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Statement on Corporate Governance

The Statement on Corporate Governance contains the Declaration of Conformity, relevant information on practices within the company, a description of the procedures of the corporate bodies, as well as targets for the percentage of positions held by women.

Joint report of the Executive Board and the Supervisory Board according to section 3.10 of the German Corporate Governance Code including the ­Declaration of Conformity

The German Corporate Governance Code is geared toward the conditions found in a German stock corporation (“Aktiengesell­schaft” or “AG”) and does not take into consideration the special characteristics of a corporation with general partners (“Kommanditgesellschaft auf Aktien” or “KGaA”) such as Merck KGaA. Given the structural differences between an AG and a KGaA, several recommendations of the German Corporate Governance Code are to be applied to a KGaA only in a modified form. Major differences between the two legal forms exist in terms of liability and management. While, in the case of an AG, only the AG is liable as a legal entity, the general partners of a KGaA also have unlimited personal liability for the company’s obligations (section 278 (1) of the German Stock Corporation Act – “AktG”). At Merck KGaA, this pertains to both E. Merck KG – which pursuant to Article 8 (5) of the Articles of Association is excluded from management and representation – as well as to the managing general partners, who together make up the Executive Board of Merck KGaA. The members of the Executive Board of Merck KGaA are therefore subject to unlimited personal liability. Unlike an AG, their executive authority is not conferred by the Supervisory Board, but rather by their status as general partners.

Consequently, in addition to other responsibilities typical of the supervisory board of an AG (see description of the procedures of the Supervisory Board), the supervisory board of a KGaA does not have the authority to appoint the management board, draw up management board contracts or specify compensation of the management board. This legal form also involves special features with regard to the General Meeting. For example, in a KGaA, many of the resolutions made require the consent of the general partners (section 285 (2) AktG), including in particular the adoption of the annual financial statements (section 286 (1) AktG).

Merck KGaA applies the German Corporate Governance Code analogously where these regulations are compatible with the legal form of a KGaA. In order to enable shareholders to compare the situation at other companies more easily, to a broad extent we base corporate governance on the conduct recommendations made by the Government Commission of the German Corporate Governance Code and forego having our own, equally permissible, code. The recommendations of the Code in the last version dated May 5, 2015, the intent and meaning of which are applied, were complied with in the period between the last Declaration of Conformity issued on March 4, 2016 with three exceptions. In the future, the recommendations of the Code will again be adhered to with three exceptions. Further details can be found on Declaration of Conformity.

For a clearer understanding, the following gives a general explanation of the application of German company law at Merck KGaA with additional references to the General Meeting and shareholder rights.

Merck KGaA

The general partner E. Merck KG holds around 70% of the total capital of Merck KGaA (equity interest); the shareholders hold the remainder, which is divided into shares (share capital). E. Merck KG is excluded from the management of business activities. The ­general partners with no equity interest (Executive Board) manage the business activities. Nevertheless, due to its substantial capital investment and unlimited personal liability, E. Merck KG has a strong interest in the businesses of Merck KGaA operating efficiently in compliance with procedures, and exercises its influence accordingly. Merck KGaA’s participation in the profit / loss of E. Merck KG in accordance with Articles 26 et seq. of the Articles of Association further harmonizes the interests of the shareholders and of E. Merck KG. E. Merck KG appoints and dismisses the Executive Board. In addition, E. Merck KG has created bodies – complementing the expertise and activities of the Supervisory Board – to monitor and advise the Executive Board. This task applies primarily to the Board of Partners of E. Merck KG. Based on the provisions of the German Stock Corporation Act, the Articles of Association of Merck KGaA and the rules of procedure of the various committees, Merck KGaA has a set of rules for the Executive Board and its supervision that meet the requirements of the German Corporate Governance Code. The investors, who bear the entrepreneurial risk, are protected as provided for by the German Corporate Governance Code.

The General Meeting of Merck KGaA

The twenty-first General Meeting of Merck KGaA was held on April 29, 2016 in Frankfurt am Main, Germany. At 61.92%, the proportion of share capital represented at the meeting was slightly lower than in the previous year. In 2015, the proportion of share capital represented was 64.32%.

In particular, the Annual General Meeting passes resolutions concerning the approval of the annual financial statements, the appropriation of net retained profit, the approval of the actions of the Executive Board members and the Supervisory Board members, as well as the election of the auditor. Changes to the Articles of Association likewise require the adoption of a resolution by the General Meeting.

The shareholders of Merck KGaA exercise their rights at the General Meeting. They may exercise their voting rights personally, through an authorized representative or through a proxy appointed by the company. The proxy is in attendance throughout the duration of the General Meeting. All the documents and information concerning upcoming General Meetings (including a summary explanation of shareholder rights) are also posted on our website. Moreover, the General Meeting is webcast live on the Internet from its commencement until the end of the speech by the Chairman of the Executive Board. The introductory speeches by the Chairman of the Executive Board and the Chairman of the Supervisory Board are recorded in order to make them available to interested members of the public at any time after the meeting. In this way, we are satisfying the high transparency requirements of the Merck Group.

Declaration of Conformity

In accordance with section 161 AktG, applying the provisions of the German Corporate Governance Code correspondingly, the Executive Board and the Supervisory Board issued the following Declaration of Conformity with the recommendations of the Government Commission of the German Corporate Governance Code:

‟Declaration of the Executive Board and the Supervisory Board of Merck KGaA on the recommendations of the Government Commission of the German Corporate Governance Code pursuant to section 161 AktG.

Since the last Declaration of Conformity on March 4, 2016, we have complied with the recommendations of the Government Commission of the German Corporate Governance Code in the version dated May 5, 2015 published in the official section of the German Federal Gazette with the following exceptions:

Contrary to section 4.2.5 para 3 sentence 2 of the German Corporate Governance Code, the model tables only show the current service costs; any past service costs are shown in the footnotes. The chosen reporting serves better comparability with other companies and thus the transparency and understandability of the Compensation Report aimed for by the code (see section 4.2.5 para 1 sentence 3 of the German Corporate Governance Code).

Contrary to section 5.3.2 of the German Corporate Governance Code, the Supervisory Board has not established an audit committee. However, an audit committee does exist in the form of the Finance Committee of the Board of Partners of E. Merck KG, which to a large extent exercises the duties described in section 5.3.2 of the Code. Due to the relatively limited authority of the supervisory board of a KGaA in comparison with that of an AG, this therefore satisfies the requirements of the German Corporate Governance Code.

Contrary to section 5.4.1 para 2 sentence 1 of the German Corporate Governance Code, no age limit or regular limit on the length of Supervisory Board membership is taken into account when proposing candidates for election to the Supervisory Board pursuant to the published objectives of the Supervisory Board. The age and length of membership of Supervisory Board members are not criteria for their qualifications and competence. Moreover, we do not wish to forego the many years of experience of Supervisory Board members. Crucial to the successful work of the Supervisory Board is a good balance among Supervisory Board members in terms of age and length of membership.

Contrary to section 7.1.2 sentence 4 of the German Corporate Governance Code, owing to the way in which the German legal holidays fall, the interim report for the first quarter was only made publicly accessible slightly after the allotted 45-day time limit from the end of the reporting period. In fiscal 2017, the allotted 45-day time limit for publication of the interim report for the first quarter will also be slightly exceeded again for the same reason.

In view of future compliance with the current recommendations of the Government Commission of the German Corporate Governance Code, the Executive Board and the Supervisory Board declare the following: With the exception of the aforementioned deviations from section 4.2.5 para 3 sentence 2 (model tables), from section 5.3.2 (audit committee), section 5.4.1 para 2 sentence 1 (age limit, regular limit on length of membership), and section 7.1.2 sentence 4 (publication deadline), the company will comply with the recommendations of the Code in the version dated May 5, 2015.”

Darmstadt, February 24, 2017

For the Executive Board
s. Stefan Oschmann

For the Supervisory Board
s. Wolfgang Büchele

Compensation report

(The Compensation Report is part of the audited Notes to the Consolidated Financial Statements).

Compensation of members of the Executive Board of Merck KGaA

As the world’s oldest pharmaceutical and chemical company, Merck has always attached great importance to responsible governance and entrepreneurship. This continues to be reflected in the members of the Executive Board of Merck KGaA who, unlike management board members of German stock corporations, are not employed officers of the company. Rather, they are personally liable general partners of both Merck KGaA and the general partner E. Merck KG, and in this capacity they receive profit-based compensation from E. Merck KG. Therefore, the stipulations of the German Corporate Governance Code concerning the compensation of management board members of publicly listed German stock corporations as well as the individual disclosure thereof do not apply to the Executive Board members of Merck KGaA. Irrespective of this, Merck KGaA has decided to disclose the individual compensation of each Executive Board member in the following report.

