Employees

(33) Provisions for employee benefits

Provisions for employee benefits are composed as follows:

Provisions for other employee benefits included provisions for share-based payments, which are discussed in greater detail in the section on Share-based payments in this note.

Provisions for pensions and other post-employment benefits

Different retirement benefit systems are provided for employees depending on the legal, economic and fiscal circumstances prevailing in each country. Newly hired employees are only offered plans whose benefits are based on contributions and the returns generated from them. Some of these plans require the employer to guarantee a minimum return on investment. Other plans are generally based on the employee’s years of service and salary. Pension obligations comprised both obligations from current pensions and accrued benefits for pensions payable in the future.

The defined benefit obligations were based on the following types of benefits provided by the respective plan:

The vast majority of defined benefit obligations of German entities were attributable to plans that encompass old-age, disability and surviving dependent pensions. These obligations were based on benefit rules comprising benefit commitments dependent on years of service and final salary, as well as two different direct commitments for employees newly hired since January 1, 2005, that were not based on final salary. The benefit entitlement for new members from January 1, 2005, to December 31, 2020, resulted from the cumulative total of annually determined salary-based pension components calculated on the basis of a defined benefit expense and an age-based annuity table. The benefit entitlement for new members from January 1, 2021, resulted from the performance of salary-based employer contributions and voluntary employee contributions, topped up by the employer, to an external fund. A minimum return on contributions has been guaranteed by the Group. There were no statutory minimum funding obligations in Germany.

Pension obligations in Switzerland mainly comprised retirement, disability and surviving dependent benefits regulated by law. The employer and the employees made contributions to the plans. Statutory minimum funding obligations existed.

Pension obligations in the United Kingdom resulted from pension plans with service-based, final-salary-related benefit commitments, which had been closed to new entrants for many years. The agreed benefits comprised retirement, disability and surviving dependent benefits. The employer made contributions to the plans. Statutory minimum funding obligations existed. Merck KGaA, Darmstadt, Germany, provided a guarantee to the trustee. This amounted to € 141 million as of December 31, 2025 (December 31, 2024: € 160 million). The guarantee applies in the event that the sponsoring companies for this pension plan, which are included in these Consolidated Financial Statements, are unable to reduce potential underfunding by providing additional funding; this eventuality is considered to be unlikely.

The development of the net defined benefit liability and the value recognized in the Consolidated Balance Sheet for pensions and other post-employment benefits was derived as follows:

The actual income from plan assets amounted to € 143 million in the year under review (2024: € 138 million).

Covering the benefit obligations with financial assets represents a means of providing for future cash outflows, which are required by law in some countries (for example, Switzerland and the United Kingdom) and occur voluntarily in other countries (for example, Germany). The asset ceiling referred mostly to the pension obligations in Switzerland. However, due to the structure of the obligations, there were no options for the employer to refund contributions or reduce contributions.

The fair value of the plan assets was allocated to the following categories:

Plan assets did not directly include financial instruments issued by Group companies or assets used by Group companies.

Employer contributions to plan assets and direct payments to plan beneficiaries for the following fiscal year are expected to amount to € 48 million (2024: € 50 million) and € 103 million (2024: € 99 million), respectively.

The expected payments of undiscounted benefits under the plans were as follows:

The weighted duration of defined benefit obligations amounted to 16 years (2024: 17 years).

Other employee benefit provisions

Other employee benefit provisions developed as follows:

Share-based payments

Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, up to and including 2024

Certain employees were eligible to receive a certain number of virtual shares known as Share Units of Merck KGaA, Darmstadt, Germany (MSUs). The MSUs are subject to a three-year performance period. The grant is based on the value defined for the individual in question and on the average closing price of shares of Merck KGaA, Darmstadt, Germany, in Xetra^® trading during the last 60 trading days prior to the start of the performance cycle (reference price).

After the three-year performance cycle ends, the final number of MSUs granted is determined based on the following criteria:

• Performance of the shares of Merck KGaA, Darmstadt, Germany, compared with the DAX^® (weighting: 50%)

• Development of the EBITDA pre margin (weighting: 25%)

• Organic sales growth (weighting: 25%)

The overall target achievement for these financial indicators is capped at 150% of the originally awarded MSUs. In addition, a sustainability factor (0.8 to 1.2) is applied to the resulting number of MSUs, based on three defined sustainability objectives.

