DEF 14A 1 d50486ddef14a.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  ☐

Check the appropriate box:

 

  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

 

LOGO

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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  No fee required.
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

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Proposed maximum aggregate value of transaction:

 

     

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  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

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  (4)  

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Table of Contents

LOGO

 


Table of Contents

Creating Long-Term Value for

Patients and Shareholders

 

 
Making Progress on Our Strategic Priorities

 

   
LOGO  

Advancing the Pipeline for Scientific Breakthroughs1

 

   
   

Oncology:

 

•  As monotherapy and in combination, KEYTRUDA received 7 new approvals in the U.S., 1 in the EU, 2 in China and 2 in Japan

 

•  Lynparza2 received 2 approvals in the U.S., 3 in the EU, and 3 in Japan

 

•  Belzutifan (HIF-2a) granted breakthrough designation for the treatment of certain patients with von Hippel-Lindau disease-associated Renal Cell Carcinoma in the U.S.

 

•  Advanced and presented data for vibostolimab (TIGIT), belzutifan (HIF-2a) quavonlimab (CTLA4), MK-5890 (CD27) and ILT4 (MK-4830)

 

•  Presented Phase 3 data from KN-581, studying KEYTRUDA + Lenvima3 in RCC

 

Vaccines:

 

•  V114, our pneumococcal conjugate vaccine candidate, accepted for priority review by the FDA for use in adults

 

•  GARDASIL9, our 9-valent HPV vaccine, received approval in Japan where it is marketed as SILGARD9

 

•  GARDASIL9 received accelerated approval for the prevention of certain HPV-related head and neck cancers in the U.S.

 

•  ERVEBO, our Ebola virus vaccine, received approval in the Democratic Republic of Congo, Burundi, Ghana and Zambia

 

•  V181, our dengue vaccine candidate, received Fast Track Designation in the U.S.

 

Hospital, Specialty and Other:

 

•  Islatravir, our novel HIV asset, advanced to Phase 3 in PrEP and advanced to Phase 2, in combination with MK-8507, for treatment

 

•  Advanced molnupiravir, our COVID-19 antiviral candidate, into Phase 2/3 trials

 

•  VERQUVO® (vericiguat), our medicine for certain patients with chronic heart failure, approved in the U.S.

 

•  RECARBRIO approved in U.S. for HABP/VABP

 

•  MK-7264, our investigational orally administered P2X3 Receptor Antagonist (Gefapixant), accepted by FDA for a New Drug Application Review for Chronic Cough

 

Animal Health:

 

•  Received 17 new product approvals and completed 4 key business development transactions in 2020

 

       
LOGO   Unlocking the Commercial Potential of Our Portfolio4   LOGO   Balanced Approach to Capital Allocation   LOGO   Focusing on Strategic Business Development (BD) to Fuel Innovation
     

+2% total sales growth in 2020 (4% excluding exchange) despite negative estimated pandemic impact of ~$2.5B

 

Sales highlights across our key growth pillars include:

 

•  KEYTRUDA sales of $14.4B, +30%

•  Lynparza2 sales of $725M, +62%

•  Lenvima3 sales of $580M, +43%

•  GARDASIL franchise sales of $3.9B, +6%

•  BRIDION sales of $1.2B, +7%

•  Animal Health sales of $4.7B, +10%

 

Planned spinoff of Organon to deliver benefits for both Merck and Organon and create value for Merck shareholders

 

 

Capital allocation strategy allows Merck to invest in our business and create value for shareholders. Our priorities include:

 

•  Research & Development

•  Capital Investments

•  Dividend

•  Business Development

•  Share Repurchase

 

>$20B committed to capital investments between 2020 and 2024

 

Merck’s focus on differentiated science has resulted in a strong track record of bolt-on transactions and strategic collaborations

 

In 2020, Merck spent ~$10.6B on BD transactions, including the acquisition of ArQule and VelosBio, as well as strategic oncology collaborations with Seagen

 

~120 transactions completed in 2020, spanning acquisitions, licensing and technology deals, as well as clinical collaborations

1.

As of 1Q2021

2.

In collaboration with AstraZeneca

3.

In collaboration with Eisai

4.

Growth rates exclude the impact of foreign exchange

 


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Notice of Annual Meeting
of Shareholders

 

 


 

To Merck Shareholders:

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

 

 

Tuesday, May 25, 2021, at 9:00 a.m.
(Eastern Time) via Webcast at

www.virtualshareholdermeeting.com/MRK2021.

 

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 2021;

 

•  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 access to COVID-19 products, if properly presented at the meeting; and

 

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

 

By order of the Board of Directors,

 

LOGO

 

Jennifer Zachary

Executive Vice President, General

Counsel and Corporate Secretary

 

Due to the ongoing public health impact of the COVID-19 pandemic, the Annual Meeting will be held in a solely virtual format. If the state of emergency in New Jersey relating to the COVID-19 pandemic is lifted prior to the date of our Annual Meeting, however, we may change the format of the Annual Meeting to hold it in person or as a hybrid meeting. If we take this step, we will announce the decision to do so in advance in a press release available at merck.com.

 

 

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 all cases, have your proxy card or voting instruction form in hand and follow the instructions.

 

LOGO   BY INTERNET*   www.proxyvote.com
   
LOGO   BY PHONE*   In the U.S. or Canada dial toll-free
1-800-690-6903
   
         LOGO            BY QR CODE   Scan this QR code to vote with your
mobile device (may require free app)
   
LOGO   BY MAIL**   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 26, 2021 are entitled to vote.

 

Merck began distributing its Notice of Internet Availability of Proxy Materials, proxy statement, the 2020 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 5, 2021.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON May 25, 2021:

 

The Notice of Annual Meeting of Shareholders, proxy statement and the 2020 Annual Report on Form 10-K are available free of charge at www.proxyvote.com.

 

The principal executive offices of the Company are located at 2000 Galloping Hill Road, K1-4157, Kenilworth, New Jersey 07033 U.S.A.

 

 

* The telephone and internet voting facilities will close at 11:59 p.m. Eastern Time on May 24, 2021.

** 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. 2021 Proxy Statement


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Dear Merck Shareholders,

It is my pleasure to invite you to the 2021 Annual Meeting of Shareholders of Merck & Co., Inc. (“Merck,” known as “MSD” outside the United States and Canada).

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

 

LOGO

 

For 130 years, Merck has been guided by one clear and compelling purpose: saving and improving lives. The SARS-CoV-2 pandemic has reinforced the value of our sustained investments in research and development and in our resolute commitment to innovation.

 

We have focused on three overarching priorities during the coronavirus pandemic: supporting the safety and wellbeing of our employees and their families, sustaining the supply of our medicines and vaccines to our patients and customers, and mobilizing our scientific expertise and experience to contribute to the global response to the pandemic. In addition, we have invested in communities hardest hit by the pandemic, streamlined our patient assistance programs, and encouraged our clinically trained employees to volunteer in healthcare settings that faced staff shortages. We also continue to work closely with governments, public health agencies, and other stakeholders around the world as they struggle to combat the pandemic, provide services to patients, and restore their economies. Throughout this entire period, our people across the Company have sustained their focus on these priorities and demonstrated unprecedented commitment to our mission and resilience in achieving it.

 

We are developing two therapeutic candidates for the treatment of SARS-CoV-2 infection. Molnupiravir (MK-4482) is a novel investigational oral antiviral agent being developed in collaboration with Ridgeback Biotherapeutics and is currently under evaluation in Phase 2/3 clinical trials in both the hospital and outpatient settings. Through our acquisition of OncoImmune, we obtained MK-7110, an investigational treatment for patients hospitalized with COVID-19.

 

More recently, we announced historic agreements with BARDA and Johnson & Johnson (J&J) to support efforts to expand manufacturing capacity and supply of much-needed SARS-CoV-2/COVID-19 medicines and vaccines. Through our collaboration with J&J, we will utilize some of our manufacturing capacity to accelerate production of the J&J COVID-19 vaccine so that more people around the world can have access to vaccines authorized for use in the fight against this pandemic. Our collaboration is reminiscent of the spirit that motivated Merck to produce penicillin during another global crisis –World War II.

 

Despite the many challenges the pandemic imposes, we have continued to progress our discovery and development pipeline across our entire portfolio. Oncology remains a key focus of our research and will remain an important long-term growth driver. We are advancing new development programs for KEYTRUDA, our anti-PD-1 therapy; Lynparza, a PARP inhibitor being co-developed and co-commercialized with AstraZeneca;

 


 

 

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and Lenvima, an orally available tyrosine kinase inhibitor being co-developed and co-commercialized with Eisai Co., Ltd. KEYTRUDA has continued on its groundbreaking path in advancing cancer care, with FDA approvals in 16 tumor types, and the number of additional indications expected to more than double over the next five years.

 

Our work in vaccines also remains a strong driver of our growth. Our portfolio of conjugated pneumococcal vaccine candidates, V114, V116, and V117, remains a top pipeline priority. Each of these candidates is designed for targeted protection against prevalent pneumococcal disease serotypes across different age groups. GARDASIL and GARDASIL 9 are positioned for renewed growth ahead as the cancer-prevention benefits from protection against human papillomavirus become more well known in both males and females and across broader age cohorts. Thanks to ERVEBO, our vaccine for Ebola virus disease, and the heroic efforts of frontline health and humanitarian workers, the tragic outbreak of Ebola virus infection in eastern Democratic Republic of Congo was declared to be over late last year. Just recently, the World Health Organization (the “WHO”) confirmed new cases of Ebola in the Democratic Republic of Congo and Guinea. We are once again working closely with the WHO and various health partners to support outbreak response efforts in these regions.

