensation Program Objectives and Strategy

Our Industry Environment

The pharmaceutical industry is science-focused and requires experimentation to foster innovation. Ultimately, the work we do has an enormous impact on global health and well-being. Because of the inherent complexity and dynamic science of human and animal health, even with flawless execution we risk failure. In addition:

 

 

The costs associated with innovation are increasing while relative return is decreasing due to ongoing pricing pressure.

 

 

The number of products available to treat a particular disease typically increases over time, which can limit the commercial potential of key products.

 

 

It generally takes 10 to 15 years to discover, develop, and bring a new product to market.

Our Compensation Program Must Address the Industry Environment We Operate Within, Be Market-Competitive and Pay For Performance

We strive to balance the need to deliver market-competitive pay within a framework that provides the appropriate mix of fixed and variable, at-risk compensation to attract, retain and motivate talent and align with our pay-for-performance objectives.

 

 

Our program must…

 
      LOGO    Support our efforts to attract and retain the brightest and most innovative minds in business, research and academia.  

      LOGO

   Align the interests of our executives with the interests of our shareholders to ensure prudent actions that will benefit long-term value.  
      LOGO    Reward our executives based on the achievement of sustained financial and operating performance and demonstrated leadership.  
      LOGO   

Support a shared, one-company mindset of performance and accountability to deliver on business objectives.

 

 

Variable Compensation Is a Critical Component of Our Pay-For-Performance Objectives

Annual Cash Incentive

The Company Scorecard (described in more detail on page 50) focuses on our most critical business drivers — revenue, pre-tax income and pipeline accomplishments — and is used to determine the payout for our annual incentive for all employees, including our NEOs under the Executive Incentive Plan. Our Scorecard performance for 2019 resulted in above-target achievement of 184%.

Long-Term Incentive

The long-term incentive program provides our NEOs with the opportunity to own Merck stock, directly linking a substantial portion of their compensation to the returns realized by our shareholders.

For the 2017-2019 performance period (described in more detail on page 53), PSUs paid out at 137% based on cumulative, three-year OCF, cumulative three-year EPS and R-TSR during the performance period, weighted at 25%, 25% and 50%, respectively.

 

Merck & Co., Inc. 2020 Proxy Statement


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  Compensation Discussion and Analysis  

   Compensation Policies and Practices  

 

   

 

Say-on-Pay Advisory Vote

 

In 2019, shareholders continued their support for our executive compensation programs with 93% of the votes cast in favor of the say-on-pay proposal. Consistent with the Company’s strong interest in shareholder engagement and our pay-for-performance approach, the C&B Committee has continued to examine our executive compensation program to ensure alignment between the respective interests of our executives and shareholders. No significant changes were made to our executive compensation program in 2019 as a result of the most recent say-on-pay vote.

   LOGO

We ask that our shareholders approve, on an advisory basis, the compensation of our NEOs as further described in Proposal 2 on page 41.

Compensation Policies and Practices

Our executive compensation and corporate governance programs are designed to closely link pay with operational performance and increases in long-term shareholder value while minimizing excessive risk-taking. To help us accomplish these important objectives, we have adopted the following policies and practices over time:

 

 

We do…

        We do not…
 
LOGO  

 

Require double-trigger vesting of equity in the event of a change in control (i.e., there must be both a change in control and an involuntary termination)

control (i.e., there must be both a change in control and an involuntary termination)

 

     

LOGO   Allow Directors and management employees including officers to engage in transactions involving short sales, publicly traded options, hedging or pledging of Company stock

 

LOGO   Grant time-vested RSUs to NEOs as part of the annual LTI program

 

LOGO   Grant stock options with an exercise price less than fair market value

 

LOGO   Re-price underwater stock options without shareholder approval

 

LOGO   Pay tax gross-ups on any payments made in connection with a change in control event

LOGO  

 

Utilize a total shareholder return metric in the PSU program to align the payout with long-term stock performance and shareholder experience

 

  
LOGO  

 

Provide dividend equivalents only on earned Restricted Stock Units ("RSUs") or PSUs

 

  
LOGO  

 

Monitor LTI program share utilization regularly relative to both industry standards and versus our pharmaceutical and supplemental peer groups

 

  
LOGO  

 

Conduct competitive benchmarking to ensure executive officer compensation is aligned to market

 

  
LOGO  

 

Offer limited perquisites that are supported by business interests

 

  
LOGO  

 

Include caps on annual cash incentive and PSU program payouts

 

  
LOGO  

 

Retain an independent compensation consultant that reports directly to the C&B Committee

 

  
LOGO  

 

Maintain robust stock ownership requirements and share retention policies

 

 

  
LOGO  

 

Maintain an incentive recoupment (i.e. clawback) policy

 

  
LOGO  

 

Conduct assessments to identify and mitigate risk in our compensation
programs

 

  
 
LOGO  

 

Avoid employment agreements

 

         

 

Merck & Co., Inc. 2020 Proxy Statement


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Compensation Discussion and Analysis  

