Merck & Co., Inc.MRK
Merck & Co., Inc. Stock Compensation Disclosure
Share-Based Compensation Plans
The Company has share-based compensation plans under which the Company grants restricted stock units (RSUs) and performance share units (PSUs) to certain management level employees. In addition, employees
and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of grant. These plans were approved by the Company’s shareholders.
At December 31, 2025, 66 million shares collectively were authorized for future grants under the Company’s share-based compensation plans. These awards are settled with treasury shares.
Employee stock options are granted to purchase shares of Company stock at the fair market value at the time of grant. These awards generally vest one-third each year over a three-year period, with a contractual term of 7-10 years. RSUs are stock awards that are granted to employees and entitle the holder to shares of common stock as the awards vest. The fair value of the stock option and RSU awards is determined and fixed on the grant date based on the Company’s stock price. PSUs are stock awards where the ultimate number of shares issued will be contingent on the Company’s performance against a pre-set objective or set of objectives. The fair value of each PSU is determined on the date of grant based on the Company’s stock price. For RSUs and PSUs, dividends declared during the vesting period are payable to the employees only upon vesting. Over the PSU performance period, the number of shares of stock that are expected to be issued will be adjusted based on the probability of achievement of a performance target and final compensation expense will be recognized based on the ultimate number of shares issued. RSU and PSU distributions will be in shares of Company stock after the end of the vesting or performance period, subject to the terms applicable to such awards. PSU awards generally vest after three years. RSU awards generally vest one-third each year over a three-year period.
Total pretax share-based compensation cost recorded in 2025, 2024 and 2023 was $820 million, $761 million and $645 million, respectively. Income tax benefits for share-based compensation expense recognized in 2025, 2024 and 2023 were $125 million, $117 million and $96 million, respectively.
The Company uses the Black-Scholes option pricing model for determining the fair value of option grants. In applying this model, the Company uses both historical data and current market data to estimate the fair value of its options. The Black-Scholes model requires several assumptions including expected dividend yield, risk-free interest rate, volatility, and term of the options. The expected dividend yield is based on historical patterns of dividend payments. The risk-free interest rate is based on the rate at grant date of zero-coupon U.S. Treasury Notes with a term equal to the expected term of the option. Expected volatility is estimated using a blend of historical and implied volatility. The historical component is based on historical monthly price changes. The implied volatility is obtained from market data on the Company’s traded options. The expected life represents the amount of time that options granted are expected to be outstanding, based on historical and forecasted exercise behavior.
The weighted average exercise price of options granted in 2025, 2024 and 2023 was $84.71, $129.22 and $117.89 per option, respectively. The weighted average fair value of options granted in 2025, 2024 and 2023 was $18.61, $25.60 and $21.69 per option, respectively, and were determined using the following assumptions:
| Years Ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||
| Expected dividend yield | 3.1 | % | 3.0 | % | 3.1 | % | |||||||||||
| Risk-free interest rate | 3.9 | % | 4.7 | % | 3.4 | % | |||||||||||
| Expected volatility | 25.9 | % | 20.5 | % | 22.4 | % | |||||||||||
| Expected life (years) | 5.8 | 5.8 | 5.8 | ||||||||||||||
Summarized information relative to stock option plan activity (options in thousands) is as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
Outstanding January 1, 2025 | 12,500 | $ | 86.04 | ||||||||||||||||||||
| Granted | 1,616 | 84.71 | |||||||||||||||||||||
| Exercised | (1,428) | 64.76 | |||||||||||||||||||||
| Forfeited | (211) | 106.46 | |||||||||||||||||||||
Outstanding December 31, 2025 | 12,477 | $ | 87.95 | 5.7 | $ | 275 | |||||||||||||||||
| Vested and expected to vest December 31, 2025 | 12,235 | $ | 87.73 | 5.7 | $ | 272 | |||||||||||||||||
| Exercisable December 31, 2025 | 9,348 | $ | 82.09 | 4.8 | $ | 244 | |||||||||||||||||
Additional information pertaining to stock option plans is provided in the table below:
| Years Ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||
| Total intrinsic value of stock options exercised | $ | 41 | $ | 144 | $ | 95 | |||||||||||
| Fair value of stock options vested | 36 | 32 | 30 | ||||||||||||||
| Cash received from the exercise of stock options | 92 | 177 | 125 | ||||||||||||||
A summary of nonvested RSU and PSU activity (shares in thousands) is as follows:
| RSUs | PSUs | |||||||||||||||||||||||||
| Number of Shares | Weighted Average Grant Date Fair Value | Number of Shares | Weighted Average Grant Date Fair Value | |||||||||||||||||||||||
Nonvested January 1, 2025 | 12,232 | $ | 117.94 | 1,766 | $ | 117.57 | ||||||||||||||||||||
| Granted | 10,318 | 84.65 | 1,233 | 81.20 | ||||||||||||||||||||||
| Vested | (6,042) | 110.84 | (1,101) | 88.42 | ||||||||||||||||||||||
| Forfeited | (786) | 104.44 | (64) | 104.87 | ||||||||||||||||||||||
| Nonvested December 31, 2025 | 15,722 | $ | 99.50 | 1,834 | $ | 111.13 | ||||||||||||||||||||
| Expected to vest December 31, 2025 | 13,978 | $ | 100.27 | 1,732 | $ | 111.82 | ||||||||||||||||||||
At December 31, 2025, there was $1.1 billion of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted average period of 1.9 years. For segment reporting, share-based compensation costs are unallocated expenses.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 26, 2016 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.