 

Our hospital and specialty products portfolio reflected demand-driven growth in 2020, particularly for BRIDION, a medicine used to reverse the effect of certain muscle relaxants in adults undergoing surgery. We also saw continued uptake of PREVYMIS, a medicine for prevention of CMV infection and disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant.

 

Animal health remained a market leader in 2020 with above-industry growth (including our Antelliq acquisition). Increased sales in 2020 were primarily driven by the livestock business as a result of new product launches in poultry and swine, along with higher demand for companion animal products, primarily the BRAVECTO line of products for parasite control, and companion animal vaccines.

 

In addition, our plan to spin off Organon remains on track for completion late in the second quarter of this year.

 

Earlier this year I announced that I will retire as Merck’s CEO, effective June 30, 2021, and will serve as Executive Chairman of the Merck Board of Directors for a transition period to be determined by the Board. The Board has unanimously elected Rob Davis as the next CEO, effective July 1, 2021. It has been my distinct honor and privilege to serve as the Company’s CEO for the last decade. I leave the Company in very good hands with Rob. He is an outstanding leader who has deep knowledge of our business and the industry. As our Chief Financial Officer and Head of Global Services, he has served as a valued strategic thought partner to me and the Merck senior management team and certainly personifies the values and integrity that are essential for a leader of Merck.

 

The strength and resilience that our business, our people, and our patients have shown this past year reinforces our belief that our research-focused strategy remains vitally important. I am proud of the accomplishments we have made to realize a better future for generations to come. We will continue to use our strong financial position to invest in our pipeline and capitalize on both internal and external opportunities, by making the right strategic decisions to create long-term value for you, our shareholders.

 

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

 

LOGO   

LOGO

Kenneth C. Frazier

Chairman and Chief Executive Officer

April 5, 2021

 


 

 

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A Message from Merck’s Independent Lead Director

Dear Merck Shareholders,

Over its long history, Merck has focused on innovation to create long-term value for patients and shareholders, remaining dedicated to its mission of saving and improving lives. With the COVID-19 pandemic persisting in communities across the globe, this mission is as clear and compelling as ever, and my fellow Directors and I are committed to it as we oversee the Company’s affairs and fulfill our responsibilities.

Our Board’s management succession planning is long-term and strategic

Our Board’s management succession planning process is long-term and strategic, includes yearly reviews of talent for near-term and future planning and is supported by the Board’s committees and external consultants as needed. Our process also includes engaging with key talent in various settings, such as informal dinners, group discussions, individual meetings, and presentations. The process of planning and executing a smooth CEO transition, in particular, is one of the Board’s most important responsibilities and one we continued to progress even as the COVID-19 pandemic changed our ways of communicating. In February, our process resulted in our Board’s unanimous election of Robert M. Davis, then-CFO, to succeed Kenneth C. Frazier as the Company’s President, effective April 1, 2021, and the Company’s Chief Executive Officer, effective July 1, 2021. The Board also elected Mr. Davis as a Board member, effective July 1, 2021. Directors had an opportunity over multiple years to witness Mr. Davis’s substantial contributions to the Company and the leadership team, and the Board believes he is the right person to lead Merck into the future. To ensure a smooth transition for the Company, the Board determined that Mr. Frazier will continue to serve on the Board as executive chairman for a transition period to be determined by the Board. We have also announced other important leadership transitions recently, electing Dean Y. Li, M.D., Ph.D. to succeed Roger M. Perlmutter, M.D., Ph.D. as Executive Vice President and President, Merck Research Laboratories, effective January 1, 2021, and Caroline Litchfield to succeed Mr. Davis as Chief Financial Officer, effective April 1, 2021.

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. We also believe in the business value of having diverse perspectives in the boardroom and are deliberate in ensuring we have 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. In March, we elected to the Board Stephen L. Mayo, Ph.D., the Bren Professor of Biology and Chemistry at California Institute of Technology, who brings deep scientific expertise to our Board. We believe our slate of thirteen Director nominees, including four African Americans and six women, reflects our commitment to diversity.

Our Board exercises independent board leadership

As the independent Lead Director of the Board, I work closely with our Chairman and CEO, Ken Frazier, to ensure a productive partnership between management and the independent Directors. I will do so with Rob Davis, as well, when he becomes the Company’s CEO in July. As a Board, we are dedicated to the effective oversight of the business and the key risks facing the Company, and we do so both as a full Board and through our four standing committees. 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. This enables us to knowledgeably exercise our decision-making authority on matters of importance to the Company, such as the strategic decision to spin-off products from the Company’s women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co. This spin-off remains on track to be completed late in the second quarter of this year.

We appreciate 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 Merck’s life-saving work.

 

LOGO   

LOGO

Leslie A. Brun

Independent Lead Director

April 5, 2021

 

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


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Contents

 

Proxy Summary      6  
Corporate Governance      12  

Board’s Role in Strategic Planning

  

 

12

 

Risk Oversight

  

 

14

 

Independence of Directors

  

 

15

 

Related Person Transactions

  

 

16

 

Board Leadership Structure

  

 

17

 

Lead Director

  

 

17

 

Board Meetings and Committees

  

 

18

 

Compensation Consultants

  

 

21

 

Our ESG Approach

  

 

22

 

Criteria for Board Membership and Director Nomination Process

  

 

24

 

Management Succession Planning

  

 

25

 

Board Succession Planning

  

 

26

 

Annual Board Evaluation

  

 

26

 

Political Contributions and Lobbying Expenditure Oversight and Disclosure

  

 

27

 

Governance and Transparency Around Drug Pricing

  

 

27

 

Shareholder Engagement and Feedback

  

 

27

 

Shareholder Communications with the Board

  

 

29

 

Stock Ownership Information      30  

Stock Ownership of Directors and Officers

  

 

30

 

Stock Ownership of Certain Beneficial Owners

  

 

31

 

Proposal 1. Election of Directors      32  

2021 Nominees for Director

  

 

33

 

Director Compensation      40  

2020 Director Compensation

  

 

41

 

Proposal 2. Non-Binding Advisory Vote to Approve the Compensation of Our Named Executive Officers      42  
Compensation Discussion and Analysis      43  

Executive Summary

  

 

43

 

Executive Compensation Program Objectives and Strategy

  

 

44

 

Compensation Policies and Practices

  

 

45

 

Peer Groups

  

 

46

 

Detailed Discussion and Analysis

  

 

47

 

The Elements of 2020 Compensation

  

 

49

 

Compensation Risk Assessment

  

 

58

 

Compensation and Benefits Committee Report

  

 

58

 

Summary Compensation Table      59  
CEO Pay Ratio      62  
Grants of Plan-Based Awards      63  
Outstanding Equity Awards      65  
Option Exercises and Stock Vested      67  
Pension Benefits      68  
Nonqualified Deferred Compensation      71  
Potential Payments Upon Termination or a Change in Control      72  
Proposal 3. Ratification of Appointment of Independent Registered Public Accounting Firm for 2021      77  

Audit Committee’s Report

  

 

78

 

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

  

 

78

 

Fees for Services Provided by the Independent Registered Public Accounting Firm

  

 

79

 

Shareholder Proposals      80  
Proposal 4. Shareholder Proposal Concerning Shareholder Right to Act by Written Consent      80  
Proposal 5. Shareholder Proposal Regarding Access to COVID-19 Products      82  
Questions and Answers About the Annual Meeting and Voting      84  
Shareholder Proposals and Director Nominations for the 2022 Annual Meeting of Shareholders      89  
Forward-Looking Statements      90  
Other Matters      90  
Appendix A — Non-GAAP Income and Non-GAAP EPS      91  
Appendix B — Explanation of Adjustments to Non-GAAP Results for Incentive Plans      93  
 

 


 

 

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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 25, 2021

9:00 a.m. ET

  

Record Date

March 26, 2021

Location

Via Webcast at

www.virtualshareholdermeeting.com/MRK2021

 

 

Voting Matters

   Page   

Board’s

Recommendation

Proposal 1

Election of Directors

   32    FOR each
Nominee

Proposal 2

Non-binding Advisory Vote to

Approve the Compensation of

our Named Executive Officers

(Say-on-Pay)

   42    FOR

Proposal 3

Ratification of Appointment of Independent Registered Public Accounting Firm for 2021

   77    FOR

Shareholder Proposals

    

 

    

 

Proposal 4

Shareholder Proposal Concerning a Shareholder Right to Act by Written Consent

   80    AGAINST

Proposal 5

Shareholder Proposal Regarding Access to COVID-19 Products

   82    AGAINST

 

 

 

Business Highlights

 

 

LOGO   

 

$13.6B  

GAAP investment in
R&D in 2020

 

 

      

 

 

 

Shareholder Value Creation

 

 

 

  $7.5B

 

 

Capital Returned to Shareholders (dividends and share repurchases)

 

 

      

 

 

LOGO   

Total Shareholder Return(1)

 

Year-End 2020

 
1-Year   3-Year
-7.2%   16.7%
  LOGO   
5-Year
12.5%

LOGO  

 

 

(1)   Relative Total Shareholder Return, a component of our Performance Share Unit program that is described on page 53, is calculated on a different basis.

 

 

 


 

 

Merck & Co., Inc. 2021 Proxy Statement

    

 


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2020 NEOs and Compensation Highlights (Page 47)

Below is a list of our 2020 Named Executive Officers, or “NEOs”, and select compensation highlights from 2020. For additional information on our elements of 2020 compensation, please refer to the Compensation Discussion and Analysis (“CD&A”), beginning on page 43.