The weighting of the three sustainability criteria for the 2024 LTIP tranche is as follows:

• “Dedicated to human progress” 30%

• “Partnering for sustainable business impact” 30%

• “Reducing our ecological footprint” 40%

In total, the eligible participants are granted between 0% and 180% of the MSUs they could originally have been eligible to receive. After the end of the performance cycle, a cash settlement is made. The payout value corresponds to the average closing price of shares of Merck KGaA, Darmstadt, Germany, in Xetra^® trading during the last 60 trading days before the end of the performance cycle, multiplied by the number of MSUs granted. The payout amounts are limited to two and a half times the individual grant.

The Long-Term Incentive Plan issued to the Executive Board of Merck KGaA, Darmstadt, Germany, largely corresponds to the characteristics of the Merck Long-Term Incentive Plan up until 2024. The three-year target achievement cycle is followed by a one-year holding period. The relevant measure for determining the payout value is the average closing price of shares of Merck KGaA, Darmstadt, Germany, in Xetra^® trading during the last 60 trading days before the end of the holding period. The share-based compensation of the Executive Board of Merck KGaA, Darmstadt, Germany, along with the above-mentioned financial performance criteria and the sustainability factor, is described in detail in the Long-Term Incentive Plan (LTIP) section of the Compensation Report.

Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, from 2025 onwards

The Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, granted from fiscal 2025 onwards consists of the Restricted Share Unit Plan and the Performance and Restricted Share Unit Plan.

Restricted Share Unit Plan

The Restricted Share Unit Plan is solely linked to the performance of the share price of Merck KGaA, Darmstadt, Germany. Selected managers and talents are granted virtual shares (Restricted Share Units, RSUs) that are subject to a three-year performance cycle. The grant is based on the individually defined amount and on the average closing price of the share of Merck KGaA, Darmstadt, Germany, in Xetra^® trading during the last 60 trading days prior to January 1 of the respective performance cycle (reference price). After the end of the three-year performance cycle, a cash settlement is made. The payout value corresponds to the average closing price of shares of Merck KGaA, Darmstadt, Germany, in Xetra^® trading during the last 60 trading days before the end of the performance cycle, multiplied by the number of RSUs granted. The payout amounts are limited to two and a half times the individual grant.

Performance and Restricted Share Unit Plan

The Performance and Restricted Share Unit Plan (PRSU Plan) aligns with target achievement based on key performance indicators as well as the long-term performance of shares of Merck KGaA, Darmstadt, Germany.

Eligible managers are granted a defined number of MSUs. The number of MSUs that could be received depends on the individual grant defined for the respective person and the average closing price of shares of Merck KGaA, Darmstadt, Germany, in Xetra^® trading during the last 60 trading days prior to January 1 of the respective performance cycle (reference price). Of the MSUs granted, 75% relate to Performance Share Units (PSUs) and 25% to RSUs.

For the PSUs, once the three-year performance cycle has ended, the final number of PSUs granted is determined according to the same financial criteria used in the previous Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, up until 2024. The sustainability factor described above is applied to the PSUs calculated on the basis of the financial metrics. The payout value corresponds to the average closing price of shares of Merck KGaA, Darmstadt, Germany, in Xetra^® trading during the last 60 trading days before the end of the performance cycle, multiplied by the sum of PSUs determined at the end of the performance cycle and the RSUs granted at the start. The payout amounts are limited to two and a half times the individual grant. After the end of the performance cycle, a cash settlement is made.

The following table presents the key parameters as well as the development of the potential number of MSUs, PSUs and RSUs for the individual tranches:

The payments also included the obligations transferred in connection with the divestitures of the Surface Solutions business unit and the operations site in Martillac, France.

The total value of the obligations for share-based payments was € 80 million as of December 31, 2025 (December 31, 2024: € 72 million). Of this, € 41 million was included in provisions as of December 31, 2025 (December 31, 2024: € 15 million). Net expenses of € 63 million were incurred in fiscal 2025 (2024: net expenses of € 64 million). The three-year tranche issued in fiscal 2022 ended at the end of fiscal 2024; an amount of € 56 million was paid out in fiscal 2025. The three-year tranche issued in fiscal 2023 ended at the end of fiscal 2025 and was reclassified from current provisions for employee benefits to other current non-financial liabilities as of December 31, 2025. Based on a decision by the Executive Board, the expected payout for this tranche was increased by a mid-double-digit million euro amount, in line with the terms of the plan. The tranche is expected to result in a payout of € 39 million in fiscal 2026.