MRK » Topics » Compensation Program Objectives and Strategy

This excerpt taken from the MRK DEF 14A filed Mar 13, 2009.

Compensation Program Objectives and Strategy

Objectives

Merck’s compensation and benefits programs are driven by Merck’s business environment and are designed to enable us to achieve our mission and adhere to Company values. The programs’ objectives are to:

 

   

Reflect and maintain Merck’s position as an industry leader in the development of innovative medicines;

 

   

Attract, engage, and retain a workforce that helps us achieve immediate and future success;

 

22


Table of Contents
   

Motivate and inspire employee behavior that fosters a high-performing culture through a lean and flexible business model;

 

   

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

 

   

Align the interests of our senior executives with those of our shareholders to ensure prudent short-term actions that will benefit the long-term value of the Company.

All of Merck’s compensation and benefits for its Named Executive Officers described below have as a primary purpose the Company’s need to attract, retain, and motivate highly talented individuals to lead the Company in achieving its mission while upholding our values in a highly competitive marketplace.

Strategy

Considering Merck’s mission of being a leader in discovering and bringing to market proven, innovative medicines that address unmet medical needs, it is critical to hire, engage and retain the best talent and thought leaders globally in academia and the pharmaceutical industry to leverage diverse experiences and cutting-edge thinking. Each compensation component has a specific purpose in meeting the Company’s program objectives described above.

 

   

Base salary and benefits are designed to provide our executives with fixed compensation and basic protections necessary to ensure a reasonable standard of living relative to that offered by competing organizations. This component serves to attract and retain high-quality executives over time and mitigates pressure that might otherwise exist to support high-risk business strategies.

 

   

Annual cash awards under the stockholder-approved Executive Incentive Plan (“EIP”) are designed to focus employees on the objectives identified in the Company Scorecard for a particular year, and the individual objectives set at the start of the year in connection with their Personal Performance Grids (“PPGs”) to ensure shared and personal performance accountability. Shown as Non-Equity Incentive Plan Compensation in the Summary Compensation Table on page 41, we designed awards to motivate executives to break down business unit silos, increase collaboration and teamwork, and achieve financial and non-financial performance objectives that are key to the Company’s annual strategic plan and inherent in ensuring the best outcome for Merck.

 

   

Long-Term Incentives—stock options, performance share units (“PSUs”) and restricted stock units (“RSUs”)—are granted under the stockholder-approved Incentive Stock Plan (“ISP”). These awards balance the shorter-term outlook of achieving objectives motivated through the EIP with the broader focus on achieving long-term success, as reflected in increases to the Company’s stock price, growth in its earnings per share, and achievement of other critical performance goals over a period of several years. In doing so, long-term incentive awards and the EIP ensure that executives appropriately consider the risk inherent in short-term decisions with regard to the future performance of the Company, and vice versa. In addition, long-term incentives provide our executives with a competitive compensation opportunity relative to companies with which we compete for human and financial capital, which supports the Company’s attraction and retention objectives. They also link realized pay to changes in shareholder value, which fosters alignment between the economic interests of both management and shareholders.

 

   

Severance and change in control plans are designed to facilitate the Company’s ability to attract and retain executives as the Company competes for talented employees in a marketplace where such protections are commonly offered. The Separation Benefits Plan described below beginning on page 37 helps to attract leaders in the marketplace by mitigating the risk they assume as they join a new Company that is undergoing significant change. It is also intended to provide benefits to ease an employee’s transition from an unexpected employment termination by the Company due to ongoing changes in the Company’s employment needs. The Change in Control Separation Benefits Plan encourages employees to remain focused on the Company’s business in the event of rumored or actual fundamental corporate

 

23


Table of Contents
 

changes, and to motivate management to act in the best interests of the Company with regard to possible merger and acquisition transactions.

Individual executive officer compensation levels and opportunities are compared to a peer group of large pharmaceutical companies that participate in a pharmaceutical industry compensation survey. The survey is conducted by Towers Perrin HR Services, an independent consulting firm, and is monitored by a third-party antitrust counsel. In 2008, in addition to Merck, the participating companies included: Abbott Laboratories, Amgen, Astra Zeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Hoffman-LaRoche, Johnson & Johnson, Novartis, Pfizer, Sanofi-Aventis, Schering-Plough, and Wyeth (collectively, the “Peer Companies”). In general, our overarching strategy is to position Merck executive compensation as follows:

 

 

 

Base salaries are targeted at the 50th percentile (median) compared to the Peer Companies

 

 

 

Total cash compensation—that is, base salary plus annual cash awards—is highly leveraged, varies with performance, and is targeted at the 50th percentile

 

 

 

Total direct compensation—total cash plus annual Long-Term Incentive grants, but excluding Leader Share or other special long-term grants—is targeted at the 50th percentile

Compensation for individual executives may be positioned above or below the 50th percentile based on scope of responsibility versus the Peer Companies, market availability of top proven talent, and/or the critical need to ensure the employee remains with the Company.