Compensation Policies and Practices  

 

 

   45

 

 

Merck’s Primary Peer Group

Individual executive officer compensation levels and opportunities are compared to a Peer Group of large multinational pharmaceutical companies that participate in a pharmaceutical industry compensation survey. The survey is conducted by Willis Towers Watson, an independent consulting firm. In setting compensation levels for 2019, the C&B Committee reviewed the survey results, which consisted of the following Peer companies with which Merck competes to attract talented, high-performing executives:

 

Primary Peer Group

Companies

 

AbbVie

Amgen

AstraZeneca

Bristol-Myers Squibb

Eli Lilly

GlaxoSmithKline

Johnson & Johnson

Novartis

Pfizer

Roche

Sanofi

 

All numbers as of 12/31/2019

 

           

LOGO         

 

Merck’s Supplemental Peer Group

In addition to the pharmaceutical Peer Group described above, we also use a Supplemental Peer Group consisting of the companies that comprise the Dow Jones Industrial Average (excluding the financial services companies) as a secondary reference for CEO compensation and for other compensation-related practices (for example, share usage and dilution, change in control policy design and stock ownership and retention guidelines). Merck is a member of the Dow Jones Industrial Average, and we believe this group provides insight into practices among companies of similar scale and complexity that operate across a variety of industries, providing us with a broader view of market pay, policies and practices.

 

Supplemental Peer Group Companies

 

  

LOGO         

 

3M

Apple

Boeing

Caterpillar

Chevron

Cisco

Coca-Cola

Disney

Dow Chemical

Exxon Mobil

Home Depot

IBM

Intel

 

Johnson & Johnson

McDonald’s

Microsoft

Nike

Pfizer

Procter & Gamble UnitedHealth United Technologies Verizon

Visa

Walgreens

Walmart

All numbers as of 12/31/2019

 

Our overarching strategy is to position our executives’ total target direct compensation (base salary, target annual cash incentive and target long-term equity incentive) at the median, on average, with variability by individual executive based on scope and complexity of role, market availability of proven talent, experience, leadership, sustained performance over time, potential for advancement as part of succession planning, and other unique factors that may exist from time to time. This median target compensation philosophy ensures that actual realized compensation varies above or below market levels based on attainment of longer-term goals and changes in shareholder value, and that overall costs and share dilution are reasonable and sustainable relative to market practices.

 

Merck & Co., Inc. 2020 Proxy Statement


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46   

 

 

 

  Compensation Discussion and Analysis  

   Detailed Discussion and Analysis   

 

   

 

Detailed Discussion and Analysis

Further information regarding our 2019 Named Executive Officers and the material elements of their compensation is described below.

 

    

    

    

 

 

Compensation Decisions for 2019

 

  

LOGO

 

Kenneth C. Frazier

Chairman, President and Chief Executive Officer

 

 

 

•  Increased base salary by 3.1%

•  Maintained annual incentive target percentage

•  Increased LTI target by $2,000,000

•  Increased total target direct compensation by 12.5%

 

 

LOGO

 

  

 

Age: 65

 

   
      
  

 

Tenure*: 28 Years

 

   
              

(1)   Change in value is mainly attributed to lower discount rates, an increase in five-year average pay and an additional year of service.

 

      

 

Compensation Decisions for 2019

 

  

LOGO

 

Robert M. Davis

Executive Vice President, Global Services and Chief Financial Officer

 

 

 

•  Increased base salary by 3%

•  Maintained annual incentive target percentage

•  Increased LTI target by $200,000

•  Increased total target direct compensation by 4.4%

 

 

LOGO

  

 

Age: 53

 

   
      
  

 

Tenure*: 6 Years

 

   
              
* Rounded

 

Merck & Co., Inc. 2020 Proxy Statement


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Compensation Discussion and Analysis  

Detailed Discussion and Analysis   

 

 

   47

 

 

      

 

Compensation Decisions for 2019

 

    

  

LOGO

 

Sanat Chattopadhyay

Executive Vice President
and President, Merck Manufacturing Division

 

 

    

 

 

•  Increased base salary by 3.6%

•  Maintained annual incentive target percentage

•  Increased LTI target by $500,000

•  Increased total target direct compensation by 17.5%

 

 

LOGO

  

 

Age: 60

 

   
      
  

 

Tenure*: 10 Years

 

   
              
        
      

 

Compensation Decisions for 2019

 

  

LOGO

 

Roger M. Perlmutter, M.D., Ph.D.