 

                       

 

Annual Base

Salary

Increase%

 

     

 

Target

Annual

Incentive%

 

     

 

Target

Long-Term
Incentive$

 

     

 

  Target TDC  

Increase%(1)

 

    

 

     

 

2020 NEOs            

 

     

    

 

               
                                 
 

LOGO

 

 

 

Kenneth C. Frazier

Chairman and

Chief Executive Officer(2)

 

      +1.8%     No change     +$750,000       +4.3%
                   

.........................................................................................................................................................

 

LOGO

 

 

 

Robert M. Davis

President and Former Chief Financial Officer(3)

 

      +3.0       No change     No change       +1.1  
                   

.........................................................................................................................................................

  LOGO  

 

Sanat Chattopadhyay

Executive Vice President

and President, Merck

Manufacturing Division

 

      +13.8       No change     +500,000     +18.8  
                   

.........................................................................................................................................................

  LOGO  

 

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

Former Executive Vice

President and President,

Merck Research Laboratories(4)

 

      +3.0       No change     No change       +1.0  
                   

.........................................................................................................................................................

 

LOGO

 

 

 

Jennifer Zachary

Executive Vice President,

General Counsel and

Corporate Secretary

 

      +5.0       No change     +150,000       +5.8  

    

(1)

Target TDC is target total direct compensation and defined as the sum of annual base salary, target annual cash incentive and target long-term incentive.

 

(2)

Mr. Frazier is no longer President, effective March 31, 2021, and will retire as Chief Executive Officer, effective June 30, 2021. After retiring as Chief Executive Officer, Mr. Frazier will continue as Executive Chairman of Merck for a transition period to be determined by the Board.

 

(3)

Mr. Davis was promoted from Executive Vice President, Global Services and Chief Financial Officer to President, effective April 1, 2021. He will become Chief Executive Officer and a member of the Board, effective July 1, 2021.

 

(4)

Dr. Perlmutter retired as Executive Vice President and President, Merck Research Laboratories, effective December 31, 2020.

Variable Compensation is a Critical Component of Our Pay-For-Performance Objectives (Page 44)

Merck’s compensation programs are designed to align the interests of our executives with the interests of our shareholders, among other objectives. 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 or R-TSR (as defined in Appendix B). 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 51) focuses on our most critical business drivers — the Company’s target revenue (“Revenue”), non-GAAP pre-tax income (“Pre-Tax Income”) and the Company’s research and development goals for the incentive program (“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 2020 resulted in below-target achievement of 87% largely due to the negative impact of the COVID-19 pandemic on our financial results.

 


 

 

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Proxy Summary

 

   

 

Long-Term Incentive (“LTI”)

For LTI grants issued in 2018 and covering the performance period 2018-2020, 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 targets for the sum of (a) the Company’s Operating Cash Flow or OCF (as defined in Appendix B), (b) the Company’s Earnings Per Share or EPS (as defined in Appendix B) and (c) R-TSR performance. For the 2018-2020 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 166% as illustrated in more detail on page 54.

Say-On-Pay Advisory Vote (Page 45)

 

In 2020, shareholders continued their support for our executive compensation programs with approximately 92% of the votes cast voting 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 2020 as a direct result of the most recent say-on-pay vote; however, our PSU program design was adjusted in 2020 as described on page 53.

 

We ask that our shareholders approve, on an advisory basis, the compensation of our NEOs as further described in Proposal 2 on page 42.

 

For additional information, please refer to the CD&A beginning on page 43 of this proxy statement.

     

 

LOGO

 

Shareholder Engagement and Feedback (Page 27)

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 2020, discussions with shareholders covered a wide range of topics of interest to shareholders, including the Company’s response to the COVID-19 pandemic and related matters, the Board’s composition and leadership, management and director succession, executive compensation programs, Environmental, Social and Governance 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 five new Board members over the last three years. For more information, see “Criteria for Board Membership and Director Nomination Process” beginning on page 24.

Considering the factors noted above, in 2021 the Board elected one new independent Director, Dr. Stephen L. Mayo, Bren Professor of Biology and Chemistry at California Institute of Technology. Dr. Thomas R. Cech will retire from the Board effective as of the 2021 Annual Meeting of Shareholders.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


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   9

 


 

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.

 


 

 

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Proxy Summary

 

   

 

Nominees for Director (Page 32)

The following provides summary information about each Director nominee. Each Director stands for election annually. Detailed information about each individual’s background, skillsets and areas of expertise can be found beginning on page 32.

 

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

 

LOGO

Leslie A. Brun

Lead Director

  68   2008 Chairman and Chief Executive Officer, Sarr Group, LLC

 

LOGO

 

LOGO

 

LOGO

Mary Ellen Coe   54   2019 President, Google Customer Solutions, Google Inc.

 

LOGO

 

LOGO

 

LOGO

Pamela J. Craig   64   2015 Former Chief Financial Officer, Accenture plc

 

LOGO

 

LOGO

 

LOGO

Kenneth C. Frazier

Management

  66   2011 Chairman and Chief Executive Officer, Merck & Co., Inc.(1)

 

LOGO

Thomas H. Glocer   61   2007 Former Chief Executive Officer, Thomson Reuters Corporation

 

LOGO

 

LOGO

 

LOGO

Risa J. Lavizzo-Mourey, M.D.   66   2020

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

 

LOGO

 

LOGO

 

LOGO

Stephen L. Mayo, Ph.D.   59   2021

Bren Professor of Biology and Chemistry, California Institute of Technology

 

LOGO

 

LOGO

 

LOGO

Paul B. Rothman, M.D.(2)   63   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   68   1995 Chairman, Hewlett Packard Enterprise Company; Former Chief Executive Officer and Director, Alcatel-Lucent

 

LOGO

 

LOGO

 

LOGO

Christine E. Seidman, M.D.   68   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   67   2018 Former Chairman of the Board, President and Chief Executive Officer, 3M Company

 

LOGO

 

LOGO

 

 

LOGO

 

Kathy J. Warden   49   2020

Chairman, Chief Executive Officer and President, Northrop Grumman Corporation

 

LOGO

 

LOGO

 

LOGO

 

Peter C. Wendell   70   2003 Managing Director, Sierra Ventures        

 

LOGO

 

LOGO

Number of Meetings in 2020

9

5

4

3

 

(1)

Mr. Frazier is no longer President, effective March 31, 2021, and will retire as Chief Executive Officer, effective June 30, 2021. After retiring as Chief Executive Officer, Mr. Frazier will continue as Executive Chairman of Merck for a transition period to be determined by the Board.

(2)

The Board has appointed Dr. Rothman as Chair of the Research Committee effective as of the 2021 Annual Meeting. Dr. Rothman succeeds Dr. Cech, who is retiring from the Board effective as of the 2021 Annual Meeting.

LOGO   Committee Chair

 


 

 

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Proxy Summary  

 

 

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Our 2021 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 charts, our slate of Director nominees consists of individuals with expertise in fields that align with the Company’s business and long-term strategy, includes a mixture of tenure that allows for both new perspectives and continuity and reflects the Board’s commitment to diverse perspectives.

 

Board Diversity and Independence

 

 
Race/Ethnicity   Gender   Independence   Tenure
LOGO   LOGO   LOGO   LOGO

 

LOGO

 

LOGO

 

 

 


 

 

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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.

Governance Materials

The following items relating to corporate governance at Merck are available on our website at merck.com/company-overview/leadership/board-of-
directors
:

 

    Restated Certificate of Incorporation

 

    By-Laws

 

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

 

    Merck Board Committee Charters

 

    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 engaged and 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.

 


 

 

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Corporate Governance  

Board’s Role in Strategic Planning  

 

 

 

   13

 


 

Our Strategic Planning Cycle

 

LOGO

 


 

 

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Corporate Governance

Risk Oversight  

 

   

 

Risk Oversight

The Board’s oversight of risk is an important component of the Board’s engagement on strategic planning, and the Board 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 the 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, compliance 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 C&B Committee also has oversight of the Company’s programs, policies and practices related to its management of human capital resources, including talent and diversity;

 

   

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, recommends Director nominees to the Board for approval, and plays a role in corporate responsibility and compliance oversight, including in the areas of privacy, environmental health and safety and manufacturing quality systems; 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 leverage the Board’s leadership structure to ensure the Board oversees risk on both a Company-wide approach and through specific areas of competency.

 


 

 

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Corporate Governance  

Independence of Directors  

 

 

   15

 


 

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 C&B 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.

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. As a result of that review, the Board has determined that, with the exception of Kenneth C. Frazier, our Chairman and CEO, each Director 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 C&B 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 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 independence.

Drs. 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. Ms. Coe is employed by Google Inc., and, in 2020, the Company engaged in a purchase transaction with Google Inc. 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 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.

 


 

 

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Corporate Governance

Related Person Transactions  

 

   

 

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/company-overview/leadership/board-of-directors/.

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 2020, the Governance Committee has determined that no transactions require disclosure under Item 404(a) of SEC Regulation S-K.