Due to the focus on variable incentives, there is a distinct difference between the target compensation levels referenced above and actual realized pay, which varies based on the degree to which the Company attains the performance goals underlying the EIP and long-term incentive awards as well as changes in shareholder value.

This excerpt taken from the MRK DEF 14A filed Mar 10, 2008.

Compensation Program Objectives and Strategy

Objectives

Merck’s compensation and benefits programs are driven by Merck’s business environment and are designed to enable us to achieve our mission and adhere to Company values. The programs’ objectives are to:

 

   

Reflect and maintain Merck’s position as an industry leader in the development of innovative medicines;

 

   

Attract, engage and retain the workforce that help us to achieve future success;

 

   

Motivate and inspire employee behavior that fosters a high-performance culture through a lean and flexible business model;

 

   

Support a shared one-Company mindset of performance and accountability to deliver on business objectives; and

 

   

Align the interests of our senior executives with that of our shareholders to ensure prudent short-term actions that will benefit the long-term value of the Company.

All of Merck’s compensation and benefits for its Named Executive Officers described below have as a primary purpose the Company’s need to attract, retain and motivate the highly talented individuals to lead the Company in achieving its mission while upholding our values in a highly competitive marketplace.

Strategy

Due to Merck’s mission of being a leader in discovering and bringing to market proven innovative medicines for unmet medical needs, it is critical to hire, engage and retain the best talent and thought leaders in the academic and pharmaceutical industry on a global basis to leverage diverse experiences and cutting edge thinking. Each compensation component has a specific purpose in meeting the Company’s program objectives described above.

 

   

Base salary and benefits are designed to attract and retain employees over time and motivate them to continually improve their job related competencies to create value for the Company.

 

   

Annual cash awards under the stockholder-approved Executive Incentive Plan (“EIP”) are designed to focus employees on the objectives identified in the Company Scorecard for a particular year, and the individual objectives set at the start of the year in connection with their Personal Performance Grids (“PPGs”) to ensure shared and personal performance accountability. For the Non Equity Incentive Plan Award in the Summary Compensation Table, we designed awards to motivate executives to break down business unit silos and increase collaboration and teamwork to ensure the best outcome for Merck. Other types of special bonuses, such as those described below for Mr. Kellogg and Ms. Lewent, are individually designed to address business needs related to attracting, retaining and separating employees.

 

   

Long-Term Incentives—stock options, performance share units (“PSUs”) and restricted stock units (“RSUs”) under the stockholder-approved Incentive Stock Plan (“ISP”)—balance the shorter term outlook of achieving objectives motivated through the EIP with the longer-term focus of achieving the long-term success of the Company, as reflected in increases to the Company’s stock prices, growth in its earnings per share and other measures over a period of several years. Long term incentives ensure our executives are competitively positioned and help retain our leaders while motivating and aligning their interests with that of our stockholders.

 

   

Severance and change in control plans are designed to facilitate the Company’s ability to attract and retain executives as the Company competes for talented employees in a marketplace where such

 

23


Table of Contents
 

protections are commonly offered. The Separation Benefits Plan described below helps to attract leaders in the marketplace by mitigating the risk they assume as they join a new Company that is undergoing significant change. It is also intended to provide benefits to ease an employee’s transition from an unexpected employment termination by the Company due to on-going changes in the Company’s employment needs. The Change in Control Separation Benefits Plan encourages employees to remain focused on the Company’s business in the event of rumored or actual fundamental corporate changes, and to motivate management to act in the best interests of the Company.

Individual executive officers are compared to a peer group of large pharmaceutical companies that participate in a pharmaceutical industry compensation survey. The survey is conducted by Towers Perrin HR Services, an independent consulting firm and is monitored by a 3rd party antitrust counsel. In 2007, in addition to Merck, the participating companies included: Abbott Laboratories, Amgen, Astra Zeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Hoffman-LaRoche, Johnson & Johnson, Novartis, Pfizer, Sanofi-Aventis, Schering-Plough, and Wyeth (collectively, the “Peer Companies”). In general, commensurate with performance, our overarching strategy is to position Merck executive compensation as follows:

 

 

 

Base salaries are targeted at the 50th percentile (median) compared to the Peer Companies

 

 

 

Total cash compensation—that is, base salary plus annual cash awards—is highly leveraged, varies with performance, and targeted at the 50th percentile

 

 

 

Total compensation—total cash plus Long Term Incentive grants, but excluding Leader Share or other special Long Term grants—is targeted at the 50th percentile

Compensation for individual executives may be positioned above or below the 50th percentile based on scope of responsibility versus the Peer Groups, market availability of top proven talent, and/or the critical need to ensure the employee remains with the Company.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki