Notice of Annual Meeting
of Shareholders

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.

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.

		Leslie A. Brun Independent Lead Director April 5, 2021

Contents

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

 

  

 

$13.6B		GAAP investment in R&D in 2020

 

Shareholder Value Creation

 

$7.5B		Capital Returned to Shareholders (dividends and share repurchases)

 

  

Total Shareholder Return⁽¹⁾

 

Year-End 2020
1-Year		3-Year
-7.2%		16.7%
5-Year
12.5%
(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

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

Kenneth C. Frazier Chairman and Chief Executive Officer(2)

+1.8%

No change

+$750,000

+4.3%

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

Robert M. Davis President and Former Chief Financial Officer(3)

+3.0

No change

No change

+1.1

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

Sanat Chattopadhyay Executive Vice President and President, Merck Manufacturing Division

+13.8

No change

+500,000

+18.8

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

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

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

Jennifer Zachary Executive Vice President, General Counsel and Corporate Secretary

+5.0

No change

+150,000

+5.8

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.

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)

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.

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:

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

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
		Leslie A. Brun Lead Director				68					2008			Chairman and Chief Executive Officer, Sarr Group, LLC
		Mary Ellen Coe				54					2019			President, Google Customer Solutions, Google Inc.
		Pamela J. Craig				64					2015			Former Chief Financial Officer, Accenture plc
		Kenneth C. Frazier Management				66					2011			Chairman and Chief Executive Officer, Merck & Co., Inc.(1)
		Thomas H. Glocer				61					2007			Former Chief Executive Officer, Thomson Reuters Corporation
		Risa J. Lavizzo-Mourey, M.D.				66					2020			Penn Integrates Knowledge Professor of Health Equity and Health Policy, University of Pennsylvania
		Stephen L. Mayo, Ph.D.				59					2021			Bren Professor of Biology and Chemistry, California Institute of Technology
		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
		Patricia F. Russo				68					1995			Chairman, Hewlett Packard Enterprise Company; Former Chief Executive Officer and Director, Alcatel-Lucent
		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
		Inge G. Thulin				67					2018			Former Chairman of the Board, President and Chief Executive Officer, 3M Company
		Kathy J. Warden				49					2020			Chairman, Chief Executive Officer and President, Northrop Grumman Corporation
		Peter C. Wendell				70					2003			Managing Director, Sierra Ventures
		Number of Meetings in 2020														9					5					4					3

  ^{Committee Chair}

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

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.

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.

Our Strategic Planning Cycle

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:

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 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.

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.

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.

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:

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.

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.

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:

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:

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.

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:

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.

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:

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.

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.

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.

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.

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

What We Heard		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.

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:

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 .

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.

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.

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.