Unlike publicly listed German stock corporations, at Merck KGaA it is not the Supervisory Board, but the Board of Partners of E. Merck KG that decides on the amount and composition of compensation. E. Merck KG has transferred the execution of this right to its Personnel Committee. Among other things, the Personnel Committee is responsible for the following decisions: contents of contracts with Executive Board members, granting of loans and advance salary payments, approval for taking on honorary offices, board positions and other sideline activities, as well as the division of responsibilities within the Executive Board of Merck KGaA. The compensation system defined by the Personnel Committee for Executive Board members takes into account various aspects relevant to compensation, including the responsibilities and duties of the individual Executive Board members and their status as personally liable partners, their individual performance, the economic situation, performance and prospects of the company as well as normal compensation levels (by way of peer comparison) and the rewards structure otherwise in place in the company. The relationship between Executive Board compensation and the compensation of top management and the workforce as a whole is taken into account, also in a multiyear assessment. The Personnel Committee regularly commissions an independent compensation consultant to review the appropriateness of the compensation.

Features of the compensation system until December 31, 2016

The features of the compensation system of the Executive Board of Merck KGaA aim for a sustainable increase in the value of the company and performance-oriented governance. The compensation paid to the Executive Board members of Merck KGaA in fiscal 2016 comprises fixed compensation components, performance-­related variable compensation components and additions to pension provisions. Benefits in kind and other benefits are additionally granted.

Fixed compensation

Fixed compensation is paid in the form of 12 equivalent monthly installments. The table on page 162 provides an overview of the amount of the fixed compensation paid in 2015 and 2016.

Variable compensation

Variable compensation is based on the three-year rolling average of profit after tax of the E. Merck Group. The Personnel Committee of E. Merck KG decides at its own or equitable discretion whether to consider exceptional factors of particular importance. From the net income determined in this manner, the members of the Executive Board receive individually fixed per mille rates based on the net income of the E. Merck Group.

Additionally, in exceptional cases the Personnel Committee of E. Merck KG, which is responsible for the compensation of the Executive Board, may grant one-time payments voluntarily and at its own or equitable discretion.

Long-term variable compensation (Merck Long-Term Incentive Plan)

In 2012, a long-term variable compensation component known as the Merck Long-Term Incentive Plan was added to the variable compensation of the members of the Executive Board. Under the Merck Long-Term Incentive Plan the members of the Executive Board could be eligible to receive a certain number of virtual shares – Merck Share Units (MSUs) – at the end of a three-year performance cycle. The number of MSUs that could be received depends on the total value defined for the respective person and the average closing price of Merck shares in Xetra® trading during the last 60 trading days prior to January 1 of the respective fiscal year (reference price). In order to participate in the Plan, members of the Executive Board must personally own an investment in Merck shares equivalent to 10% of their respective fixed annual compensation, taking into account the equity interest held in E. Merck KG as a personally liable general partner. It is not permitted to sell these shares during the performance cycle. After termination of the three-year performance cycle, the number of MSUs to be granted then is determined based on the development of two key performance indicators (KPIs). These are:

a) the performance of the Merck share price compared to the DAX® with a weighting of 70%, and

b) the development of the EBITDA pre margin during the performance cycle as a proportion of a defined target value with a weighting of 30%.

Depending on the development of the KPIs, at the end of the respective performance cycle the members of the Executive Board are granted between 0% and 150% of the MSUs they could be eligible to receive.

Based on the number of MSUs granted, the members of the Executive Board receive a cash payment at a defined point in time in the year following the expiration of the three-year performance cycle. The value of an MSU corresponds to the average closing price of Merck shares in Xetra® trading during the last 60 trading days prior to January 1 after the performance cycle. Since fiscal 2016, the payment amount has been reduced to twice the reference price. The members of the Executive Board invest 50% of the payment amount in Merck shares. One-third of these shares may be sold at the earliest one year after termination of the performance cycle, another third after two years, and another third after three years.

In fiscal 2016, the following total values were specified for members of the Executive Board, which resulted in the respective number of MSUs they were eligible to receive based upon the definitive reference price of Merck shares (60 trading days preceding January 1, 2016) of € 87.92: Stefan Oschmann € 2.0 million (22,748 MSUs), Karl-Ludwig Kley € 1.5 million (17,061 MSUs), Udit Batra € 1.7 million (19,336 MSUs), Kai Beckmann € 1.43 million (16,265 MSUs), Walter Galinat € 1.15 million (13,081 MSUs), Belén Garijo Lopez € 1.7 million (19,336 MSUs), Marcus Kuhnert € 1.32 million (15,014 MSUs), and Bernd Reckmann € 1.0 million (11,374 MSUs).

For fiscal 2016, the following maximum amounts for the respective variable compensation components apply. For the members of the Executive Board who are active beyond 2016, reduced maximum amounts have been agreed for the variable compensation components and new limits for direct compensation (sum of fixed and variable compensation) have been introduced.

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One-time payment
(€ thousand)
Variable ­compensation
(€ thousand)
Merck Long-Term Incentive Plan
(€ thousand)
Maximum amount fixed and variable compensation
(€ thousand)
Stefan Oschmann 2,000 3,700 5,638 9,800
Karl-Ludwig Kley 2,000 8,000 4,500 11,100
Udit Batra 1,500 2,800 4,263 8,000
Kai Beckmann 1,500 2,400 3,575 8,000
Walter Galinat 1,500 2,200 3,300 8,000
Belén Garijo Lopez 1,500 3,000 4,675 8,000
Marcus Kuhnert 1,500 2,200 3,300 8,000
Bernd Reckmann 1,500 6,000 3,000 9,200

Additional benefits

The members of the Executive Board also receive additional benefits, mainly contributions to insurance policies, personal security expenses, as well as a company car, which they are entitled to use privately. Overall, the value of other additional benefits totaled € 166 thousand in 2016 (2015: € 252 thousand). Of this amount, in 2016 € 24 thousand was attributable to Stefan Oschmann (2015: € 25 thousand); € 14 thousand to Karl-Ludwig Kley (2015: € 148 thousand); € 4 thousand to Udit Batra; € 31 thousand to Kai ­Beckmann (2015: € 25 thousand); € 50 thousand to Walter ­Galinat; € 6 thousand to Belén Garijo Lopez (2015: € 6 thousand); €­ 20 thousand to Marcus Kuhnert (2015: € 20 thousand); and ­€ 17 thousand to Bernd Reckmann (2015: € 28 thousand).

Total compensation

Accordingly, the following total compensation results for the members of the Executive Board of Merck KGaA broken down by performance-independent and performance-related components:

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Performance-independent components Performance-related components Total Expense recorded in the period for share-based compensation4
Without a long-term incentive effect With a long-term
incentive effect
Fixed compensation Additional benefits Variable compensation1 Merck Long-Term
Incentive Plan
(€ thousand) (€ thousand) (€ thousand) Number of MSUs2 (units) Time value3
(€ thousand)
(€ thousand) (€ thousand)
Current members              
Stefan Oschmann 2016 1,267 24 3,278 22,748 1,549 6,118 2,279
2015 1,200 25 4,161 13,418 1,316 6,702 1,973
Karl-Ludwig Kley
(until August 31, 2016)
2016 867 14 2,756 17,061 1,162 4,799 2,847
2015 1,300 148 4,464 20,127 1,974 7,886 2,959
Udit Batra
(since April 30, 2016)
2016 667 4 1,398 19,336 1,316 3,385 648
2015 0 0 0 0 0 0 0
Kai Beckmann 2016 1,000 31 2,238 16,265 1,107 4,376 2,062
2015 1,000 25 3,411 13,418 1,316 5,752 1,973
Walter Galinat
(since April 30, 2016)
2016 533 50 1,098 13,081 891 2,572 438
2015 0 0 0 0 0 0 0
Belén Garijo Lopez 2016 1,067 6 2,683 19,336 1,316 5,072 840
2015 1,000 6 3,411 13,418 1,316 5,733 383
Marcus Kuhnert 2016 800 20 1,956 15,014 1,022 3,798 1,518
2015 800 20 2,411 13,418 1,316 4,547 687
Bernd Reckmann
(until April 29, 2016)
2016 400 17 1,353 11,374 774 2,544 1,898
2015 1,200 28 4,411 13,418 1,316 6,955 1,973
Total 2016 6,601 166 16,760 134,215 9,137 32,664 12,530
2015 6,500 252 22,269 87,217 8,554 37,575 9,948
1
The one-time payment for 2015 granted to Bernd Reckmann is included in the variable compensation component for 2015.
2
Number of the potential MSUs subject to target achievement. For details see page 160 / 161. The actual number of MSUs to be granted after the expiration of the three-year performance cycle may deviate from this.
3
Time value on the date of the grant (date of the legally binding entitlement). The amount of a payment is thus not predefined. Payment is subject to target achievement and is only made on a specified date after the expiration of a three-year performance cycle. The time value of the obligations was calculated using a Monte Carlo simulation based on the previously described KPIs. The expected volatilities are based on the implicit volatility of Merck shares and the DAX® index in accordance with the remaining term of the LTIP tranche. The dividend payments incorporated into the valuation model orient towards medium-term dividend expectations.
4
In accordance with IFRS the expense recorded for 2016 includes the values for the 2014, 2015 and 2016 LTIP tranches. In accordance with IFRS the expense recorded for 2015 includes the values for the 2013, 2014 and 2015 LTIP tranches.

Pension provisions

The individual contractual pension obligations grant the members of the Executive Board entitlement to a life-long old-age or surviving dependents’ pension (with the exception of Udit Batra) in the event of reaching the individual contractually agreed age limit, permanent disability or death. As an alternative to an old-age pension, upon reaching the age limit specified in their individual contracts, the members of the Executive Board have been offered the possibility to receive their pension entitlement in the form of a one-time lump-sum payment calculated in accordance with actuarial principles.

The amount of the old-age pension is determined by a percentage share of pensionable compensation defined by the Personnel Committee.

A defined contribution pension plan has been agreed with Udit Batra. Within the scope of this agreement, a certain pension contribution is paid annually into an internal benefit account and interest is paid on this at standard market interest rates. Upon reaching the individual contractually agreed age limit, the amount in the benefit account is paid out in ten annual installments. In the event of permanent disability or death, the amount in the benefit account, which may be topped up, is disbursed as a one-time payment.

The pensionable compensation and pension entitlement are presented in the following table.

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  Pensionable compensation (€ thousand) Percentage ­entitlement
Stefan Oschmann 750 60
Karl-Ludwig Kley 900 70
Kai Beckmann 400 51
Walter Galinat 490 65
Belén Garijo Lopez 400 52
Marcus Kuhnert 300 42
Bernd Reckmann 650 66
Owing to his appointment as Chairman of the Executive Board, the pensionable compensation and percentage entitlement of Stefan Oschmann for 2016 were increased by € 100 thousand and 5%, respectively. The percentage entitlement increases as of 2017 until retirement by two percentage points per year of service up to 70%.
The percentage entitlement increases up until retirement by two percentage points per year of service up to 70% for Kai Beckmann and Bernd Reckmann. Their pension entitlement was thus accordingly increased in 2016.
As of 2016, the percentage entitlement increases up until retirement by two percentage points per year of service up to 70% for Belén Garijo Lopez and Marcus Kuhnert. Their pension entitlements were thus increased accordingly in 2016.
A defined contribution pension entitlement exists for Udit Batra comprising a pro rata annual payment to his benefit account for 2016. A percentage entitlement does not exist. Corresponding data is therefore not provided.

The pension provisions and the service cost are presented in the following table.

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Current service cost
(€ thousand) 2016 2015 Amount of pension
provisions as of Dec. 31, 2016
Stefan Oschmann1 852 953 8,584
Karl-Ludwig Kley 1,607 14,424
Udit Batra2 254 254
Kai Beckmann 205 230 5,948
Walter Galinat 157 6,857
Belén Garijo Lopez 688 672 1,501
Marcus Kuhnert 315 353 868
Bernd Reckmann 346 375 11,320
Total 2,817 4,190 49,756
1
For 2016, in addition to the current service costs amounting to € 852 thousand, there are past service costs of € 3,506 thousand (total service cost: € 4,358 thousand) due to the increase in the pensionable compensation and percentage entitlement in connection with the appointment of Stefan Oschmann as Chairman of the Executive Board.
2
The amount of the pension provision corresponds to the balance of the benefit account for a defined-contribution pension plan.

The surviving dependents’ pension grants the spouse a lifelong surviving dependents’ pension amounting to 60% of the pension entitlement, and dependent children either a half-orphan’s or an orphan’s pension maximally until the age of 25.

In Udit Batra’s case, the pension agreement for surviving dependents provides for the payment of the amount in the benefit account, which may be topped up, in the form of a one-time payment.

Benefits in the event of termination of duties as an Executive Board member

The employment contracts of Karl-Ludwig Kley, Stefan Oschmann, Kai Beckmann, Bernd Reckmann, and Udit Batra each contain a post-contractual non-competition clause. An amount equal to 50% of the average contractual benefits paid to the respective Executive Board member within the past 12 months prior to leaving the company shall be provided as compensation for each year of the two-year non-competition period. During the period of the non-­competition clause, other employment income and pension payments will be credited to this compensation. Within certain time limits, E. Merck KG has the possibility to dispense with adherence to the non-competition clause with the consequence that the obligation to make the compensation payments shall cease to apply. For 2016, Karl-Ludwig Kley received non-competition compensation of € 936 thousand.

The contracts of the Executive Board members further provide for the continued payment of fixed compensation to surviving dependents for a limited period of time in the event of death. Above and beyond this and existing pension obligations, no further obligations exist in the event of the termination of the contractual relationships of the Executive Board members.

Miscellaneous

The members of the Executive Board do not receive additional compensation for serving on the boards of Group companies.

Should members of the Executive Board be held liable for financial losses while executing their duties, under certain circumstances this liability risk is covered by a D&O insurance policy from Merck KGaA. The D&O insurance policy has a deductible in accordance with the legal requirements and recommendations of the German Corporate Governance Code.

Payments to former Executive Board members and their surviving dependents

Payments to former members of the Executive Board or their surviving dependents (pension payments and compensation for non-­competition) amounted to € 11,850 thousand in 2016 (2015: € 11,908 thousand). Pension provisions totaling € 143,073 thousand exist for the pension entitlements of this group of persons (2015: € 111,812 thousand).

Features of the compensation system as of January 1, 2017

Within the scope of regularly reviewing the appropriateness of the compensation and the compensation system of the Executive Board, the Personnel Committee of E. Merck KG identified a need for change. The changes will be implemented as of January 1, 2017 in order to conform with the new organizational positioning and even more with the principles of sustainable, performance-oriented corporate governance. The new compensation structure is based on the recommendation of an independent compensation consultant.

Variable compensation

In order to take the individual performance of Executive Board members better into account, in the future the Personnel Committee can adjust the variable compensation based on the three-year rolling average of profit after tax of the E. Merck Group by a discretionary factor in the range of 0.7 to 1.3.

Long-term variable compensation (Merck Long-Term Incentive Plan)

Under the Merck Long-Term Incentive Plan the members of the Executive Board continue to be potentially eligible in each fiscal year to receive a certain number of virtual shares – Merck Share Units (MSUs) – at the end of a three-year performance cycle. The number of MSUs that could be received continues to depend on the total value defined for the respective person and the average closing price of Merck shares in Xetra®trading during the last 60 trading days prior to January 1 of the respective fiscal year (reference price).

In the future, the Merck Long-Term Incentive Plan will be modified as a further component of variable compensation. The number of key performance indicators (KPIs) will be increased by one to a total of three. The new KPIs with their respective weighting are:

a) the performance of the Merck share price compared with the performance of the DAX® with a weighting of 50%,

b) the development of the EBITDA pre margin during the performance cycle as a proportion of a defined target value with a weighting of 25%.

c) the development of organic sales growth of the Merck Group during the performance period as a proportion of a defined target value with a weighting of 25%.

Depending on the development of the KPIs, after the end of the respective performance period the members of the Executive Board are granted between 0% and 150% of the MSUs they could be eligible to receive.

Based on the MSUs granted, the members of the Executive Board receive a cash payment at a specified point in time in the year after the three-year performance cycle has ended. The value of a granted MSU corresponds to the average closing price of Merck shares in Xetra® trading during the last 60 trading days prior to January 1 after the end of the performance period. Since fiscal 2016, the payment amount has been reduced to twice the reference price.

In addition, the obligation to invest in Merck shares is decoupled from the Merck Long-Term Incentive Plan and being replaced in the future by a separate Share Ownership Guideline. This obligates the members of the Executive Board to invest 100% of their fixed annual compensation permanently in Merck shares. On account of his position as Chairman of the Executive Board, for Stefan Oschmann a higher amount of 200% of his fixed annual compensation applies.