 


 

 

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Corporate Governance  

Board Leadership Structure  

 

 

   17

 


 

Board Leadership Structure

The Board is highly empowered and engaged, and the independent Directors evaluate our Board leadership structure at least annually. Currently, the Board is 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. Mr. Frazier is currently the only non-independent Director serving on the Board, and the Board meets in executive session without Mr. Frazier at each regular Board meeting. During these executive sessions 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. Such succession planning discussions resulted in the Board’s unanimous election of Robert M. Davis to succeed Mr. Frazier as President, effective April 1, 2021, and Chief Executive Officer, effective July 1, 2021. The Board also elected Mr. Davis as a member of the Board of Directors, effective July 1, 2021.

As part of these succession planning discussions, the Board evaluated the Board leadership structure and concluded that, following his retirement as CEO, Mr. Frazier will continue to serve on Merck’s Board of Directors as Executive Chairman for a transition period to be determined by the Board. The Board believes that having Mr. Frazier serve as Executive Chairman during this leadership transition will facilitate a smooth transition for the Company. 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 continue to provide effective Board-level leadership.

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 and 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 18. 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, CEO and the rest of our management team.

 


 

 

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Corporate Governance

Board Meetings and Committees  

 

   

 

Board Meetings and Committees

 

In 2020, the Board of Directors met seven 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 2020. Mr. Brun, Lead Director of the Board, presided over the executive sessions. All 13 Directors/Director nominees nominated for election at the 2020 Annual Meeting of Shareholders attended the meeting.

     

 

All Directors attended at least 75% of the meetings of the Board and of the committees on which they served in 2020.

  

The Board of Directors has four standing committees, each of which is made up solely of independent Directors: Audit Committee; C&B 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/company-overview/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.

 

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 78
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 78 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 29 of this proxy statement); and

 

•   Oversee the ERM process.

 

    

 

 

Other Members

Leslie A. Brun

Thomas R. Cech, Ph.D.(1)

Mary Ellen Coe

Stephen L. Mayo, Ph.D.(2)

Paul B. Rothman, M.D.

Christine E. Seidman, M.D.

Kathy J. Warden

 

       
      
 

 

Number of Meetings in 2020:

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)

Retiring from the Board effective as of the 2021 Annual Meeting.

(2)

Joined the Board of Directors on March 15, 2021.

 


 

 

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Corporate Governance  

Board Meetings and Committees  

 

 

   19

 

 

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 target TDC 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 43. 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 58 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 including talent and diversity, 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

Risa J. Lavizzo-Mourey, M.D.

Patricia F. Russo

Inge G. Thulin

Peter C. Wendell

 

       
      
 

 

Number of Meetings in 2020:

5

 

  
      
 

 

Compensation and Benefits Committee Interlocks and Insider Participation

 

There were no C&B Committee interlocks or insider (employee) participation during 2020.

 

  
      

 

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 24 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

Risa J. Lavizzo-Mourey, M.D.

Patricia F. Russo

Inge G. Thulin

 

       
      
 

 

Number of Meetings in 2020:

4

 

  
      
 

    

 

  
      

 


 

 

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Corporate Governance

Board Meetings and Committees  

 

 

   

 

Research Committee

 

 

 

  LOGO

  

 

 

 

LOGO

 

 

Thomas R. Cech, Ph.D.(1)

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

Stephen L. Mayo, Ph.D.(2)

Paul B. Rothman, M.D.

Christine E. Seidman, M.D.

Kathy J. Warden

Peter C. Wendell

 

       
      
 

 

Number of Meetings in 2020:

3

 

  
      
 

 

    

  
      

(1)

Retiring from the Board effective as of the 2021 Annual Meeting. The Board has appointed Dr. Rothman as Chair of the Research Committee effective as of the 2021 Annual Meeting.

(2)

Joined the Board of Directors on March 15, 2021.

 


 

 

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Corporate Governance  

Compensation Consultants  

 

 

 

   21

 

 


 

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, the Governance Committee periodically retains FW Cook 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 2020, 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 2020

During 2020, FW Cook supported the C&B Committee by:

 

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

 

  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 with compensation planning for the CEO transition announced in February 2021;
  assisting in determining the CEO’s target TDC 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. In November 2020, Pay Governance performed a biennial risk assessment of our compensation programs. This report was reviewed by FW Cook and presented to the C&B Committee. The assessment indicated that our compensation programs do not create incentives for excessive risk-taking and include meaningful safeguards to mitigate compensation program risk.

 


 

 

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Corporate Governance

Our ESG Approach  

 

    

 

Our Environmental, Social and Governance Approach

Remaining Steadfast During a Challenging Year

Over this past year, the pandemic has shown us who we are as a company, and as individuals. The environmental, social and governance (ESG) challenges that have long been with us, from providing access to medicines to the growing impact of climate change, did not diminish as we addressed this global health crisis. In fact, their importance has grown.

We intend to emerge from this time stronger, more resilient, and more steadfast in our resolve to continue to do everything we can to serve our patients.

That is why we remain committed to being even more responsible, transparent and engaged on ESG issues than ever before, working toward a better world for our patients, for our workforce, for our environment, for shareholders, and for all of the stakeholders who depend on our Company.

One of these key ESG challenges is how our own workforce can be more representative of our patient populations and the communities in which we work. While we have been focused on diversity, equity and inclusion for decades, we recognize that there is considerably more work to be done, and we intend to continue to be a positive force for good in our society.

We plan to increase our diversity, equity and inclusion efforts through:

 

LOGO

The Board engages with the Company’s leadership team on matters of talent and culture, including advancing diversity and inclusion efforts across the enterprise.

We remain committed to the ideals that we have long lived by, which is to create long-lasting value for our patients, employees, customers, shareholders and communities around the world.

To learn more about our ESG and corporate responsibility approach, progress and commitments, please download our

ESG Progress Report at MSDresponsibility.com.

 


 

 

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Our ESG Approach  

 

 

   23

 

 

Our Focus Areas

Addressing ESG issues, such as diversity, equity and inclusion, is critical to the success of our business and helps to create long-term value for our Company. ESG and corporate responsibility are at the heart of our strategy to drive sustainable value for our patients, employees, customers, shareholders and communities.

This strategy focuses on the four areas that matter most to our business and to society:

 

 

 

     LOGO     

  

Access to Health

Grounded in our unwavering commitment to inventing new medicines and vaccines, we apply our capabilities, capacity and expertise to identify and address unmet medical needs both now and in the future. We also recognize that, in collaboration with key stakeholders such as governments, non-governmental organizations, and communities, we have a role to play in helping to ensure that our products are accessible and affordable to those in need.

 

    

    

LOGO

  

Employees

We recognize that our ability to excel depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees. Cultivating a diverse, inclusive and healthy workforce that is represented across gender, race, ethnicity, faith, disability, veteran and LGBTQ status enables us to better address the needs of all patients.

 
    

LOGO

  

Environmental Sustainability

The public health risks associated with diminishing natural resources, and a changing climate, exacerbate the spread of disease, threaten access to clean air and water, and impact the continuity of food supplies for communities around the world. This is why we remain committed to our goals to reduce our Company’s greenhouse gas (GHG) emissions, be more efficient with our product and packaging materials, minimize our water use in high-risk areas, and engage with our suppliers to do the same.

 
    

LOGO

  

Ethics & Values

How we work matters as much as what we do. Acting responsibly, operating with integrity and respecting human rights are critical to our success. Our policies, practices and partners must reflect our values and goals to continue to provide treatments for our patients and their families in a way
that is open, honest and transparent.

 
    
  

LOGO

 

 

 

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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 to be considered for election by the Board. As part of this process, the Governance Committee considers the composition of the Board at the time, including the depth of experience, balance of professional skills, expertise and diversity of perspectives represented by its members at the time. The Governance Committee evaluates prospective nominees identified on its own initiative as well as candidates recommended by other Board members, management, shareholders or search consultants. In 2020, the Governance Committee retained a search firm to identify possible candidates who meet the Board’s 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 considers for future candidates. These attributes are amply represented by our current Director nominees.

 

LOGO

 


 

 

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Management Succession Planning  

 

 

   25

 


 

Diversity

As a Company, Merck knows that diversity and inclusion are fundamental to the Company’s success and core to future innovation. As a Board, diversity is an important factor considered when identifying prospective nominees for our Board, and the Policies of the Board include a formal diversity policy. The policy reflects the Board’s longstanding commitment to ensuring 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.

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.

Management Succession Planning

Succession planning and talent development are important at all levels within the Company. 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. More broadly, the Board engages with the Company’s leadership team on matters of talent and culture, including around the development of the Company’s talent pipeline and advancing diversity and inclusion efforts across the enterprise. The Board’s succession planning activities are strategic, long-term and supported by the Board’s committees and external consultants, as needed, and Directors have substantial opportunities to engage with possible succession candidates.

This succession planning process most recently resulted in the Board’s unanimous election of Robert M. Davis to succeed Kenneth C. Frazier as President, effective April 1, 2021, and Chief Executive Officer, effective July 1, 2021. The Board also elected Mr. Davis as a member of the Board, effective July 1, 2021. The Board had an opportunity over multiple years to witness Mr. Davis’s substantial contributions to the Company and the leadership team. The Board also determined that, following his retirement as CEO, Mr. Frazier will continue to serve as Executive Chairman for a period of time to be determined by the Board. In addition to the CEO role, the Board’s succession planning resulted in the election of Dean Y. Li, M.D., Ph.D. to succeed Roger M. Perlmutter, M.D., Ph.D. as Executive Vice President and President, Merck Research Laboratories, effective January 1, 2021, and the election of Caroline Litchfield to succeed Mr. Davis as Chief Financial Officer, effective April 1, 2021.

 


 

 

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Corporate Governance

Board Succession Planning  

 

   

 

Board Succession Planning

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 particular, the Board is deliberate in ensuring the Board has the right mix of diverse perspectives, skills and expertise to address the Company’s current and anticipated needs as opportunities and challenges facing the Company evolve. 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 Board believes this policy promotes regular refreshment of the Board, and the Governance Committee considers this policy and the schedule of upcoming Director retirements in its succession planning. Such considerations have resulted in the election of five new Board members over the last three years.

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 independent Lead Director leads the evaluation process. The Governance Committee also engages an independent third party periodically to manage the process to ensure it remains as thorough and transparent as possible. In 2020, 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 2021.

 

 


 

 

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Political Contributions and Lobbying Expenditure Oversight and Disclosure  

 

 

 

   27

 

 

Political Contributions and Lobbying Expenditure Oversight and Disclosure

Merck is committed to participating constructively and responsibly in the political process. The Company advocates for public policies that foster research into innovative medicines and improve access to medicines, vaccines and health care. Our participation in the political process is guided by the following principles: 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 msdresponsibility.com/our-purpose/our-business/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 2020, the Company’s gross U.S. sales were reduced by 45.5% 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.

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 41% of our ownership as of December 31, 2020, based on filings made by our shareholders with the SEC on or before March 5, 2021.

During 2020, 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.

 


 

 

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Corporate Governance

Shareholder Engagement and Feedback  

 

 

   

 

 

Topics Discussed with Shareholders during 2020

•  COVID-19 priorities

•  Company strategy

•  Board leadership, composition and refreshment

•  Management succession

•  Board and management diversity

•  Human capital management

•  Global access to Merck products

 

  

•  Director tenure

•  Commitment to racial and ethnic diversity

•  Risk oversight

•  Cybersecurity

•  Executive compensation programs

•  Policy and pricing environment

•  Shareholder proposals

  

•  Board evaluation process

•  Merck Animal Health

•  ESG reporting

•  Merck culture

•  Reputation

•  Director onboarding

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

 

LOGO  What We Heard   LOGO  What We Did

 

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

 

 

The Directors nominated at the Annual Meeting of Shareholders represent a diverse set of perspectives, skills and expertise and consist of ~46% women and ~30% underrepresented ethnic groups as further described on pages 33-39.

 

Shareholders are interested to know more about how the Company is responding to the COVID-19 pandemic.

 

 

The Company dedicated a section of its website to providing this information, which can be accessed at merck.com/stories/how-we-are-responding-to-the-global-pandemic-covid-19/.

 

Shareholders are interested in knowing more about the Company’s approach to global tax strategy.

 

 

The Company added a public policy statement to our website at merck.com/wp-content/uploads/sites/5/2020/12/Merck-Tax-Strategy.pdf.

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/company-overview/leadership/board-of-directors.

 


 

 

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Corporate Governance  

Shareholder Communications with the Board  

 

 

   29

 

 

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 is available on our website at merck.com/company-overview/culture-and-values/code-of-conduct/values-and-standards .

 


 

 

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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 28, 2021, 2,530,387,725 shares of Merck common stock were issued and outstanding. Unless otherwise noted, the information is stated as of February 28, 2021, 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

     591,035        3,745,549        *         

Leslie A. Brun

     1,948               *        46,685  

Thomas R. Cech, Ph.D.(5)

     100               *        41,178  

Mary Ellen Coe

     10               *        7,915  

Pamela J. Craig

     1,715               *        16,744  

Thomas H. Glocer

     5,100               *        72,660  

Risa J. Lavizzo-Mourey, M.D.

     1,000               *        2,535  

Paul B. Rothman, M.D.

     100               *        16,744  

Patricia F. Russo

     13,148               *        39,422  

Christine E. Seidman, M.D.

     100               *        3,298  

Inge G. Thulin

     100               *        10,567  

Kathy J. Warden

     500               *        2,652  

Peter C. Wendell

     1,000               *        100,156  

Sanat Chattopadhyay

     93,145        332,437        *        14,452  

Robert M. Davis

     217,696        292,968        *         

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

     264,042        1,027,713        *         

Jennifer Zachary

     30,947        70,905        *         

All Directors and Executive Officers as a Group

(26 individuals)

     1,574,193        6,514,047        *        377,205  

 

 *

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

 

(1)

Dr. Mayo was elected to the Board effective March 15, 2021 and is 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 — 4,240 shares, and all Directors and executive officers as a group — 8,780 shares.

 

(3)

This column reflects the number of shares that could be acquired within 60 days of February 28, 2021, 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)

Dr. Cech is retiring from the Board effective as of the 2021 Annual Meeting of Shareholders.

 


 

 

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Stock Ownership Information  

Stock Ownership of Certain Beneficial Owners  

 

 

   31

 

 


 

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, 2020. As of December 31, 2020, 2,530,226,327 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

     208,410,644(1)        8.24%  

BlackRock, Inc.

55 East 52nd Street, New York, NY 10055

     196,213,804(2)        7.80%  

 

(1)

As reported on Amendment No. 6 to Schedule 13G (the “Vanguard filing”) filed with the SEC on February 10, 2021. According to the Vanguard filing, of the 208,410,644 shares of Merck common stock beneficially owned by The Vanguard Group (“Vanguard”), as of December 31, 2020, Vanguard has the shared power to vote or direct the vote with respect to 4,443,143 shares, sole power to dispose or to direct the disposition of 196,891,790 shares, and shared power to dispose or to direct the disposition of 11,518,854 shares.

 

(2)

As reported on Amendment No. 11 to Schedule 13G (the “BlackRock filing”) filed with the SEC on February 5, 2021. According to the BlackRock filing, of the 196,213,804 shares of Merck common stock beneficially owned by BlackRock, Inc. (“BlackRock”), as of December 31, 2020, BlackRock has the sole power to vote or direct the vote with respect to 169,601,846 shares and sole power to dispose or to direct the disposition of 196,213,804 shares.

 


 

 

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Proposal 1

Election of Directors

 

   

 

The Board has recommended 13 nominees for election as Directors at the 2021 Annual Meeting of Shareholders: Mr. Leslie A. Brun, Ms. Mary Ellen Coe, Ms. Pamela J. Craig, Mr. Kenneth C. Frazier, Mr. Thomas H. Glocer, Dr. Risa J. Lavizzo-Mourey, Dr. Stephen L. Mayo, 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.

Dr. Mayo was elected to the Board effective March 15, 2021 to serve until the 2021 Annual Meeting and to stand for election by shareholders at the meeting. All other nominees were elected by the shareholders at the 2020 Annual Meeting. Dr. Mayo was first identified as a possible Director candidate by the Chair of the Research Committee. Dr. Mayo was recommended to the Board by the Governance Committee and met with various members of the Board leading up to his election.

Dr. Thomas R. Cech will retire from the Board effective as of the 2021 Annual Meeting. Dr. Cech has brought extensive scientific expertise since joining the Board in 2009.

All of 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 the 2021 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 varied roles and experiences reflect a diversity of perspectives, skills and expertise to address the Company’s current and anticipated needs as the Company’s opportunities and challenges evolve. If elected, each nominee will serve until the 2022 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 below biographical information for each Director nominee, including key experience, qualifications and skills such Director nominee contributes to the Board in light of our current needs and business priorities.

 

LOGO

 


 

 

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Election of Directors  

 

 

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LOGO

 

Leslie A. Brun

Independent Lead Director

 

 

    

  

 

Age: 68

 

 
             
  

 

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 (2015-2017)

 

 

 

 

    

  

 

LOGO

 

Mary Ellen Coe

Independent

 

 

    

  

 

Age: 54

 

 
             
  

 

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)

 

 

    

 

 


 

 

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Election of Directors  

 

   

 

    

  

 

LOGO

 

Pamela J. Craig

Independent

 

 

    

  

 

Age: 64

 

 
             
  

 

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 Science/Technology/Sustainability Committees of 3M Company, and as chair of the Technology Committee and 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)

 

 

    

 

 

 

    

  

 

LOGO

 

Kenneth C. Frazier

Management

 

 

    

  

 

Age: 66

 

 
             
  

 

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 (2010-2021)(1)

•  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

    

 

    

 

 
(1)

Mr. Frazier is no longer President, effective March 31, 2021, and will retire as Chief Executive Officer, effective June 30, 2021. After retiring as Chief Executive Officer, Mr. Frazier will continue as Executive Chairman for a transition period to be determined by the Board.

 


 

 

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LOGO

 

Thomas H. Glocer

Independent

 

 

    

  

 

Age: 61

 

 
             
  

 

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

 

 

 

    

 

 

 

    

  

 

LOGO

 

Risa J. Lavizzo-Mourey, M.D.

Independent

 

 

    

  

 

Age: 66

 

 
             
  

 

Director Since: 2020

 

 
             
  

 

Committees:

 

 
   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 her previous service as 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)

•  Intel Corporation (since 2018)

Former

•  Hess Corporation (2004-2020)

 

    

 

 

 

 

 


 

 

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Election of Directors  

 

   

 

    

  

 

LOGO

 

Stephen L. Mayo, Ph.D.

Independent

 

 

    

  

 

Age: 59

 

 
             
  

 

Director Since: 2021

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
  

 

Audit

  

 

Research

    
  

 

    

 

          

 

Experience

 

 

Dr. Mayo has extensive scientific experience relevant to the biopharmaceutical industry, including being the Bren Professor of Biology and Chemistry and former Chair of the Division of Biology and Biological Engineering at the California Institute of Technology (“Caltech”) and co-founder of Xencor, a public antibody engineering company. In addition, in his role as the former Vice Provost at Caltech, Dr. Mayo oversaw Caltech’s technology licensing program. Elected to the National Academy of Sciences in 2004 for his pioneering contributions in the field of protein design, Dr. Mayo has also served as a presidential appointee on the National Science Foundation’s National Science Board and as an elected board member for the American Association for the Advancement of Science.