Executive Vice President
and President, Merck Research Laboratories

 

   

 

•  Increased base salary by 3%

•  Maintained annual incentive target percentage

•  Increased LTI target by $1,000,000

•  Increased total target direct compensation by 17%

 

 

LOGO

  

 

Age: 67

 

   
      
  

 

Tenure*: 11 Years

 

   
              
        
      

 

Compensation Decisions for 2019

 

  

LOGO

Jennifer Zachary

Executive Vice President,

General Counsel and Corporate Secretary

 

   

 

•  Increased base salary by 9.4%

•  Maintained annual incentive target percentage

•  Increased LTI target by $350,000

•  Increased total target direct compensation by 13.9%

 

 

LOGO

  

 

Age: 42

 

   
      
  

 

Tenure*: 2 Years

 

   
              
* Rounded

 

Merck & Co., Inc. 2020 Proxy Statement


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  Compensation Discussion and Analysis  

   The Elements of 2019 Compensation   

 

   

 

The Elements of 2019 Compensation

How Our Compensation Program Works

 

What We Reward

      How We Link Pay To Performance       How We Pay

•  Top and bottom-line performance that meets or exceeds consensus and management expectations

 

•  Pipeline accomplishments that advance our position as an industry-leading biopharmaceutical company

 

•  Decision-making that yields long-term value creation for shareholders

 

•  Targeted growth strategy, consistently seeking opportunities that complement or supplement our portfolio in Oncology, Vaccines, Hospital and Animal Health

 

     

•  Inclusion of key financial and non-financial metrics in our annual cash incentive plan to ensure executives
are rewarded for top and bottom-line performance and pipeline advancement which leads to longer-term revenue opportunities

 

•  Long-term incentive comprised of a mix of performance share units and stock options, linking a substantial amount of pay opportunity to long-term company performance and shareholder value

 

•  Majority of total target pay
opportunity is at-risk and tied to company performance and/or long-term stock value

 

     

•  Overall total target pay opportunity, as well as each pay element, is assessed for competitiveness
relative to primary and supplemental peer groups, which include the
largest pharmaceutical peers and Dow Jones Industrial Average companies excluding financial services

 

•  Competitive positioning is targeted to median of market; actual positioning varies based on a variety of factors, including scope and complexity of role, years of experience, demonstrated performance over time and other factors

 

 

LOGO    LOGO

The C&B Committee, and in the case of Mr. Frazier, the Board of Directors (not including Mr. Frazier), determines compensation for the NEOs each year based on a variety of factors, including scope and complexity of role, experience, sustained leadership and performance and competitive positioning as compared to our pharmaceutical and supplemental peer groups as described in more detail on page 45.

Additional details regarding the roles and responsibilities of the C&B Committee are provided beginning on page 20.

 

Merck & Co., Inc. 2020 Proxy Statement


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Compensation Discussion and Analysis  

The Elements of 2019 Compensation   

 

 

   49

 

 

Base Salary

 

The C&B Committee must balance
the need to deliver a competitive level
of base salary while also ensuring the
appropriate mix of fixed to variable
compensation for each NEO.

 

As shown in the table, adjustments
were made to base salaries in 2019.
All adjustments were based on
Merck’s U.S. salary increase budget
for all employees, including the NEOs.

      

Named Executive Officer

  

Annual Base

Salary Increase %

   

Market

Adjustment %

   

Base Salary

Effective April 2019

 
 

K.C. Frazier

     3.1     No Change     $ 1,670,000  
 

R.M. Davis

     3.0       No Change       1,082,144  
 

S. Chattopadhyay

     3.6       No Change       724,850  
 

R.M. Perlmutter

     3.0       No Change       1,158,837  
 

J. Zachary

     3.8       5.6     875,000  
        
           
           

Annual Cash Incentive

 

The NEOs participate in the
shareholder-approved Executive
Incentive Plan (“EIP”).

 

Award amounts under the EIP are
determined based upon achievement
of Company performance measures
as reflected by the Company
Scorecard. The overall EIP award fund
cannot exceed 200% of the aggregate
total target incentive amount for all
participants. The maximum award
amount for each NEO for 2019,
excluding the impact of the Scorecard,
is listed in the Grants of Plan-Based
Awards
table on page 61.

 

No changes were made to EIP targets
for the 2019 performance period as
shown in the table.

      

Named Executive Officer

  

2018

Target Annual
Incentive

% of Base
Salary

   

2019

Target Annual
Incentive

% of Base
Salary

 
 

K.C. Frazier

     150     150
 

R.M. Davis

     105       105  
 

S. Chattopadhyay

     90       90  
 

R.M. Perlmutter

     105       105  
 

J. Zachary

     95       95  
      
         
         
         
         
         
         
         
         
         

 

Merck & Co., Inc. 2020 Proxy Statement


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  Compensation Discussion and Analysis  

   The Elements of 2019 Compensation   

 

   

 

2019 Merck Company Scorecard

Our Company Scorecard helps translate our strategic priorities into operational terms that track and measure our progress and performance against annual operating goals and critically important long-term strategic drivers of sustainable value creation tied to our research and development pipeline — each of which is measured in the context of compliance, health, safety and environmental outcomes. Revenue and Pre-Tax Income are equally weighted at 40% each based on the C&B Committee’s belief that they are the key financial measures of our success during the year. The Pipeline milestones are collectively weighted at 20% and are designed to ensure that we are focused on internal and external early discovery opportunities, late-stage clinical development progression, filings and approvals.

As indicated above, the threshold and stretch revenue and pre-tax income goals are set in relation to the Board-approved annual operating plan and the expectations of management. Each year, the pipeline goals are recommended by the head of Merck Research Labs, reviewed by the Research Committee and approved by the C&B Committee. Failure to achieve threshold performance on any of the metrics would result in forfeiture of the entire opportunity for that metric. If the combined results of the three metrics do not total at least 50, the entire opportunity would be forfeited (i.e., there would be no payout). The overall results of the Scorecard are calibrated so individuals may receive between 50% and 200% of their target award opportunity established for the annual performance period. The Scorecard structure and results are summarized below.

 

 

2019 Company Scorecard

 

                                      
    

Measure

        Weight     

 

Target
($) billions

     Reported
($) billions
     Adjusted
($) billions
  

Final

Score*

    
   
   

Revenue vs. Plan*

     40      $44.23      $46.84      $46.98    LOGO    
   
   

Non-GAAP Pre-Tax Income vs. Plan*

     40      $15.04      $16.12      $16.27    LOGO    
   
   

Value of Pipeline

     20                   LOGO    
   
   

Approval Milestones

     6                   12    
   

Filing Milestones

     4                   5    
   

Global Development Milestones

     3                   5    
   

Discovery and Early Development

     7                   11    
   
   

Total

       100                         LOGO    

 

*Excluding the impact of foreign exchange and certain other items, consistent with plan design; rounded

 

Revenue:

Reported revenue of $46.84B was adjusted to $46.98B to remove the negative impact of foreign exchange rates (vs. foreign exchange rates budgeted in the annual operating plan) and the impact of business development transactions (consistent with plan design and past practice), exceeding our internal revenue target of $44.23B.

Pre-Tax Income:

Reported pre-tax income of $16.12B was adjusted to $16.27B to exclude the impact of foreign exchange rates (vs. foreign exchange rates budgeted in the annual operating plan) and the impact of gains/losses from equity securities and the effect of certain business development transactions (consistent with plan design and past practice), exceeding our internal pre-tax income target of $15.04B.

 

Merck & Co., Inc. 2020 Proxy Statement


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Compensation Discussion and Analysis  

The Elements of 2019 Compensation   

 

 

   51

 

 

2019 Annual Incentive Payouts

The table below shows the 2019 annual cash incentives paid to the NEOs. The total annual incentive amount paid to each NEO is reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

 

LOGO

Named Executive Officer 2019 Annual Incentive Payments

 

                Target                    

Named Executive Officer

    

Annual Base Salary

(as of 12/31/19)

($)

      

Annual

Incentive

(%)

      

Annual

Incentive

($)

      

Company

Scorecard Result

(%)

      

Final

Award

($)

 

K.C. Frazier

       $1,670,000          150%        $ 2,505,000          184%        $ 4,609,200  

R.M. Davis

       1,082,144          105             1,136,251          184             2,090,702  

S. Chattopadhyay

       724,850          90             652,365          184             1,200,352  

R.M. Perlmutter

       1,158,837          105             1,216,779          184             2,238,873  

J. Zachary

       875,000          95             831,250          184             1,529,500  

Long-Term Equity Incentives

2019 Award Mix

We use two long-term incentive vehicles to ensure that our LTI program remains balanced, sustainable and supportive of its objectives over a multi-year period.

 

LOGO    Performance Share Units
   PSUs link realized compensation value to the achievement of critical financial and operational objectives and align executives’ interests with those of our shareholders. The earned award varies based on results versus pre-determined performance goals, as well as long-term returns to shareholders as measured by relative stock price performance and dividend yield.

 

LOGO

  

Stock Options

Stock options align our executives’ interests with the interests of our shareholders because options only have financial value to the recipient if the price of our stock at the time of exercise exceeds the stock price on the date of grant. As a result, we believe stock option grants encourage executives to focus on behaviors and initiatives that support sustained long-term stock price appreciation, which benefits all shareholders.

Current LTI Grant Practices

All grants to executive officers are approved by the C&B Committee, and in the case of Mr. Frazier, the Board of Directors (not including Mr. Frazier). Annual PSU grants (with a 3-year performance period) are generally made on the last business day in March and annual stock option grants are made on the third business day following announcement of our first quarter earnings. We may also selectively grant stock options and RSUs to executive officers on the third business day following the announcement of quarterly earnings generally as part of a new hire sign-on or for retention purposes. These dates were chosen to ensure that grants are made shortly after we have released information about our financial performance to the public. However, the C&B Committee reserves the right to change the date when grants are made, in view of its responsibility to consider all facts and circumstances to ensure that grants are consistent with our compensation philosophy and objectives.

 

Merck & Co., Inc. 2020 Proxy Statement


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  Compensation Discussion and Analysis  

   The Elements of 2019 Compensation   

 

   

 

Stock options are granted at no less than fair market value on a fixed date or event, with all required approvals obtained in advance of or on the actual grant date. Fair market value is the closing price of a share of Company stock on the grant date. In certain countries, a higher grant price may be used to satisfy provisions of local applicable law. The re-pricing of stock options is not permitted under the Incentive Stock Plan without prior shareholder approval.