Pension agreements

As of January 1, 2017, for the Executive Board members Kai ­Beckmann, Belén Garijo, and Marcus Kuhnert the individual contractual pension agreements will be changed from defined benefit to defined contribution pension agreements. Within the scope of these defined contribution agreements, a certain pension contribution is paid annually into an internal benefit account and interest is paid on this at standard market interest rates. Once the respective Executive Board members reach the contractually agreed age limit, the amount in the benefit account is paid out either in ten annual installments or optionally in the form of a one-time payment. In the event of permanent disability or death, the amount in the benefit account, which may be topped up, is disbursed as a one-time payment. In addition, the vested amount from the former defined benefit pension agreement is credited to the benefit account.

Due to already existing pension agreements and many years of service with the company, there will be no such change to the pension agreements of Stefan Oschmann and Walter Galinat, respectively.

Information in accordance with the requirements of the German Corporate Governance Code

In accordance with the requirements of the German Corporate Governance Code, the following tables present the compensation granted for 2016, including additional benefits and the achievable minimum and maximum values of the variable compensation components, as well as the allocation of the respective compensation components for fiscal 2016.

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Benefits granted during the fiscal year

  Stefan Oschmann Karl-Ludwig Kley Walter Galinat Belén Garijo Lopez
  Executive Board Chairman Executive Board member Executive Board member Executive Board member
    Left on: August 31, 2016 Joined on: April 30, 2016  
Benefits granted 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand)
Fixed compensation 1,200 1,267 1,267 1,267 1,300 867 867 867 533 533 533 1,000 1,067 1,067 1,067
Additional benefits 25 24 24 24 148 14 14 14 50 50 50 6 6 6 6
Total 1,225 1,291 1,291 1,291 1,448 881 881 881 583 583 583 1,006 1,073 1,073 1,073
Short-term variable compensation 4,161 3,278 3,700 4,464 2,756 8,000 1,098 2,200 3,411 2,683 3,000
Long-term variable compensation                                
LTI 2015 (Jan. 1, 2015 – Dec. 31, 2017) 1,316 1,974 1,316
LTI 2016 (Jan. 1, 2016 – Dec. 31, 2018) - 1,549 5,638 1,162 4,500 891 3,300 1,316 4,675
Total 6,702 6,118 1,291 10,629 7,886 4,799 881 13,381 2,572 583 6,083 5,733 5,072 1,073 8,748
Current service cost 1 953 852 852 852 1,607 157 157 157 672 688 688 688
Total compensation 7,655 6,970 2,143 11,481 9,493 4,799 881 13,381 2,729 740 6,240 6,405 5,760 1,761 9,436
1
For 2016, in addition to the current service costs for Stefan Oschmann amounting to € 852 thousand, there are past service costs of € 3,506 thousand (total service cost: € 4,358 thousand)due to the increase in the pensionable compensation and percentage entitlement in connection with his appointment as Chairman of the Executive Board.
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  Udit Batra Kai Beckmann Marcus Kuhnert Bernd Reckmann
  Executive Board member Executive Board member Executive Board member Executive Board member
  Joined on: April 30, 2016     Left on: April 29, 2016
Benefits granted 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2016 (min.) (€ thousand) 2016 (max.) (€ thousand)
Fixed compensation 667 667 667 1,000 1,000 1,000 1,000 800 800 800 800 1,200 400 400 400
Additional benefits 4 4 4 25 31 31 31 20 20 20 20 28 17 17 17
Total 671 671 671 1,025 1,031 1,031 1,031 820 820 820 820 1,228 417 417 417
Short-term variable compensation 1 1,398 2,800 3,411 2,238 2,400 2,411 1,956 2,200 4,411 1,353 6,000
Long-term variable compensation                                
LTI 2015 (Jan. 1, 2015 – Dec. 31, 2017) - 1,316 - 1,316 - 1,316
LTI 2016 (Jan. 1, 2016 – Dec. 31, 2018) 1,316 4,263 1,107 3,575 1,022 3,300 774 3,000
Total 3,385 671 7,734 5,752 4,376 1,031 7,006 4,547 3,798 820 6,320 6,955 2,544 417 9,417
Current service cost 254 254 254 230 205 205 205 353 315 315 315 375 346 346 346
Total compensation 3,639 925 7,988 5,982 4,581 1,236 7,211 4,900 4,113 1,135 6,635 7,330 2,890 763 9,763
1
1 The one-time payment 2015 granted to Bernd Reckmann is included in the variable compensation components for 2015.
33.5 KB EXCEL

Allocation for the year under review

Stefan Oschmann Karl-Ludwig Kley Udit Batra
Executive Board Chairman Executive Board member Executive Board member
Left on: August 31, 2016 Joined on: April 30, 2016
Allocation 2015 (€ thousand) 2016 (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2015 (€ thousand) 2016 (€ thousand)
Fixed compensation 1,200 1,267 1,300 867 667
Additional benefits 25 24 148 14 4
Total 1,225 1,291 1,448 881 671
Short-term variable compensation 4,161 3,278 4,464 2,756 1,398
Long-term variable compensation
LTI 2012 (Jan. 1, 2012 – Dec. 31, 2014) 3,043 4,565
LTI 2013 (Jan. 1, 2013 – Dec. 31, 2015) 2,290 3,435
Other
Total 8,429 6,859 10,477 7,072 2,069
Current service cost 1 953 852 1,607 254
Total compensation 9,382 7,711 12,084 7,072 2,323
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Kai Beckmann Walter Galinat Belén Garijo Lopez
Executive Board member Executive Board member Executive Board member
Joined on: April 30, 2016
Allocation 2015 (€ thousand) 2016 (€ thousand) 2015 (€ thousand) 2016 (€ thousand) 2015 (€ thousand) 2016 (€ thousand)
Fixed compensation 1,000 1,000 533 1,000 1,067
Additional benefits 25 31 50 6 6
Total 1,025 1,031 583 1,006 1,073
Short-term variable compensation 3,411 2,238 1,098 3,411 2,683
Long-term variable compensation            
LTI 2012 (Jan. 1, 2012 – Dec. 31, 2014) 3,043
LTI 2013 (Jan. 1, 2013 – Dec. 31, 2015) 2,290 292
Other
Total 7,479 5,559 1,681 4,417 4,048
Current service cost 230 205 157 672 688
Total compensation 7,709 5,764 1,838 5,089 4,736
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  Marcus Kuhnert Bernd Reckmann Matthias Zachert 3
Executive Board member Executive Board member Executive Board member
    Left on: April 29, 2016  
Allocation 2015
(€ thousand)
2016
(€ thousand)
2015
(€ thousand)
2016
(€ thousand)
2015
(€ thousand)
2016
(€ thousand)
Fixed compensation 800 800 1,200 400
Additional benefits 20 20 28 17
Total 820 820 1,228 417
Short-term variable compensation 2 2,411 1,956 4,411 1,353
Long-term variable compensation            
LTI 2012 (Jan. 1, 2012 – Dec. 31, 2014) 3,043 2,280
LTI 2013 (Jan. 1, 2013 – Dec. 31, 2015) 2,290
Other
Total 3,231 2,776 8,682 4,060 2,280
Current service cost 353 315 375 346
Total compensation 3,584 3,091 9,057 4,406 2,280
1
For 2016, in addition to the current service costs for Stefan Oschmann amounting to € 852 thousand, there are past service costs of € 3,506 thousand (total service cost: € 4,358 thousand) due to the increase in the pensionable compensation and percentage entitlement in connection with his appointment as Chairman of the Executive Board.
2
The one-time payment for 2015 granted to Bernd Reckmann is included in the variable compensation component for 2015.
3
Matthias Zachert left the Executive Board on March 31, 2014.

Compensation of the Supervisory Board members of Merck KGaA

The compensation of the Supervisory Board members is defined by Article 20 of the Articles of Association of Merck KGaA. The members of the Supervisory Board receive fixed compensation of € 47,000 per year. The Chairman receives double this amount and the Vice Chairman receives one and a half times this amount. In addition, the members receive additional compensation of € 750 per meeting.