 

 

Career Highlights

 

 

California Institute of Technology

•  Bren Professor of Biology and Chemistry (2007–present)

•  Chair, Division of Biology and Biological Engineering (2010–2020)

•  Vice Provost for Research (2007–2010)

Howard Hughes Medical Institute,

non-profit medical research organization

•  Investigator (1994–2007)

 

 

Other Public Directorships

 

 

Current

•  None

Former

•  None

 

    

 

 

 

 

    

  

 

LOGO

 

Paul B. Rothman, M.D.

Independent

 

 

    

  

 

Age: 63

 

 
             
  

 

Director Since: 2015

 

 
             
  

 

Committees:

 

 
   LOGO    LOGO        
  

 

Audit

  

 

Research

(Chair)(1)

 

    
  

 

    

 

          

 

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

 

 

 

    

 

 
(1)

The Board has appointed Dr. Rothman as Chair of the Research Committee effective as of the 2021 Annual Meeting. Dr. Rothman will succeed Dr. Cech, who is retiring from the Board effective as of the 2021 Annual Meeting.

 


 

 

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Election of Directors  

 

 

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LOGO

 

Patricia F. Russo

Independent

 

 

    

  

 

Age: 68

 

 
             
  

 

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: 68

 

 
             
  

 

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

 

    

 

 

 

 

 


 

 

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Proposal 1

Election of Directors  

 

   

 

    

  

 

LOGO

 

Inge G. Thulin

Independent

 

 

    

  

 

Age: 67

 

 
             
  

 

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: 49

 

 
             
  

 

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 General Electric. In addition, Ms. Warden is a member of the Board of Visitors of James Madison University and a former chair of the board of the Richmond Federal Reserve Bank.

 

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: 70

 

 
             
  

 

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 2020, non-employee Directors were compensated for their Board service as shown in the chart below.

2020 Schedule of Director Fees

 

Compensation Element(1)

  

Director Compensation Program

Annual Retainer

  

$ 120,000

Annual Mandatory Deferral

  

 

$ 200,000 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

  

$ 40,000(3)

 

(1)

All compensation is annual. Retainers are paid in quarterly installments and may be voluntarily deferred at the Director’s election.

(2)

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

(3)

The Lead Director is the Chair of the Governance Committee as prescribed by the committee charter. As a result of the combined responsibility, the Lead Director retainer totals $60,000 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 generally 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 $200,000 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 and are generally made 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, 2020, all Directors serving at least two years have either met or exceeded these stock ownership requirements. Dr. Seidman and Ms. Warden joined the Board effective March 16, 2020, Dr. Lavizzo-Mourey joined the Board effective May 26, 2020 and Dr. Mayo joined the Board effective March 15, 2021. Each of these Directors is making progress toward meeting the stock ownership guidelines.

 

 


 

 

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Director Compensation  

2020 Director Compensation  

 

 

 

   41

 

 


2020 Director Compensation

The table below summarizes the annual compensation for our non-employee Directors for the fiscal year ended December 31, 2020.

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, 2020           

Name(1)

    

Fees Earned or

Paid in Cash

($)

      

Option

Awards

($)(4)

      

All Other

Compensation

($)(5)

      

Total

($)

 

Leslie A. Brun

    

 

$190,000

 

    

 

 

    

 

$200,000

 

    

$

390,000

 

Thomas R. Cech, Ph.D.

    

 

150,000

 

    

 

 

    

 

229,940

 

    

 

379,940

 

Mary Ellen Coe

    

 

130,000

 

    

 

 

    

 

200,000

 

    

 

330,000

 

Pamela J. Craig

    

 

150,000

 

    

 

 

    

 

230,000

 

    

 

380,000

 

Thomas H. Glocer

    

 

140,000

 

    

 

 

    

 

225,000

 

    

 

365,000

 

Risa J. Lavizzo-Mourey, M.D.(2)

    

 

71,868

 

    

 

 

    

 

201,000

 

    

 

272,868

 

Rochelle B. Lazarus(3)

    

 

50,000

 

    

 

 

    

 

 

    

 

50,000

 

Paul B. Rothman, M.D.

    

 

130,000

 

    

 

 

    

 

230,000

 

    

 

360,000

 

Patricia F. Russo

    

 

120,000

 

    

 

 

    

 

200,000

 

    

 

320,000

 

Christine E. Seidman, M.D.(2)

    

 

103,091

 

    

 

 

    

 

207,957

(6) 

    

 

311,048

 

Inge G. Thulin

    

 

120,000

 

    

 

 

    

 

200,000

 

    

 

320,000

 

Kathy J. Warden(2)

    

 

103,091

 

    

 

 

    

 

207,957

(6) 

    

 

311,048

 

Wendell P. Weeks(3)

    

 

50,000

 

    

 

 

    

 

30,000

 

    

 

80,000

 

Peter C. Wendell

    

 

120,000

 

    

 

 

    

 

230,000

 

    

 

350,000

 

 

(1)

Dr. Mayo was elected to the Board effective March 15, 2021 and is not included in this table.

 

(2)

Dr. Seidman and Ms. Warden were elected to the Board effective March 16, 2020. Dr. Lavizzo-Mourey was elected to the Board effective May 26, 2020.

 

(3)

Ms. Lazarus retired from the Board effective May 26, 2020. Mr. Weeks did not stand for re-election to the Board in 2020.

 

(4)

No grants have been made under the 2010 Non-Employee Directors Stock Option Plan since 2011 and no further grants are permitted. On December 31, 2020, there were no option awards outstanding for any Director who served during 2020.

 

(5)

Represents credits in the form of deferred stock units (phantom shares) of Merck common stock to the Directors’ Deferral Plan. Ms. Lazarus did not receive a credit to the Directors’ Deferral Plan because she retired from the Board at the 2020 Annual Meeting of Shareholders, which occurred prior to the award date. Mr. Weeks did not receive a credit to the Directors’ Deferral Plan because he did not stand for re-election to the Board at the 2020 Annual Meeting of Shareholders.

 

    

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

($)

 

Cech

  

 

$29,940

 

Craig

  

 

30,000

 

Glocer

  

 

25,000

 

Lavizzo-Mourey

  

 

1,000

 

Rothman

  

 

30,000

 

Weeks

  

 

30,000

 

Wendell

  

 

30,000

 

(6)

During 2020, Dr. Seidman and Ms. Warden received a prorated portion of the 2019 credit under the Directors’ Deferral Plan when they joined the Board on March 16, 2020, as well as the full 2020 portion.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents

42   

 

 

    

 

    

    

   
   

 

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 43. As described in the CD&A, 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 incentives and long-term equity incentives, which are both directly linked to Company and/or stock price performance. For 2020, approximately 92% and 81%, respectively, of the CEO’s and other NEOs’ annual target total 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 45 to further align pay with operational performance and increases in long-term shareholder value while minimizing incentives that could lead to 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 2021 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 43-76 of this proxy statement, is hereby APPROVED on an advisory basis.”

The shareholder vote on this resolution will not be binding on management, the C&B Committee or the Board and will not be construed as overruling any decision by management, the C&B Committee 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 2020, shareholders continued their support of our executive compensation programs with approximately 92% 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 2022.

 

LOGO

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents
   

 

    

    

 

   43     

 

   

 

  Compensation Discussion
  and Analysis

 

   

 

This CD&A describes the material elements of compensation for our 2020 Named Executive Officers.

Executive Summary

2020 presented a public health challenge that put significant strain on health care systems and economies around the world. Our Company’s mission is to save and improve lives, and we quickly pivoted our strategic priorities to focus our resources on a pandemic response that would protect the health and safety of our employees and patients, sustain the supply of our medicines and vaccines and employ our scientific capabilities to help advance multiple research efforts to address SARS-CoV-2/COVID-19. Working closely with governments, public health agencies and other stakeholders around the world, we also focused our efforts on investing in communities hardest hit by the pandemic, streamlining our patient assistance programs and encouraging our clinically trained employees to volunteer in healthcare settings that faced staff shortages.

While COVID-19 created significant headwinds for our business, our efforts and underlying business strength enabled us to deliver 2% year-over-year sales growth (4% excluding the impact of currency exchange), while absorbing an approximate $2.5B negative impact on revenue resulting from the COVID-19 pandemic. Although we fell short of our Revenue and Pre-Tax Income targets for our 2020 Scorecard, our Pipeline performance remained strong with a number of meaningful advancements resulting in a payout of 87% of target for NEOs and other incentive plan participants. We continued to secure additional approvals for KEYTRUDA, both as monotherapy and as part of combination therapy, further establishing it as a foundational medicine in immuno-oncology therapeutics. KEYTRUDA became the first anti-PD-1 therapy approved for certain patients with high-risk, non-muscle invasive bladder cancer, the first single agent for first-line treatment for unresectable or metastatic MSI-H or dMMR colorectal cancer and, with its approval in advanced triple-negative breast cancer, is now approved in the U.S. in 16 tumor types. In China, KEYTRUDA was the first anti-PD-1 approved for esophageal cancer. The FDA granted accelerated approval of GARDASIL 9 for the prevention of certain HPV-related head and neck cancers, an important milestone supporting cancer prevention efforts. The Company also advanced two scientific programs in an effort to help combat SARS-CoV-2: MK-4482, an orally available antiviral candidate for the treatment of COVID-19 that we are developing in collaboration with Ridgeback Biotherapeutics LP, and MK-7110, a therapeutic candidate for the treatment of patients hospitalized with COVID-19 that we obtained through our acquisition of OncoImmune. We also continued to actively supplement our pipeline and portfolio by completing ~120 business development transactions.