2019 LTI Grant Values

The 2019 annual LTI grant values for the CEO and other NEOs as compared to the prior year are shown in the following table. The number of shares associated with each award is set forth in the Grants of Plan-Based Awards table on page 61. LTI grant values for Mr. Frazier, Mr. Davis and Dr. Perlmutter were increased by the C&B Committee (or the Board, not including Mr. Frazier, in the case of Mr. Frazier) to recognize sustained performance and leadership. LTI values for Mr. Chattopadhyay and Ms. Zachary were increased by the C&B Committee to strengthen their competitive market positioning versus our pharmaceutical peer group and to recognize their impact.

 

     Target Grant Value(1)           

Executive Officer

   2018        2019        Increase
in Target
Grant Value
 

K.C. Frazier

     $13,000,000          $15,000,000          +$2,000,000  

R.M. Davis

     3,800,000          4,000,000          +200,000  

S. Chattopadhyay

     1,800,000          2,300,000          +500,000  

R.M. Perlmutter

     4,000,000          5,000,000          +1,000,000  

J. Zachary

     2,000,000          2,350,000          +350,000  

 

(1)

Grant values shown above will be different from the values shown in the Summary Compensation Table and Grants of Plan-Based Awards tables based on the fair value on grant date in accordance with FASB ASC Topic 718 and SEC disclosure rules which consider factors other than share price.

PSU Program

At the beginning of each year, we establish three-year performance targets for the metrics under the PSU program. Awards granted in 2017 and in subsequent years are measured against cumulative EPS (25%), OCF (25%) and R-TSR (50%). Payouts under the PSU program are formulaic; the C&B Committee does not consider individual performance or use discretion when determining final awards.

EPS and OCF targets are established based on our three-year financial plan, which considers a variety of factors including management, Board and external expectations and aspirations of our long-term performance. R-TSR performance versus our peer group is measured at the end of the three-year period and compares Merck’s average annual TSR to the median TSR of our pharmaceutical peer group. Each percentage point of outperformance or underperformance versus the median modifies the earned award by +/-5 percentage points. In the event of underperformance by more than 10 percentage points, there will not be a payout on the R-TSR portion of the award. In the event of outperformance, the payout on the R-TSR portion of the award cannot exceed 200%. If R-TSR is negative, the payout on this portion of the award cannot exceed 100%, even if our R-TSR outperforms the median of the peer group.

 

Merck & Co., Inc. 2020 Proxy Statement


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Payouts Under the 2017–2019 PSU Award Cycle

For grants issued in 2017, 70% of each NEO’s annual target LTI was converted to PSUs based on the closing price of Merck stock on the date of grant. The number of PSUs ultimately earned is based on our performance against the pre-established EPS and OCF targets and R-TSR performance.

For the 2017-2019 performance period, three-year cumulative EPS and OCF were each weighted at 25%, and R-TSR versus our pharmaceutical peer group was weighted at 50%. The results of the combined performance resulted in an actual payout of 137% as illustrated in the tables below.

The 137% payout was based on our strong EPS and OCF performance (155% and 177%, respectively) primarily due to above-plan after-tax non-GAAP net income. We outperformed the median TSR of our Peer Group by 1.6%, which increased the payout by +5% for each percentage point of outperformance, resulting in an R-TSR payout of 108%.

 

LOGO

 

(1)

Excluding the impact of foreign exchange and certain other items, consistent with plan design; rounded.

 

(2)

R-TSR as reported by Bloomberg and calculated using the average closing price of Merck and Peer company common stock for December 2016 and December 2019, assuming reinvestment of dividends.

 

(3)

Rounding may be applied.

 

Merck & Co., Inc. 2020 Proxy Statement


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Named Executive Officer PSU Distribution

Based on the final payout of 137%, the NEOs received the following number of shares of Merck common stock including dividends accrued and paid in shares:

 

Named Executive Officer

  

Target Award

(# of shares)

    

Final Award

(# of shares)

 

K.C. Frazier

     137,709        203,791  

R.M. Davis

     41,863        61,951  

S. Chattopadhyay

     16,525        24,454  

R.M. Perlmutter

     44,067        65,214  

J. Zachary(1)

     N/A        N/A  

 

(1)

Ms. Zachary was hired in April 2018 and was not a participant in the 2017-2019 PSU performance period.

Additional information regarding the payouts under the 2017-2019 PSU performance period is provided in the Option Exercises and Stock Vested table on page 65.

To accurately reflect the operating performance of our business, the C&B Committee has approved a consistent framework of adjustments to our reported financial results for incentive program purposes. For further explanation of these adjustments and our GAAP versus Non-GAAP results, please refer to Appendices A and B on pages 90 and 92, respectively.

