Sustainability matters are an integral component of the compensation of our Executive Board. As such, we have anchored our sustainability strategy in the performance-related compensation: This is composed of profit sharing and a Long-Term Incentive Plan (LTIP) and is therefore carried out with sustainability goals in mind.
To determine the profit sharing, the Personnel Committee of the Board of Partners of E. Merck KG, Darmstadt, Germany, can take an individual adjustment factor into account. This makes it possible to reward outstanding individual performance of members of the Executive Board as well as the overachievement of certain sustainability goals. For an increase in the profit sharing, it is assessed to what extent the respective member of the Executive Board has contributed to our three strategic sustainability goals. Metrics regarding the reduction of our GHG emissions are used, among others. If the sustainability goals were not achieved, penalty criteria apply for a reduction in the profit sharing.
In addition to financial performance indicators, the LTIP includes a sustainability factor that measures performance regarding the achievement of our three strategic sustainability goals over a period of three years. This can cause the variable compensation of our Executive Board to increase or decrease by up to 20% (2024: 20%) depending on the achievement of the goals.
In the current reporting period, a percentage of the variable compensation was therefore tied directly to climate-related aspects, especially goals regarding the reduction of GHG emissions as reported under E1–4. The goal on the reduction of GHG emissions (Scope 1 and 2), which is anchored in the LTIP for the Executive Board and for managers, was taken into account for the first time in fiscal 2022. It is intended to contribute to the achievement of our overarching climate goals by 2030. At the beginning of each three-year period of the LTIP, a goal is determined that should ultimately be achieved. Each of these goals is oriented toward the absolute reduction of GHG emissions, with new, more ambitious goals being decided every year. The potential payment for the LTIP granted for the Executive Board in 2022 is to take place in 2026 after an additional one-year holding period. In fiscal 2025, climate-related aspects were not yet part of the compensation of our executive board. For the first time in 2026, the amount of the climate-related compensation of our executive board will be determined.
The fact that we integrate climate-related goals into the compensation reflects our commitment to climate change mitigation and climate change adaptation and highlights the responsibility of our managers to achieve our overarching climate goals. They are aligned with our commitment to the Science Based Targets initiative (SBTi) to limit global warming to 1.5°C. The Executive Board is responsible for overseeing the implementation of goals for climate change mitigation. The Group Sustainability Committee (MSC) regularly monitors the progress made toward implementing the goals. The board is headed by the Chief Sustainability Officer. Its objective is to ensure that our sustainability strategy and the individual business strategies are coordinated with one another – with the objective of further intensifying actions for climate change mitigation and adaptation.
Further information on the integration of sustainability-related performance into the incentive schemes of our Executive Board can be found in our Compensation Report (not audited as part of the audit of the Sustainability Statement).