The individual values are presented in the following table:

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  Fixed compensation Compensation for
meeting attendance
Total compensation
2016 2015 2016 2015 2016 2015
Wolfgang Büchele
(Chairman)
94,000.00 94,000.00 3,000.00 3,750.00 97,000.00 97,750.00
Michael Fletterich
(Vice Chairman)
70,500.00 70,500.00 3,000.00 3,750.00 73,500.00 74,250.00
Crocifissa Attardo 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Mechthild Auge 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Gabriele Eismann 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Edeltraud Glänzer 47,000.00 47,000.00 3,000.00 2,250.00 50,000.00 49,250.00
Michaela Freifrau von Glenck 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Siegfried Karjetta 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Albrecht Merck 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Dietmar Oeter 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Alexander Putz 47,000.00 47,000.00 2,250.00 3,750.00 49,250.00 50,750.00
Helga Rübsamen-Schaeff 47,000.00 47,000.00 2,250.00 3,750.00 49,250.00 50,750.00
Karl-Heinz Scheider1 23,500.00 47,000.00 1,500.00 3,750.00 25,000.00 50,750.00
Gregor Schulz 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Theo Siegert 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Tobias Thelen 47,000.00 47,000.00 3,000.00 3,750.00 50,000.00 50,750.00
Veit Ulshöfer2 23,500.00 1,500.00 25,000.00
Total 822,500.00 822,500.00 46,500.00 58,500.00 869,000.00 881,000.00
1
Until June 30, 2016.
2
Since July 1, 2016.
As a member of corporate bodies of E. Merck KG, Wolfgang Büchele received an additional payment of € 140,000 for performing this function in 2016 (2015: € 140,000).
As a member of corporate bodies of E. Merck KG, Michaela Freifrau von Glenck received an additional payment of € 80,000 for performing this function in 2016 (2015: € 80,000).
As a member of corporate bodies of E. Merck KG, Siegfried Karjetta received an additional payment of € 140,000 for performing this function in 2016 (2015: € 140,000).
As a member of corporate bodies of E. Merck KG, Albrecht Merck received an additional payment of € 120,000 for performing this function in 2016 (2015: € 120,000).
As a member of corporate bodies of E. Merck KG, Helga Rübsamen-Schaeff received an additional payment of € 150,000 for performing this function in 2016 (2015: € 150,000).
As a member of corporate bodies of E. Merck KG, Gregor Schulz received an additional payment of € 140,000 for performing this function in 2016 (2015: € 140,000).
As a member of corporate bodies of E. Merck KG, Theo Siegert received an additional payment of € 150,000 for performing this function in 2016 (2015: € 150,000).
As a member of corporate bodies of E. Merck KG, Tobias Thelen received an additional payment of € 140,000 for performing this function in 2016 (2015: € 140,000).

Ownership, purchase or sale of shares in the company by members of the Executive Board and of the Supervisory Board

As of December 31, 2016, the members of the Executive Board and of the Supervisory Board either directly or indirectly held 114,447 shares of Merck KGaA. Their total ownership represents less than 1% of the issued shares of Merck KGaA. Transactions executed by members of the Executive Board and of the Supervisory Board are disclosed on the Merck website at www.merckgroup.com Investors Corporate Governance Directors’ Dealings.

Information on corporate governance practices

Reporting

It is Merck KGaA’s objective to provide the latest information to all shareholders, media, financial analysts and interested members of the public, while creating the greatest possible transparency. For this reason, Merck uses a wide range of communication platforms to engage in a timely dialogue with all interested parties about the situation of the company and business changes. Merck’s principles include providing factually correct, comprehensive and fair information.

Information subject to disclosure requirements, as well as information that is not, can be accessed worldwide on the Merck KGaA website (www.merckgroup.com), which is the company’s most important publication platform. Apart from a detailed financial calendar, quarterly statements and/or quarterly and half-year financial reports covering the past three years are available here in German and English. In addition, in line with the legal requirements, ad hoc announcements are published on the website. These contain information on circumstances and facts that could impact the Merck share price.

Regular press conferences, investor meetings on the occasion of investor conferences as well as road shows offer another platform for dialogue. The company presentations prepared for this purpose are also available on the Merck KGaA website. In addition, the Investor Relations team is always available to private and institutional investors who wish to receive further information.

To ensure the greatest possible transparency, all documents concerning the General Meeting are available on the company website. Additionally, some parts of the General Meeting are webcast live on the Internet.

Dealing with insider information

Dealing properly with insider information is very important to us. Our insider committee examines the existence of insider information, ensures compliance with legal obligations and prepares any necessary measures. The members of the insider committee are appointed by the Executive Board; at least two members work in Group Legal & Compliance. The insider committee meets at regular intervals, yet also meets when circumstances require. The Chief Financial Officer is vested with the authority to make the final decision on handling potential insider information.

In order to ensure a high level of protection for insider information, in 2011 the Executive Board issued internal insider guidelines applicable throughout the Merck Group worldwide. The guidelines inform employees about their responsibilities under insider trading laws and give clear instructions for compliant behavior. In addition, they describe the function of the insider committee in detail. Moreover, our Code of Conduct, which is binding on all employees, also contains an explicit, detailed reference to the ban on using insider information. Within the scope of obligatory training courses on the Code of Conduct as well as specific training courses on insider law, all employees are instructed on the stipulations of insider trading.

Accounting and audits of financial statements

Merck KGaA prepares its consolidated financial statements and combined management report in accordance with International Financial Reporting Standards (IFRS), as applicable in the EU, as well as the supplementary rules applicable under section 315a (1) of the German Commercial Code (HGB) and as stipulated by our Articles of Association. The consolidated financial statements and the combined management report are prepared by the Executive Board and examined by an auditor, taking into account the generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer – IDW).

The Supervisory Board commissioned KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, to audit the consolidated financial statements and the combined management report for 2016. Moreover, the Supervisory Board agreed with KPMG AG Wirtschafts­prüfungs­gesellschaft, Berlin, that the auditor shall inform the Supervisory Board without delay of any grounds for disqualification or bias occurring during the audit if these cannot be immediately rectified. Additionally, the auditor shall immediately report to the Supervisory Board any findings and issues which emerge during the audit that have a direct bearing upon the tasks of the Supervisory Board. The auditor shall inform the Supervisory Board or note in the audit report any circumstances determined during the audit that would render inaccurate the Declaration of Conformity made by the Executive Board and the Supervisory Board. It has also been agreed with the auditor that in order to assess whether the Executive Board has fulfilled its obligations in accordance with section 91 (2) AktG, the audit will also cover the company’s early warning risk identification system. Moreover, the auditor is required to examine and evaluate the accounting-relevant internal control system insofar as this is necessary and appropriate for assessing the accuracy of financial reporting.

Since 1995, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, has been the audit firm for the statutory audit of the annual financial statements and consolidated financial statements of Merck KGaA. The auditor responsible for auditing the consolidated financial statements changes regularly in accordance with the statutory requirements. Bodo Rackwitz is currently leading the audit engagement and has been the auditor in charge of the engagement since fiscal 2015. The Supervisory Board had KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, provide a statement regarding the scope of the business, financial, personal, and other relationships between KPMG AG, its bodies and head auditors, and Merck KGaA, its Group companies and the members of their bodies (independence declaration). The statement also covers the scope of the services provided by KPMG AG in the previous fiscal year as well as the services (other than auditing services) that are contracted for the upcoming year (especially consultancy services) for Merck KGaA and its subsidiaries. Having examined the declaration, the Supervisory Board has found no grounds to doubt the independence of KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin. Neither party identified any conflicts of interest.

Values and compliance

Based on a corporate culture that places the fundamental company values – courage, achievement, responsibility, respect, integrity and transparency – at the center of our entrepreneurial actions, the Code of Conduct helps those involved in the business process to implement the values when dealing with one another on a daily basis.

With its Code of Conduct, Merck has established a set of rules and regulations intended to help our employees to act responsibly and to make the right decisions in their daily work.

The Code of Conduct explains the principles for dealings with business associates, general partners, colleagues and employees, as well as the communities in which we operate. Thus, it supports all employees in acting ethically – not only in their dealings with one another, but also outside the company. The Code of Conduct is thus the main set of rules of our compliance program.

To Merck, compliance means observing legal and company internal regulations and the basic ethical principles anchored in the company values. With the Code of Conduct and the various unit-specific ethical compliance rules, the values are integrated into daily work and business practice. The Code of Conduct is binding on all employees, both at headquarters and in the subsidiaries. We also expect our business associates worldwide to follow our principles. While supplier management ensures compliant behavior of suppliers, global business partner risk management organizes the relations with sales-related business associates such as distributors and wholesalers. The Compliance Office monitors observance of the Code of Conduct with support from corresponding monitoring and training programs throughout the Group. All employees are called upon to report compliance violations to their supervisor, Legal, HR or other relevant departments. Merck created the position of Group Compliance Officer in 2002. This employee is responsible for setting up, maintaining and further developing our global compliance program. By taking appropriate measures, the Group Compliance Officer and his team, including regional compliance officers, help to lower the risk of serious legal violations of, for instance, anti-trust law, anticorruption rules, or legal regulations and requirements of industry codes in the healthcare sector.