Other Employee Benefits

Similar to Merck’s other salaried, U.S.-based employees, the NEOs participate in a variety of retirement, health and welfare and paid time-off benefits designed to enable us to attract and retain our workforce in a competitive marketplace. Pension and savings plans help employees save and prepare financially for retirement. Health and welfare and paid time-off benefits help ensure that we have a productive and focused workforce.

Additionally, senior management employees including the NEOs are provided a limited number of other benefits, which the C&B Committee believes are reasonable, appropriate and consistent with our executive compensation philosophy.

These benefits, which are described in more detail below, are reflected in the “All Other Compensation” column of the Summary Compensation Table.

 

 

Financial and tax planning. Executives receive a $10,000 cash allowance each December to encourage consultation with knowledgeable financial and tax planning experts who can help them understand the compensation and benefits programs in which they participate.

 

 

Personal use of Company aircraft. Our global security organization regularly evaluates the travel risk for our CEO. As a result of these assessments and based on our security team’s recommendation, our Board of Directors has determined that our CEO must use Company-provided aircraft for all business and personal travel. Personal use of Company aircraft by other executives requires CEO approval and is only permitted under exceptional circumstances. Other than our CEO, there is no reported usage for any other NEO.

 

 

Personal use of Company car and driver. Our CEO is provided with a car and driver to ensure his individual safety and security. Personal use of a car and driver is also provided to a select number of other executives, primarily for commutation purposes, allowing them to devote additional time to critical Company business.

 

 

Residential security systems. Reimbursement for the installation, maintenance and remote access of residential security systems is provided to select executives, when deemed necessary by our internal global security team. Executives are responsible for paying monthly security monitoring fees, which are not reimbursable.

2020 Compensation Actions

As part of our annual compensation review, the C&B Committee approved a change to our 2020 PSU program to remove the OCF metric and increase the weighting of the EPS metric to 50%, maintaining a linkage between our long-term profitability and executive incentives. The remaining 50% of the award will continue to be based on 3-year R-TSR during the performance period.

 

Merck & Co., Inc. 2020 Proxy Statement


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In addition, the C&B Committee reviewed and approved total target direct compensation opportunities for our executive officers, including our NEOs, and the Board of Directors (not including Mr. Frazier) reviewed and approved Mr. Frazier’s total target direct compensation.

Mr. Frazier’s 2020 LTI grant value was increased to recognize his sustained high performance and achieve competitive positioning relative to the primary pharmaceutical and supplemental (Dow) peer group. Similar to 2019, his 2020 grants will include specific terms and conditions providing for full vesting if he remains employed through December 31, 2020, subject to his continued compliance with non-compete and non-solicit requirements. Mr. Chattopadhyay and Ms. Zachary received market adjustments and increases in their annual LTI grant values to better align their overall compensation to the market.

The following table summarizes adjustments made to CEO and other NEO compensation for 2020.

 

Named Executive Officer

   Annual Base Salary
Increase %
       Target Annual Incentive
Increase %
      

Target Long-Term Incentive

Increase $

 

K.C. Frazier

     +1.8        No change          +$750,000  

R.M. Davis

     +3.0          No change          No change  

S. Chattopadhyay

     +13.8 (1)         No change          +500,000  

R.M. Perlmutter

     +3.0          No change          No change  

J. Zachary

     +5.0 (1)         No change          +150,000  

 

(1)

Includes market adjustment as described above.

Other Compensation Practices

Stock Ownership Requirements

The C&B Committee recognizes the critical role that executive stock ownership has in aligning the interests of management with those of shareholders. As such, we maintain a formal stock ownership policy, under which the CEO and other senior executives are required to acquire and hold Merck common stock in an amount representing a multiple of their base salary. Until the designated multiple of base salary is reached, executives are required to retain in stock a percentage of the after-tax net proceeds associated with stock option exercises and/or PSU and RSU distributions (100% for the CEO and 75% for the other NEOs). The following table sets forth the stock ownership requirements and current stock ownership status as a percentage of the requirement for the CEO and other NEOs as of February 29, 2020.

 

    Stock Ownership Requirements(1)

    Percent Attainment of Goal

LOGO

(1)

Ms. Zachary was hired in April 2018.

 

Merck & Co., Inc. 2020 Proxy Statement


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  Compensation Discussion and Analysis  

   Compensation Risk Assessment  

 

   

 

Return of Incentive Compensation (“Clawback Policy”)

Under our incentive compensation recoupment policy, in the case of a significant restatement of financial results caused by executive fraud or willful misconduct, the Board of Directors will seek reimbursement for the portion of the annual cash incentive and/or PSUs paid to the executive in excess of the amount that would have been paid if the financial results were reported accurately. Additionally, for incentive compensation awarded in and after 2014, an incentive recoupment policy applies to senior executives in instances of material violations of Company policy that cause significant harm to Merck and instances of a failure to manage or monitor conduct or risks appropriately.

Hedging and Pledging

As part of our insider trading policy, Merck prohibits Directors and management level employees, including officers, from engaging in short sales, publicly traded options, hedging transactions and pledging of Company stock.