As we enter 2021, we are focused on maintaining our momentum during a period of significant opportunity and transition. As part of the Board’s long-term and strategic succession planning, the Board unanimously elected Robert M. Davis to succeed Kenneth C. Frazier as the Company’s President, effective April 1, 2021, and Chief Executive Officer, effective July 1, 2021. The Board also elected Mr. Davis as a Board member, effective July 1, 2021. Mr. Frazier will continue to serve on the Board as Executive Chairman for a transition period to be determined by the Board. In addition to the CEO role, the Board’s succession planning resulted in the election of Dean Y. Li, M.D., Ph.D. to succeed Roger M. Perlmutter, M.D., Ph.D. as Executive Vice President and President, Merck Research Laboratories, effective January 1, 2021, and the election of Caroline Litchfield to succeed Mr. Davis as CFO, effective April 1, 2021.

 

 

Scorecard Performance 2020(1)

 

    
    

Financial Performance

      
        

Target($B)

   

Actual($B)

   

Weighting%

 

Score%

   
 

Revenue

 

 

$49.60

 

 

 

$48.23

 

 

 

40

 

 

72

 
 

Pre-Tax Income

 

 

$17.60

 

 

 

$16.92

 

 

 

40

 

 

73

 
   

Non-Financial Performance

     
 

Pipeline

                 

 

20

 

 

146

 
 

Overall Payout

 

                 

 

87

 
    

 

PSU Performance (2018–2020)(1)

 

          Peer Median     Merck     Result     Weighting     Payout       
 

3-Year R-TSR

 

 

10.10%

 

 

 

16.40%

 

 

 

132%

 

 

 

50%

 

 

 

66%

 

 
        Target($B)     Actual($B)     Result     Weighting     Payout      
 

3-Year Cum. OCF

 

 

$40.70

 

 

 

$45.60

 

 

 

200%

 

 

 

25%

 

 

 

50%

 

 
 

3-Year Cum. EPS

 

 

$13.32

 

 

 

$15.05

 

 

 

200%

 

 

 

25%

 

 

 

50%

 

 
 

Overall Payout

 

                 

 

100%

 

 

 

166%

 

 
    

 

 

(1)   Excluding the impact of variances in currency exchange rates versus budget and certain other items, consistent with plan design; rounded.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents

44   

 

 

 

    

 

Compensation Discussion and Analysis  

Executive Compensation Program Objectives and Strategy  

 

 

   

 

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 or prevent a particular disease or condition 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 Executive 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 executive compensation 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 51) 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 2020 resulted in below-target achievement of 87% largely due to the negative impact of the COVID-19 pandemic on our financial results. Despite the negative impact of COVID-19 on our performance, no discretionary adjustments were made to our goals.

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 2018-2020 performance period (described in more detail on page 54), PSUs paid out at 166% based on achievement of cumulative three-year OCF, cumulative three-year EPS and R-TSR metrics during the performance period, weighted at 25%, 25% and 50%, respectively.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents
   

    

 

Compensation Discussion and Analysis  

Compensation Policies and Practices  

 

 

   45

 

 


 

Say-on-Pay Advisory Vote

 

In 2020, shareholders continued their support for our executive compensation programs with approximately 92% 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 continues to evaluate 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 2020 as a direct result of the most recent say-on-pay vote; however, our PSU program design was adjusted for grants made beginning in 2020, as described on page 53.

   LOGO

We ask that our shareholders approve, on an advisory basis, the compensation of our NEOs as further described in Proposal 2 on page 42.

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 incentives that could lead to 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)

 

     

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") and 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. 2021 Proxy Statement


Table of Contents

46   

 

 

    

 

Compensation Discussion and Analysis  

Peer Groups  

 

   

 

Peer Groups

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 2020, 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 Holding AG

Sanofi

 

All numbers as of 12/31/2020

 

           

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(1)

 

  

LOGO         

 

3M

Apple

Boeing

Caterpillar

Chevron

Cisco

Coca-Cola

Dow

ExxonMobil

Home Depot

IBM

Intel

 

Johnson & Johnson

McDonald’s

Microsoft

Nike

Pfizer

Procter & Gamble UnitedHealth Group Verizon

Visa

Walgreens

Walmart

Walt Disney

(1)   Reflects Dow Jones Industrial Average companies (excluding the financial services companies) as of the beginning of 2020. United Technologies is excluded; data not available as of 12/31/2020 as a result of April 3, 2020 merger with Raytheon Technologies Corporation.

 

All numbers as of 12/31/2020

 

Our overarching strategy is to position our executives’ target TDC 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. 2021 Proxy Statement


Table of Contents
   

    

 

Compensation Discussion and Analysis  

Detailed Discussion and Analysis  

 

 

   47

 


 

Detailed Discussion and Analysis

Further information regarding our 2020 Named Executive Officers and the material elements of their compensation is described below.

 

    

    

  


 

 

Compensation Decisions for 2020

 

  

LOGO

 

Kenneth C. Frazier

Chairman and
Chief Executive Officer(1)

 

 

 

•  Increased base salary by 1.8%

•  Maintained annual incentive target percentage

•  Increased LTI target by $750,000

•  Changes resulted in increased target TDC of 4.3%

 

 

LOGO

 

  

 

Age: 66

 

   
      
  

 

Tenure*: 29 Years

 

   
           

 

(1)   As announced on February 4, 2021, Mr. Frazier is no longer President, effective March 31, 2021, and will retire as Chief Executive Officer, effective June 30, 2021. After retiring as Chief Executive Officer, Mr. Frazier will continue as Executive Chairman of Merck for a transition period to be determined by the Board.

 

      

 

Compensation Decisions for 2020

 

  

LOGO

 

Robert M. Davis

President and Former Chief
Financial Officer(1)

 

 

 

•  Increased base salary by 3.0%

•  Maintained annual incentive target percentage

•  Maintained LTI target

•  Changes resulted in increased target TDC of 1.1%

 

 

LOGO

  

 

Age: 54

 

   
      
  

 

Tenure*: 7 Years

 

   
           

 

(1)   As announced on February 4, 2021, Mr. Davis was promoted from Executive Vice President, Global Services and Chief Financial Officer to President, effective April 1, 2021, and will become Chief Executive Officer and a member of the Board, effective July 1, 2021.

 

* Length of tenure is rounded.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents

48   

 

 

 

    

    

 

Compensation Discussion and Analysis  

Detailed Discussion and Analysis  

 

 

   

 

      

 

Compensation Decisions for 2020

 

    

  

LOGO

 

Sanat Chattopadhyay  

Executive Vice President
and President, Merck
Manufacturing Division

 

      

 

 

•  Increased base salary by 13.8%

•  Maintained annual incentive target percentage

•  Increased LTI target by $500,000

•  Changes resulted in increased target TDC of 18.8%

 

 

LOGO

  

 

Age: 61

 

   
      
  

 

Tenure*: 11 Years

 

   
        

    

 

      

 

Compensation Decisions for 2020

 

  

LOGO

 

Roger M. Perlmutter, M.D., Ph.D.

Former Executive Vice
President and President,
Merck Research
Laboratories(1)

 

   

 

•  Increased base salary by 3.0%

•  Maintained annual incentive target percentage

•  Maintained LTI target

•  Changes resulted in increased target TDC of 1.0%

 

 

LOGO

  

 

Age: 68

 

   
      
  

 

Tenure*: 12 Years

 

   
      

 

(1)   Dr. Perlmutter retired as Executive Vice President and President, Merck Research Laboratories, effective December 31, 2020, and will remain as Non-Executive Director, Merck Research Laboratories through mid-2021.

 

      

 

Compensation Decisions for 2020

 

  

LOGO

 

Jennifer Zachary

Executive Vice President,

General Counsel and
Corporate Secretary

 

   

 

•  Increased base salary by 5.0%

•  Maintained annual incentive target percentage

•  Increased LTI target by $150,000

•  Changes resulted in increased target TDC of 5.8%

 

 

LOGO

  

 

Age: 43

 

   
      
  

 

Tenure*: 3 Years

 

   
      

 

* Length of tenure is rounded.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents
   

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation  

 

 

 

   49

 

 


 

The Elements of 2020 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 increased shareholder value

 

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

 

     

•  Overall target total 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

*Rounded.

The C&B Committee recommends, and the independent members of the Board of Directors approve, the compensation for our CEO. The C&B Committee determines compensation for all other 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 46.

Additional details regarding the roles and responsibilities of the C&B Committee are provided beginning on page 19.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents

50   

 

 

 

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation  

 

 

   

 

Base Salary

 

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

 

As shown in the table, adjustments
were made to base salaries in 2020.
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 March 2020

 
 

Frazier

  

 

1.8

 

 

No change

 

 

 

$1,700,000

 

 

Davis

  

 

3.0

 

 

 

No change

 

 

 

1,114,608

 

 

Chattopadhyay

  

 

3.0

 

 

 

10.8

 

 

825,000

 

 

Perlmutter

  

 

3.0

 

 

 

No change

 

 

 

1,193,602

 

 

Zachary

  

 

3.0

 

 

 

2.0

 

 

 

918,750

 

        
           
           

 

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 2020, excluding the impact
of the Scorecard, is listed in the
Grants of Plan-Based Awards table on
page 63.