In 2014, we began appointing compliance officers for the various business sectors. In particular, they are responsible for business-specific compliance input. A further focal area of the Compliance program is ensuring legally and ethically correct dealings with medical professionals and adhering to the transparency requirements. Since October 2013, the Group Compliance Officer has agreed extensive measures with the affected areas of the company in order to establish an internal framework of rules as well as the corresponding approval and documentation processes that ensure correct publication. We of course also ensure compliance with the respectively valid data protection regulations.

The role of the Group Compliance Officer is reflected in the subsidiaries, which ensure via country representatives that compliance measures are implemented in the countries. Since 2013, Compliance tasks in the countries and on a regional basis have largely been performed by full-time compliance officers. As a result, a higher level of compliance expertise is based locally and the increasing tasks in all business sectors are taken into account. At the same time, the management structure was streamlined and the reporting lines for the countries were consolidated regionally. Since the end of 2016, the compliance officers in the countries have been reporting to the dedicated compliance officers for the respective business sectors (Healthcare, Life Science and Performance Materials). A separate responsibility was also created for Group functions. Regular regional compliance meetings are held to promote the exchange of information within the Compliance organization. Newcomer training seminars were introduced in 2010 for newly appointed compliance officers. These seminars serve to build up compliance expertise and strengthen cooperation within the Compliance organization. This Group-wide network is used to steer the global compliance program. Within the Group Compliance function in Darmstadt, a team is occupied with continuously further developing the compliance program and shaping company-internal compliance projects. From 2014 to 2016, a focus of the Compliance organization’s activities was on integrating the AZ Electronic Materials and Sigma-Aldrich companies into our compliance management.

Within the scope of the global compliance program, a high degree of importance is attached to regular compliance seminars of the Merck Compliance Training Plan, which are conducted as Web-­based training courses and classroom sessions. By presenting various training topics, particularly on the Code of Conduct, corruption, antitrust and competition law as well as healthcare compliance, they serve to sensitize employees and management to the consequences of compliance violations and to show ways of avoiding them. Since Merck set up a central SpeakUp line, employees and certain business partners have been able to report compliance violations by telephone or via a Web-based application in their respective national language. The SpeakUp line is available 24 hours a day, free of charge. Case numbers enable anonymous, two-way communication. The reports received are individually reviewed. If a compliance violation exists, corresponding corrective action is taken based on concrete action plans. If necessary, disciplinary measures are taken. These can range from a simple warning up to the dismissal of the employee who violated a compliance rule. In 2010, Merck set up a Compliance Case Committee to guide these processes. The Compliance Case Committee consists of members from various Group functions; they are involved in reviewing compliance violations and introducing countermeasures. The joint work in the Compliance Case Committee enables processes between the various Group functions to be optimally coordinated and designed efficiently.

Further significant elements of the Compliance program include requirements on locally identifying and assessing risks and reporting these, both within the subsidiary abroad and to the Group functions. Group Compliance regularly reviews and assesses the implementation status of the Compliance program at the subsidiaries abroad. In cooperation with Group Internal Auditing, the Compliance Office regularly reviews the implementation of Group-wide compliance measures at the subsidiaries abroad. The audits regularly focus on the local compliance structure, the compliance measures taken, as well as the existence of corresponding compliance guidelines and processes.

The Compliance Office reports regularly to the Executive Board and the Supervisory Board, informing them of the status of compliance activities (including training status), compliance risks and serious compliance violations.

The Executive Board informs the supervisory bodies at least once a year about the key compliance issues.

Risk and opportunity management

The Executive Board, the Supervisory Board and the Finance Committee are regularly informed about the current risk portfolio of the Group and the individual companies. More detailed information can be found in the Report on Risks and Opportunities on page 127.

Avoidance of conflicts of interest

Within the framework of their work, all Executive Board and Supervisory Board members of Merck KGaA are exclusively committed to the interests of the company and neither pursue personal interests nor grant unjustified advantages to third parties.

Before an Executive Board member takes on honorary offices, board positions or other sideline activities, this must be approved by the Personnel Committee of the Board of Partners of E. Merck KG. The Chairman of the Executive Board, Stefan Oschmann, and the Chief Financial Officer, Marcus Kuhnert, are both members of the Executive Board of E. Merck KG. This does not, however, create conflicts of interest.

In its report to the General Meeting, the Supervisory Board discloses any conflicts of interest involving its members and how they were dealt with. Consultancy agreements as well as other service and work contracts of a Supervisory Board member with Merck require the approval of the Supervisory Board. In fiscal 2016, there were neither conflicts of interest nor consultancy agreements or other service or work contracts with Merck KGaA involving Supervisory Board members.

Adherence to environmental and safety standards

At Merck, closed-loop thinking guides the way in which we address environmental concerns and environmental protection issues. To this end, we integrate precautionary measures into our planning processes. Our Environment, Health and Safety Policy with its principles and strategies implements the guide­lines formulated by the national and international associations of the chemical industry in the Responsible Care guidelines. The Responsible Care Global Charter developed by the International Council of Chemical Associations (ICCA) in 2006 puts even more emphasis than before on overall responsibility for products, supply chains and the community. Merck signed this expanded version of Responsible Care for the entire Group in February 2007. In addition, Merck was one of the first companies in 2014 to sign the new version of the Responsible Care Global Charter, which is currently being rolled out by Merck internationally. We report our ecological, economic and social performance transparently in accordance with the internationally recognized principles of the Global Reporting Initiative (GRI), taking into account the requirements of the German Sustainability Code and the principles of the UN Global Compact.

One of our major climate protection objectives is to achieve a 20% reduction in our greenhouse gas emissions by 2020 measured against the 2006 baseline.

Many guidelines specify how the sites and employees of the Merck Group are to observe the principles in their daily work. The Group function Environment, Health, Safety, Security & Quality steers these global activities and ensures compliance with regulatory requirements, standards and business needs throughout the entire Group. In this way, Group-wide risks are minimized and continuous improvement is promoted in the areas of Environment, Health, Safety, Security and Quality. Corporate Responsibility reports are also published at regular intervals.

Procedures of the Executive Board, Supervisory Board, Board of Partners and its Committees

Members of the Executive Board of Merck KGaA

Information on memberships of statutory supervisory boards and comparable German and foreign supervisory bodies (section 285 No. 10 HGB in conjunction with section 125 (1) sentence 5 AktG).

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Member Memberships of
(a) statutory supervisory boards and
(b) comparable German and foreign supervisory bodies of corporations
Stefan Oschmann
Munich, Chairman (since April 30, 2016;
Vice Chairman until April 29, 2016)
no board positions
Karl-Ludwig Kley
Darmstadt, Chairman (until April 29, 2016;
member of the Executive Board until August 31, 2016)
(a)
– Bertelsmann SE & Co. KGaA, Gütersloh (until May 2016)
– Bertelsmann Management SE, Gütersloh (until May 2016)
BMW AG, Munich (Vice Chairman)
– Deutsche Lufthansa AG, Cologne
– E.ON SE, Essen (since June 8, 2016)
(b)
– Verizon Communications Inc., Wilmington, Delaware (USA)
Udit Batra
Wellesley, Massachusetts, (USA), CEO Life Science (since April 30, 2016)
(b)
EMD Millipore Corporation, Billerica, Massachusetts, (USA)
Kai Beckmann
Darmstadt, Chief Administration Officer
(a)
– Bundesdruckerei GmbH, Berlin (since April 28, 2016)
Walter Galinat
Eppertshausen, CEO Performance Materials (since April 30, 2016)
no board positions
Belén Garijo Lopez
Frankfurt am Main, CEO ­Healthcare
(b)
Banco Bilbao Vizcaya Argentaria S. A., Bilbao, Spain
– L’Oréal S.A., Clichy, France
Marcus Kuhnert
Königstein im Taunus, Chief Financial Officer
no board positions
Bernd Reckmann
Seeheim­-Jugenheim, CEO Life Science and Performance Materials (until April 29, 2016)
(a)
Zschimmer & Schwarz GmbH & Co KG Chemische Fabriken, ­Lahnstein

The general partners with no equity interest (Executive Board) manage the business activities in accordance with the laws, the Articles of Association and the rules of procedure. They are appointed by E. Merck KG in accordance with the consent of a simple majority of the other general partners. The members of the Executive Board are jointly responsible for the entire management of the company. Certain tasks are assigned to individual Executive Board members based on a responsibility distribution plan. Each Executive Board member promptly informs the other members of any important actions or operations in his respective business area. The Executive Board is responsible for preparing the annual financial statements of Merck KGaA and of the Merck Group as well as for approving the quarterly and half-year financial statements of the Merck Group. In addition, the Executive Board ensures that all legal provisions, official regulations and the company’s internal policies are abided by, and works to achieve compliance with them by all the companies of the Merck Group. A Group-wide guideline defines in detail which transactions require prior Executive Board approval.

The Executive Board provides the Supervisory Board with regular, up-to-date and comprehensive reports about all company-­relevant issues concerning strategy, planning, business developments, the risk situation, risk management and compliance. The rules of procedure of the Executive Board and of the Supervisory Board as well as a Supervisory Board resolution regulate further details on the information and reporting duties of the Executive Board vis-à-vis the Supervisory Board.

The Executive Board informs the Board of Partners and the Supervisory Board at least quarterly of the progress of business and the situation of the company. In addition, the Executive Board informs the aforementioned boards at least annually of the company’s annual plans and strategic considerations.

The Executive Board passes its resolutions in meetings that are normally held twice a month.

Supervisory Board

32.5 KB EXCEL
Member Memberships of
(a) other statutory supervisory boards and
(b) comparable German and foreign supervisory bodies of corporations
Wolfgang Büchele Munich, Chairman of the Supervisory Board of Merck KGaA b)
– E. ­Merck KG, Darmstadt1
– Kemira Oyj, Helsinki, Finland
Michael Fletterich Gernsheim, Chairman of the Works Council of ­Merck KGaA Darmstadt / ­Gernsheim, Vice Chairman no board positions
Crocifissa Attardo Darmstadt, Full-time member of the Works Council of ­Merck KGaA Darmstadt / Gernsheim b)
BKK ­­Merck
Mechthild Auge Wehrheim, Full-time member of the Works Council of Merck KGaA Darmstadt / Gernsheim no board positions
Gabriele Eismann Seeheim-Jugenheim, Senior Operational Product Manager no board positions
Edeltraud Glänzer Hannover, Vice Chairperson of IG Bergbau, Chemie, Energie (IG BCE), Hannover (a)
– B. Braun Melsungen AG, Melsungen
– Solvay Deutschland GmbH, Hannover
(Vice Chairperson) (until October 15, 2016)
Evonik Industries AG, Essen (Vice Chairperson) (since May 19, 2016)
Michaela Freifrau von Glenck Zurich, Switzerland, Retired teacher no board positions
Siegfried Karjetta2 Darmstadt, Physician (b)
– E. ­­Merck KG, Darmstadt1
Albrecht ­­Merck Schriesheim, Commercial Director of the Castel Peter Winery, Bad Dürkheim (b)
– E. ­­Merck KG, Darmstadt1
Dietmar Oeter Seeheim-Jugenheim, Vice President Corporate Quality Assurance no board positions
Alexander Putz Michelstadt, Full-time member of the Works Council of ­ Merck KGaA Darmstadt / Gernsheim no board positions
Helga Rübsamen-Schaeff Langenburg, Chairperson of the Advisory Board of AiCuris Anti-infective Cures GmbH, Wuppertal (a)
– 4SC AG, Martinsried
– Supervisory Board of Bonn University Hospital
(b)
– E. ­­Merck KG, Darmstadt1
Karl-Heinz Scheider Gross-Zimmern, Retiree (until June 30, 2016) no board positions
Gregor Schulz Umkirch, Pediatrician (b)
– E. ­­Merck KG, Darmstadt1
Theo Siegert Düsseldorf, Managing Partner of de Haen-Carstanjen & Söhne, ­Düsseldorf (a)
– E.ON SE, Düsseldorf
– Henkel AG & Co KGaA, Düsseldorf
(b)
– E. ­Merck KG, Darmstadt1
DKSH Holding Ltd., Zurich, Switzerland
Tobias Thelen2 Munich, Managing Partner of Altmann Analytik GmbH & Co. KG, Munich (b)
– E. ­Merck KG, Darmstadt1
Veit Ulshöfer Sachsenheim, Global Head of Research and Bioinformatics (since July 1, 2016) no board positions
1
Internal board position.
2
Members appointed according to Article 6 (5) of the Articles of Association.

The Supervisory Board performs a monitoring function. It supervises the management of the company by the Executive Board. In comparison with the supervisory board of a German stock corporation, the role of the supervisory board of a corporation with general partners (KGaA) is limited. This is due to the fact that the members of the Executive Board are personally liable partners and therefore are themselves responsible for the management of the company. In particular, the Supervisory Board is not responsible for appointing and dismissing general partners or for regulating the terms and conditions of their contracts. This is the responsibility of E. Merck KG. Nor does the Supervisory Board have the authority to issue rules of procedure for the Executive Board or a catalogue of business transactions requiring approval. This authority likewise belongs to E. Merck KG (Article 13 (3) sentence 1 and (4) sentence 1 of the Articles of Association). However, the fact that the Supervisory Board has no possibilities to directly influence the Executive Board restricts neither its information rights nor audit duties.

The Supervisory Board must monitor the Executive Board in terms of legality, regularity, usefulness, and economic efficiency. In particular, the Supervisory Board has the duty to examine the reports provided by the Executive Board. This includes regular reports on the intended business policy, as well as other fundamental issues pertaining to corporate planning, especially financial, investment and HR planning; the profitability of the Merck Group; the progress of business; the risk situation; risk management (including compliance); and the internal auditing system. In addition, by means of consultation with the Executive Board, it creates the basis for supervision of the management of the company by the Supervisory Board according to section 111 (1) of the German Stock Corporation Act (AktG).

The Supervisory Board examines the annual financial statements as well as the consolidated financial statements and the combined management report, taking into account in each case the reports of the auditor. Moreover, the Supervisory Board discusses the quarterly releases and the half-year financial report, taking into account in the latter case the report of the auditor on the audit review of the abridged financial statements and the interim management report of the Group. The adoption of the annual financial statements is not the responsibility of the Supervisory Board, but of the General Meeting. The Supervisory Board normally meets four times a year. Further meetings may be convened if requested by a member of either the Supervisory Board or the Executive Board. As a rule, resolutions of the Supervisory Board are passed at meetings. At the instruction of the chairman, in exceptional cases a resolution may be passed by other means, details of which are given in the rules of procedure.

The members of the Board of Partners of E. Merck KG and of the Supervisory Board may be convened to a joint meeting if so agreed by the chairmen of the two boards.

The rules of procedure prescribe that the Supervisory Board may form committees as and when necessary. The Supervisory Board has formed a Nomination Committee comprising three shareholder representatives. Its members are Albrecht Merck, Wolfgang Büchele and Theo Siegert. The Nomination Committee is responsible for proposing to the Supervisory Board suit­able candidates for its proposal to the Annual General Meeting. Apart from legal requirements and the recommendations of the German Corporate Governance Code, the “Objectives of the Supervisory Board with respect to its composition” are to be taken into consideration as well. Owing to the aforementioned limited authority, and since a corresponding need has not yet arisen, the Supervisory Board currently has no further committees.

The German Stock Corporation Act prescribes that the Supervisory Board of a publicly listed company must have at least one independent member who has professional expertise in accounting or auditing. Theo Siegert satisfies these requirements and is furthermore the Chairman of the Finance Committee of the Board of Partners of E. Merck KG.

Board of Partners of E. Merck KG

Some of the responsibilities that lie with the supervisory board of a German stock corporation are fulfilled at Merck by E. Merck KG. This applies primarily to the Board of Partners of E. Merck KG. Therefore, the Board of Partners and the composition and procedures of its committees are described in the following.

The Board of Partners has nine members.