Tax Deductibility of Compensation

In light of the repeal of the performance-based compensation exemption under Section 162(m) of the Internal Revenue Code, the C&B Committee may authorize compensation that is not deductible if it is determined to be appropriate and in the best interests of the Company and our shareholders.

Compensation Risk Assessment

Our executive compensation program and policies are driven by our business environment and designed to enable us to achieve our mission and adhere to our values. The C&B Committee and senior management continually evaluate the relationship between risk and reward as it relates to our executive compensation program and have adopted policies and practices that mitigate undue risk while preserving the incentive/variable nature of the compensation. These policies and practices are described in more detail in the Compensation Policies and Practices chart on page 44.

In 2018, Merck engaged Pay Governance, an independent compensation consultant to management, to perform a formal assessment of our executive compensation program, policies and practices based on generally accepted compensation practices. The results of the assessment were reviewed and discussed with the C&B Committee in November 2018. The assessment reaffirmed our belief that our compensation programs and policies are structured and operated in a manner that does not create risks that are reasonably likely to have a material adverse effect on our business. In addition to ongoing monitoring of our programs and policies, we are committed to performing formal assessments on a periodic basis. The next formal assessment is scheduled for review and discussion with the C&B Committee in November 2020.

Compensation and Benefits Committee Report

The C&B Committee, comprised of independent Directors, reviewed and discussed the above CD&A with management. Based on the review and discussions, the C&B Committee recommended to our Board of Directors that the CD&A be included in these proxy materials.

Compensation and Benefits Committee

Thomas H. Glocer (Chair)

Rochelle B. Lazarus

Patricia F. Russo

Inge G. Thulin

Peter C. Wendell

 

Merck & Co., Inc. 2020 Proxy Statement


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Summary Compensation Table

The following table summarizes the total compensation that was paid or accrued for the Named Executive Officers for the fiscal years ended December 31, 2019, 2018 and 2017. The Named Executive Officers are the Company’s Chief Executive Officer, Chief Financial Officer and the three next most highly compensated executive officers as of December 31, 2019.

 

Name and Principal Position

 

Year

   

Salary

($)(1)

   

Bonus

($)

   

Stock

Awards

($)(2)

   

Option

Awards

($)(3)

   

Non-Equity

Incentive
Plan

Compensation

($)(4)

   

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($)(5)

   

All Other

Compensation

($)(6)

   

Total

($)

 

Kenneth C. Frazier

Chairman, President

and Chief Executive

Officer

    2019     $ 1,659,482     $ 0     $ 11,425,398     $ 4,500,763     $ 4,609,200       5,078,147  (7)    $ 375,485     $ 27,648,475  
    2018       1,610,577       0       9,456,006       3,901,093       3,061,800       0  (8)      2,905,028  (9)      20,934,504  
    2017       1,572,212       0       8,814,767       3,750,000       2,686,575       504,658       314,875       17,643,087  

Robert M. Davis

Executive Vice

President, Global

Services and Chief

Financial Officer

    2019       1,075,557       0       3,046,785       1,200,201       2,090,702       193,079       120,864       7,727,188  
    2018       1,043,726       0       2,764,058       1,140,317       1,389,977       171,067       111,695       6,620,840  
    2017       1,018,269       0       2,679,655       1,140,001       1,216,163       151,849       104,962       6,310,899  
                                                                       

Sanat Chattopadhyay

Executive Vice

President and

President, Merck

Manufacturing Division

    2019       719,467       0       1,751,906       690,121       1,200,352       963,252       93,495       5,418,593  
    2018 (10)                                                 
    2017 (10)                                                 
                                                                       

Roger M. Perlmutter,

M.D., Ph.D. Executive

Vice President and

President, Merck

Research Laboratories

    2019       1,151,783       0       3,808,436       1,500,254       2,238,873       361,579       162,429       9,223,354  
    2018       1,116,262       0       2,909,523       1,200,341       1,488,486       236,334       147,696       7,098,642  
    2017       1,083,750       0       2,820,733       1,200,000       1,296,032       294,435       138,917       6,833,867  
                                                                       

Jennifer Zachary

Executive Vice

President, General

Counsel and Corporate

Secretary

    2019       856,818       0       1,790,006       705,120       1,529,500       83,704       80,572       5,045,720  
    2018       553,846       750,000  (11)      2,454,748       600,166       638,400       30,462       165,997       5,193,619  
    2017  (12)                                                 
                                                                       

 

(1)

Amounts shown reflect actual base salary earnings and are not reduced to reflect the Named Executive Officers’ elections, if any, to defer receipt of salary into the Merck Deferral Program, an unfunded savings plan.

 

    

For more information about deferred amounts, see the Nonqualified Deferred Compensation table and related footnotes on page 69.

 

(2)

The amounts shown in this column represent the full grant date fair value of RSUs and PSUs granted to each of the Named Executive Officers during 2019, 2018 and 2017, respectively, as calculated in accordance with FASB ASC Topic 718. These amounts do not represent the actual value realized by the Named Executive Officers during the respective year. Please refer to pages 52 - 53 for more information on the PSU award disclosures. For discussion of the assumptions used in these valuations, see Note 13 to Company’s Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2019.