 

No changes were made to EIP targets
for the 2020 performance period as
shown in the table.

      

Named Executive Officer

  

2019

Target Annual
Incentive

% of Base Salary

   

2020

Target Annual
Incentive

% of Base Salary

 
 

Frazier

  

 

150

 

 

150

 

Davis

  

 

105

 

 

 

105

 

 

Chattopadhyay

  

 

90

 

 

 

90

 

 

Perlmutter

  

 

105

 

 

 

105

 

 

Zachary

  

 

95

 

 

 

95

 

      
         
         
         
         
         
         
         
         
         

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents
   

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation  

 

 

   51

 


 

2020 Merck Company Scorecard

Our Company Scorecard helps translate our strategic priorities into operational terms that enable tracking and measurement of 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 goals 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, and regulatory 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 Laboratories, 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. Adjustments are applied to Revenue and Pre-Tax Income results using a consistent framework of adjustments to our reported financial results for incentive program purposes approved by the C&B Committee to accurately reflect the operating performance of our business. For further explanation of these adjustments, please refer to Appendix B on page 93. The Scorecard structure and results are summarized below.

2020 Company Scorecard (1)

 

LOGO

  (1)

Excluding the impact of variances in currency exchange rates versus budget and certain other items, consistent with plan design; rounded.

Revenue:

Reported revenue of $47.99B was adjusted to $48.23B to remove the negative impact of currency exchange rates (versus currency exchange rates budgeted in the annual operating plan) and the impact of business development transactions (consistent with plan design and past practice). This result fell below our internal Revenue target of $49.60B largely due to the negative impact of the COVID-19 pandemic on our financial results.

Pre-Tax Income:

Reported Pre-Tax Income of $17.86B was adjusted to $16.92B to exclude the impact of currency exchange rates (versus currency exchange rates budgeted in the annual operating plan), the impact of gains/losses from equity securities and the effect of certain business development transactions (consistent with plan design and past practice). This result fell below our internal Pre-Tax Income target of $17.60B largely due to the negative impact of the COVID-19 pandemic on our financial results.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents

52   

 

 

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation

 

   

 

2020 Annual Incentive Payouts

The table below shows the 2020 annual cash incentives paid to the NEOs. The “Final Award” for each NEO is reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation table.

 

LOGO

Named Executive Officer 2020 Annual Incentive Payments

 

            Target               

Named Executive Officer

  

Annual Base Salary

(as of 12/31/20)

($)

    

Annual

Incentive

(%)

   

Annual

Incentive

($)

    

Company

Scorecard Result

(%)

   

Final

Award

($)

 

 

Frazier

  

 

$1,700,000

 

  

 

150

 

 

$2,550,000

 

  

 

87

 

 

$2,218,500

 

 

Davis

  

 

1,114,608

 

  

 

105

 

 

 

1,170,338

 

  

 

87

 

 

 

1,018,194

 

 

Chattopadhyay

  

 

825,000

 

  

 

90

 

 

 

742,500

 

  

 

87

 

 

 

645,975

 

 

Perlmutter

  

 

1,193,602

 

  

 

105

 

 

 

1,253,282

 

  

 

87

 

 

 

1,090,355

 

 

Zachary

  

 

918,750

 

  

 

95

 

 

 

872,813

 

  

 

87

 

 

 

759,347

 

Long-Term Equity Incentives

2020 Equity 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 our CEO, recommended by the C&B Committee and approved by the independent members of the Board of Directors. 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.

Stock options are granted at no less than fair market value on a fixed date or date of a particular 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.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents
   

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation  

 

 

   53

 

 

2020 LTI Grant Values

The 2020 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 63. The LTI grant value for Mr. Frazier was increased by the Board 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)           

Named Executive Officer

     2019        2020       

Increase in

Target Grant
Value

 

Frazier

    

 

$15,000,000

 

    

 

$15,750,000

 

    

 

+$750,000

 

Davis

    

 

4,000,000

 

    

 

4,000,000

 

    

 

0

 

Chattopadhyay

    

 

2,300,000

 

    

 

2,800,000

 

    

 

+500,000

 

Perlmutter

    

 

5,000,000

 

    

 

5,000,000

 

    

 

0

 

Zachary

    

 

2,350,000

 

    

 

2,500,000

 

    

 

+150,000

 

 

(1)

Grant values shown above will be different from the values shown in the Summary Compensation 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 review the design of our PSU program to ensure that our metrics are focused on the long-term measures that are most applicable to driving value for the Company and its shareholders over a three-year performance period. Payouts under the PSU program are formulaic and, as such, the C&B Committee does not consider individual performance or use discretion when determining final awards.

Financial targets applicable to the PSUs 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.

The 2018 PSU program ended at the end of 2020 and the payout is described on the following page. We currently have three in-progress PSU programs. The 2019 PSU program is linked to three-year cumulative EPS and OCF and three-year R-TSR. Beginning in 2020, we removed the OCF metric and increased the weighting of EPS to streamline our program design, focusing on a single earnings metric. Additionally, due to the complexities associated with disentangling a multi-year financial plan for our Organon business in the event of a successful spinoff (currently planned for late in the second quarter of 2021), we adjusted the design for the 2019, 2020 and 2021 programs as further described in the table below. Assuming the spinoff occurs in 2021 as planned, we intend to revert to a three-year cumulative EPS and R-TSR design in 2022, with 50% tied to EPS and 50% tied to R-TSR.

 

     

Program Performance Period        

  

Program Design

  

Program Design if Organon Spinoff Occurs in 2021

     

2019-2021

  

25% 3-Year EPS

25% 3-Year OCF

50% 3-Year R-TSR

  

25% 2-Year (2019 and 2020) EPS

25% 2-Year (2019 and 2020) OCF

50% 3-Year R-TSR

     

2020-2022

  

50% 3-Year EPS

50% 3-Year R-TSR

  

33% 1-Year (2020) EPS

67% 3-Year R-TSR

     

2021-2023

  

50% 3-Year EPS

50% 3-Year R-TSR

  

33% 1-Year (2021) EPS

67% 3-Year R-TSR

 

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents

54   

 

 

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation  

 

   

 

Payouts Under the 2018–2020 PSU Program Performance Period

For grants issued in 2018, 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 2018-2020 performance period, three-year cumulative EPS and OCF metrics were each weighted at 25%, and R-TSR versus our pharmaceutical peer group was weighted at 50%. The outcome of the combined performance resulted in an actual payout of 166% as illustrated in the tables below.

The 166% payout was based on our strong EPS and OCF performance (both at 200%) during the performance period primarily due to above-plan after-tax non-GAAP net income. We realized top quartile TSR performance and outperformed the median TSR of our pharmaceutical peer group by 6.3%, which increased the payout by +5% for each percentage point of outperformance, resulting in an R-TSR payout of 132%.

 

LOGO

 

(1)

Excluding the impact of variances in currency exchange rates versus budget 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 pharmaceutical peer group company common stock for December 2017 and December 2020, assuming reinvestment of dividends; rounded.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents
   

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation  

 

 

   55

 

 

Named Executive Officer PSU Distribution

Based on the final payout of 166%, the NEOs received the following number of shares of Merck common stock including dividends accrued during the performance period and paid in shares:

 

Named Executive Officer

    

Target Award

(# of shares)

      

Final Award

(# of shares)

 

Frazier

       167,064          303,028  

Davis

       48,834          88,577  

Chattopadhyay

       23,123          41,958  

Perlmutter

       51,404          93,239  

Zachary

       24,242          43,972  

Additional information regarding the payouts under the 2018-2020 PSU performance period is provided in the Option Exercises and Stock Vested table on page 67.

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 91 and 93, 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 healthy, 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.

 


 

 

Merck & Co., Inc. 2021 Proxy Statement


Table of Contents

56   

 

 

    

 

Compensation Discussion and Analysis  

The Elements of 2020 Compensation

 

   

 

2021 Compensation Actions

In connection with the CEO transition between Mr. Frazier and Mr. Davis, the C&B Committee recommended, and the Board approved at its March meeting, the compensation actions described below.

For the portion of the year during which he will serve as both Chairman and CEO, Mr. Frazier’s salary and target bonus will remain at his 2020 levels. Effective July 1, 2021 to reflect his reduced responsibilities when he assumes the role of Executive Chairman, Mr. Frazier’s salary will be reduced from $1.7 million to $1.25 million and his target annual incentive will be reduced from 150% to 100% of base salary. This results in annualized target cash compensation that is 41% below his current level. Mr. Frazier’s actual bonus for the year will reflect the prorated amounts earned in each portion of the year, adjusted for performance against our predetermined targets. Mr. Frazier’s annual LTI award for 2021 was reduced by 32% (from $15.75 million to $10.75 million) to reflect his partial year of service in each of the two roles. Mr. Frazier’s target TDC is summarized below:

 

     

Annual Base Salary

$

   

Target Annual Incentive

% of Base Salary

    

Target LTI Grant Value

$(1)

 

Chairman and CEO                

(Jan 1 to Jun 30, 2021)

 

    

 

$1,700,000

(No change)

 

     

 

 

   

 

150%

(No change)

 

 

 

 

    

$10,750,000

(reduction of $5 million)

     

 

Executive Chairman                

(July 1, 2021)

 

  

 

 

$1,250,000