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Member Memberships of
(a) other statutory supervisory boards and
(b) comparable German and foreign supervisory bodies of corporations
Johannes Baillou
Vienna, Austria, Vice Chairman of the Executive Board and General Partner of E. ­Merck KG, Chairman
no board positions
Frank Stangenberg-Haverkamp
Darmstadt, Chairman of the Executive Board and General Partner of E. ­Merck KG, Vice Chairman
(a)
– ­Fortas AG, Rösrath (Chairman)
(b)
– ­Oras Invest Ltd, Helsinki, Finland
– Travel Asset Group Ltd., London, United Kingdom (Chairman)
Wolfgang Büchele
Munich, Chairman of the Supervisory Board of Merck KGaA
(a)
– ­­Merck KGaA, Darmstadt
(b)
– ­Kemira Oyj, Helsinki, Finland
Siegfried Karjetta
Darmstadt, Physician
(a)
– ­­Merck KGaA, Darmstadt
Albrecht ­­Merck
Schriesheim, Commercial Director of the Castel Peter Winery, Bad Dürkheim
(a)
– ­­Merck KGaA, Darmstadt
Helga Rübsamen-Schaeff
Langenburg, Chairperson of the Advisory Board of
AiCuris Anti-infective Cures GmbH, Wuppertal
(a)
– ­­Merck KGaA, Darmstadt
– ­4SC AG, Martinsried
– ­Supervisory Board of Bonn University Hospital
Gregor Schulz
Umkirch, Pediatrician
(a)
– ­­Merck KGaA, Darmstadt
Theo Siegert
Düsseldorf, Managing Partner of
de Haen-Carstanjen & Söhne, Düsseldorf
(a)
– ­Merck KGaA, Darmstadt
– E.ON SE, Düsseldorf
– Henkel AG & Co KGaA, Düsseldorf
(b)
DKSH Holding Ltd., Zurich, Switzerland
Tobias Thelen
Munich, Managing Partner of
Altmann Analytik GmbH & Co. KG, Munich
(a)
– ­­Merck KGaA, Darmstadt

The Board of Partners supervises the Executive Board in its management of the company. It informs itself about the business matters of Merck KGaA, and may inspect and examine the company’s accounts and other business documents, and the assets for this purpose. According to Article 13 (4) of the Articles of Association of Merck KGaA, the Executive Board requires the approval of E. Merck KG for transactions that are beyond the scope of the Group’s ordinary business activities. For such transactions to be approved, approval must first be obtained from the Board of Partners of E. Merck KG. The Board of Partners convenes as and when necessary; however, it meets at least four times a year. The members of the Executive Board of Merck KGaA are invited to all meetings of the Board of Partners, unless the Board of Partners resolves otherwise in individual cases. The members of the Board of Partners may convene a joint meeting with the Supervisory Board of Merck KGaA if so agreed by the chairmen of the two boards.

The Board of Partners may confer the responsibility for individual duties to committees. Currently the Board of Partners has three committees in place: the Personnel Committee, the Finance Committee, and the Research and Development Committee.

Personnel Committee

The Personnel Committee has four members. These are Johannes Baillou (Chairman), Wolfgang Büchele, Theo Siegert, and Frank Stangenberg-Haverkamp.

The Personnel Committee meets at least twice a year. Further meetings are convened as and when necessary. Meetings of the Personnel Committee are attended by the Chairman of the Executive Board of Merck KGaA unless the Committee decides otherwise.

The Personnel Committee is responsible for, among other things, the following decisions concerning members and former members of the Executive Board: contents of and entry into employment contracts and pension contracts, granting of loans and advance payments, changes to the compensation structure and adaptation of compensation, approval for taking on honorary offices, board positions and other sideline activities, as well as division of responsibilities within the Executive Board of Merck KGaA. The Personnel Committee passes its resolutions by a simple majority – in matters concerning the Chairman of the Executive Board unanimity is required. The Chairman of the Committee regularly informs the Board of Partners of its activities.

Finance Committee

The Finance Committee has four members. These are Theo Siegert (Chairman), Johannes Baillou, Wolfgang Büchele, and Tobias Thelen.

The Finance Committee holds at least four meetings a year, at least one of which is a joint meeting with the auditor of Merck KGaA. Further meetings are convened as and when necessary. Meetings of the Finance Committee are attended by the Chief Financial Officer of Merck KGaA. Other members of the Executive Board of Merck KGaA may attend the meetings upon request by the Finance Committee. These meetings regularly include the Chairman of the Executive Board.

The Finance Committee is responsible for, among other things, analyzing and discussing the annual financial statements, the consolidated financial statements and the respective reports of the auditor, as well as the half-year financial report (including the report of the auditors for the audit review of the abridged financial statements and interim management report contained in the half-year report) and the quarterly reports. Moreover, the Finance Committee recommends to the Chair­man of the Supervisory Board annual audit focuses for the auditors of the annual financial statements. It also recommends to the Supervisory Board an auditor for the annual financial statements as well as auditors for the audit review of the abridged financial statements and interim management report contained in the half-year financial report for the Supervisory Board’s corresponding suggestion to the General Meeting. In addition, the Finance Committee is concerned with the net assets, financial position, results of operations and liquidity of Merck, as well as accounting, internal auditing, risk management and compliance issues. Upon request of the Board of Partners, the Finance Committee examines investment projects that must be approved by the Board of Partners and provides recommendations pertaining thereto. It passes its resolutions with a simple majority. The Committee Chairman regularly informs the Board of Partners of the activities of the Finance Committee.

Research and Development Committee

The Research and Development Committee has four members. These are Helga Rübsamen-Schaeff (Chairperson), Johannes ­Baillou, Siegfried Karjetta, and Gregor Schulz.

The Research and Development Committee is convened as and when necessary, but holds at least two meetings a year. Meetings of the Research and Development Committee are attended by members of the Executive Board of Merck KGaA upon request of the Committee. These meetings regularly include the Chairman of the Executive Board as well as the CEO Healthcare, the CEO Life Science and the CEO Performance Materials. The Research and Development Committee is responsible, among other things, for reviewing and discussing the research activities of the Healthcare, Life Science and Performance Materials business sectors. It passes its resolutions with a simple majority. The Chairperson of the Committee reports to the Board of Partners on the insights gained from the meetings held.

Stipulations to promote the percentage of management positions held by ­women pursuant to section 76 (4) and section 111 (5) AktG (German Stock Corporation Act)

Stipulations pursuant to section 76 (4) AktG (target for the percentage of positions held by women on the two upper management levels below the Executive Board)

We foster diversity within the company, which also includes ensuring a balance of genders in management. To this end, we pursue both voluntary and statutory objectives, and we work continuously and sustainably on achieving them.

For the implementation of the German “Law on equal participation of women and men in management positions” (section 76 (4) AktG), in September 2015 the Executive Board of Merck KGaA had set the target for the percentage of positions held by women on the first and second management levels below the Executive Board at 21% each. The targets corresponded to the status quo at that time. The deadline set for reaching the targets was December 31, 2016.

On December 31, 2016, the percentage of positions held by women on the first management level was actually 16% and on the second level 24%. The percentage for the first management level was thus below the target set. The lower percentage of positions held by women on the first management level was mainly due to personnel changes on the level of the Executive Board itself and the resulting change in the group of persons on the first management level, as well as to organizational changes (two women relocated to Merck sites outside Germany) and turnover (one woman left the company), which affected the number and percentage of management positions held by women on this level.

By contrast, at currently 24%, the percentage of positions held by women on the second management level significantly exceeded the target of 21% as a result of successful hirings / promotions of women. This creates a solid basis for future appointments on the first level.

On December 15, 2016, the Executive Board of Merck KGaA set the new targets for the percentage of positions held by women on the two management levels below the Executive Board as follows:

  • First management level below the Executive Board: 21% of positions held by women
  • Second management level below the Executive Board: 26% of positions held by women

The deadline set for reaching the new targets is December 31, 2021.

The first management level comprises all managers of Merck KGaA with a direct reporting line to the Executive Board of Merck KGaA or who belong to the global executive group. The second management level comprises all managers of Merck KGaA who report to managers with a direct reporting line to the Executive Board of Merck KGaA or the global executive group.

In addition, as a global company with correspondingly aligned global (leadership) structures, Merck continues to pursue a (voluntary) global target of 30% of management positions held by women (managers, experts and project managers in roles 4 and above*) by 2021.

Stipulations pursuant to section 111 (5) AktG (target for the percentage of positions on the Supervisory Board held by women)

Pursuant to section 111 (5) AktG, the Supervisory Board of companies that are listed or subject to co-determination stipulates binding targets for the percentage of positions on the Supervisory Board and on the Management Board held by women. However, for Merck KGaA, stipulations pursuant to section 111 (5) AktG need not be set for the following reasons:

The statutory target of 30% pursuant to section 96 (2) AktG is already applied on the Supervisory Board of Merck KGaA. This eliminates the obligation to stipulate a further target for the percentage of positions held by women on the Supervisory Board (see section 111 (5) sentence 5 AktG).

The obligation to stipulate a target for the percentage of positions held by women on the Management Board pursuant to section 111 (5) AktG is not applicable to the legal form of a corporation with general partners (Kommanditgesellschaft auf Aktien) as a corporation with general partners does not have a management board comparable to that of a stock corporation with personnel authority of the supervisory board, but has an executive board consisting of personally liable general partners (see also the description of Supervisory Board procedures).

* Merck is changing its employee grading from Global Grades to a role-based approach. The relevant group continues to represent approximately 6% of the entire workforce; see the section entitled “Unity in diversity” on page 86 et seq.).