 

    

The maximum value of the PSU awards granted to the Named Executive Officers during 2019 assuming achievement of the highest level of performance (200%) was:

 

NEO

   Maximum Value
of PSU Awards
($)
 

K.C. Frazier

   $ 22,850,795  

R.M. Davis

     6,093,570  

S. Chattopadhyay

     3,503,812  

R.M. Perlmutter

     7,616,871  

J. Zachary

     3,580,013  

 

    

For more information on the awards granted during 2019, see the Grants of Plan-Based Awards table and related narrative and footnotes beginning on page 61.

 

Merck & Co., Inc. 2020 Proxy Statement


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  Summary Compensation Table

 

   

 

(3)

The amounts shown in this column represent the full grant date fair value of stock options granted to each of the Named Executive Officers during 2019, 2018 and 2017, respectively, as calculated in accordance with FASB ASC Topic 718. The stock option values were calculated using the Black-Scholes option pricing model and may not represent the actual value realized by the Named Executive Officers during the respective year. For discussion of the assumptions used in these valuations, see Note 13 to Company’s Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2019.

 

    

For more information on stock options granted during 2019, see the Grants of Plan-Based Awards table and related narrative and footnotes beginning on page 61.

 

(4)

Represents amounts paid under the Executive Incentive Plan. For more information, see the Grants of Plan-Based Awards table and related narrative and footnotes beginning on page 61.

 

    

For 2018, based on her employment start date of April 16, 2018, Ms. Zachary’s award reflects pro-rated eligibility for 8 of 12 months during the performance period.

 

    

Amounts shown are not reduced to reflect the Named Executive Officers’ elections, if any, to defer receipt of awards into the Merck Deferral Program. For more information, see the Nonqualified Deferred Compensation table and related notes and narrative on page 69.

 

(5)

Amounts shown are solely an estimate of the aggregate change in actuarial present value of the Named Executive Officers’ accrued benefits under the Company’s pension plans from December 31, 2018 to December 31, 2019. These plans are the Merck U.S. Pension Plan (the “Qualified Plan”) and the MSD Supplemental Retirement Plan. For more information about those plans, see the Pension Benefits table and accompanying narrative beginning on page 66.

 

    

The Merck Deferral Program, an unfunded savings plan, does not provide for above market or preferential earnings. For more information, see the Nonqualified Deferred Compensation table and related notes and narrative on page 69.

 

(6)

See the All Other Compensation table on page 59 for additional details on amounts. See footnotes 1 and 4 to the All Other Compensation table for an explanation of financial and tax planning benefits, as well as installation, maintenance and remote access of home security, are valued. For all other personal benefits provided to the Named Executive Officers, in accordance with SEC disclosure rules, we calculated the cost of those benefits as the incremental cost of providing them. Each benefit plan serves a business purpose, as described further in the Other Employee Benefits section on page 54.

 

(7)

Change in value is mainly attributed to lower discount rates, an increase in five-year average pay and an additional year of service.

 

(8)

Change in value is negative generally due to an increase in discount rates. In accordance with SEC rules, a $0 value is reported rather than a negative amount.

 

(9)

Includes $2.5 million in deferred compensation to offset the loss of pension benefits due to the elimination of the Mandatory CEO Retirement Policy. For additional details, see the Pension Benefits table on page 66.

 

(10)

Mr. Chattopadhyay was not a Named Executive Officer in 2018 or 2017.

 

(11)

Ms. Zachary received a sign-on bonus to compensate for lost bonus opportunity and to provide a hiring incentive.

 

(12)

Ms. Zachary was hired on April 16, 2018.

 

Merck & Co., Inc. 2020 Proxy Statement


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All Other Compensation   

 

 

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All Other Compensation

 

Name

   Year    

Financial/Tax

Counseling
& Tax
Preparation

Services

($)(1)

   

Company

Aircraft

($)(2)

    

Company Car

and Driver

($)(3)

    

Installation,

Maintenance and

Remote Access of

Home Security

($)(4)

    

Relocation

Expense

($)

    

Savings Plan

Company

Match and

Credits

($)(5)

   

Total

($)

 

K.C. Frazier

     2019     $ 10,000     $ 90,661      $ 50,121      $ 12,378      $ 0      $ 212,325     $ 375,485  
     2018       10,000       79,830        48,907        72,919        0        2,693,372 (6)      2,905,028  
       2017       10,000       20,663        47,961        52,172        0        184,079       314,875  

R.M. Davis

     2019       10,000       0        0        0        0        110,864       120,864  
     2018       10,000       0        0        0        0        101,695       111,695  
       2017       10,000       0        0        0        0        94,962       104,962  

S. Chattopadhyay

     2019       10,000       0        15,457        0        0        68,038       93,495  
     2018 (7)                                               
       2017 (7)                                               

R.M. Perlmutter

     2019       10,000