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42 Related-party disclosures

Federal Republic of Germany and other related parties

The Federal Republic of Germany is both a direct and an indirect shareholder (via KfW Bankengruppe) and holds 30.5 % (December 31, 2020: 31.9 %) of the share capital of Deutsche Telekom AG. In previous years, this resulted in the Federal Republic of Germany representing a solid majority at the shareholders’ meetings of Deutsche Telekom AG due to its level of attendance, giving it control over Deutsche Telekom. Thanks to higher levels of attendance, the Federal Republic has not had a majority of the voting rights at the shareholders’ meetings of Deutsche Telekom AG since 2016. As such, it is no longer deemed to have control over Deutsche Telekom, but rather only a significant influence. Therefore, the Federal Republic and the companies controlled and jointly controlled by the Federal Republic, but not the companies over which the Federal Republic can exercise a significant influence are classified as related parties of Deutsche Telekom. In the course of business, Deutsche Telekom deals directly with these companies, and with authorities and other government agencies as an independent party. Deutsche Telekom participates in the spectrum auctions of the Bundesnetzagentur. The acquisition of mobile spectrum through licenses may result in build-out requirements.

The Federal Posts and Telecommunications Agency (Bundesanstalt für Post und Telekommunikation; Federal Agency) has been assigned certain tasks by law that affect cross-company issues at Deutsche Telekom AG, Deutsche Post AG, and Deutsche Bank AG (as legal successor of Deutsche Postbank AG). The Federal Agency’s responsibilities include the continuation of the Civil Service Health Insurance Fund (Postbeamtenkrankenkasse), the Recreation Service (Erholungswerk), the Deutsche Bundespost Institution for Supplementary Retirement Pensions for Salaried Employees and Wage Earners (Versorgungsanstalt der Deutschen Bundespost), and the Welfare Service (Betreuungswerk) for Deutsche Telekom AG, Deutsche Post AG, and Deutsche Bank AG (as legal successor of Deutsche Postbank AG). The coordination and administrative tasks are performed on the basis of agency agreements. Up to and including the 2012 reporting year, Deutsche Telekom AG maintained a joint pension fund, Bundes-Pensions-Service für Post und Telekommunikation e.V., Bonn (Federal Pension Service for Post and Telecommunications – BPS-PT), together with Deutsche Post AG and Deutsche Bank AG (as legal successor of Deutsche Postbank AG) for civil-servant pension plans. The German Act on the Reorganization of the Civil Service Pension Fund (Gesetz zur Neuordnung der Postbeamtenversorgungskasse – PVKNeuG) transferred the functions of BPS-PT relating to civil-servant pensions (organized within the Civil Service Pension Fund) to the existing Federal Agency effective January 1, 2013. The civil-servant pension functions are therefore performed by the Civil Service Pension Fund as an integral part of the Federal Agency. This joint Civil Service Pension Fund works for the funds of all three companies and also handles the financial administration of the pension plan for the Federal Republic on a trust basis. For the 2021 financial year, Deutsche Telekom made payments in the amount of EUR 129 million (2020: EUR 121 million, 2019: EUR 146 million). Furthermore, payments are made to the Civil Service Pension Fund in accordance with the provisions of the Act on the Reorganization of the Civil Service Pension Fund.

For further information, please refer to Note 15 “Provisions for pensions and other employee benefits.”

The Federal Republic and the companies controlled and jointly controlled by the Federal Republic are customers or suppliers of Deutsche Telekom and as such have mutual contractual relationships with Deutsche Telekom.

There are no material revenue, receivables, or liabilities from or to joint ventures and associates.

Related individuals

At the Supervisory Board meeting on February 25, 2021, the Supervisory Board adopted a new Board of Management remuneration system which takes into account the updates to the German Corporate Governance Code as amended on December 16, 2019 and the amendments to the German Stock Corporation Act (ARUG II, the Act Implementing the Second Shareholder Rights Directive). This remuneration system was submitted to a vote at the shareholders’ meeting of Deutsche Telekom AG on April 1, 2021 and was approved. The detailed presentation of the system for Board of Management and Supervisory Board remuneration, disclosures on the remuneration of each individual Board of Management and Supervisory Board member, and other individual disclosures, form part of the remuneration report published separately by the Board of Management and Supervisory Board in accordance with § 162 of the German Stock Corporation Act (Aktiengesetz – AktG).

Detailed information on the remuneration of the Board of Management and the Supervisory Board is published in the separate remuneration report.

The following graphic provides a simplified, schematic representation of fixed and variable remuneration components:

Remuneration of the Board of Management

Remuneration of the Board of Management (graphic)

In the reporting year, expenses for short-term benefits payable to members of the Board of Management and the Supervisory Board amounted to EUR 23.1 million (2020: EUR 20.5 million). These include, as Board of Management remuneration, the basic remuneration, the fringe benefits, and the Short-Term Incentive (STI) as well as Supervisory Board remuneration in the form of fixed remuneration, committee remuneration, and meeting attendance fees. Expenses of EUR 5.2 million (2020: EUR 7.3 million) for tranches of Variable II from the previous remuneration system were recorded as long-term benefits. Service cost of EUR 0.5 million (2020: EUR 2.3 million) was recorded for Board of Management pensions. In addition, expenses for share-based remuneration for Board of Management members were incurred in the amount of EUR 5.2 million (2020: EUR 2.0 million), which related to participation in the Share Matching Plan and to first-time participation in the Long-Term Incentive Plan (LTI). No termination benefits were expensed in 2021 or 2020.

For further information, please refer to Note 44 “Share-based payment.”

Components of the Short-Term Incentive

Components of the Short-Term Incentive (graphic)

For details on the financial and non-financial performance indicators relevant for the Short-Term Incentive, please refer to the section “Management of the Group” in the combined management report.

The expenses recorded as long-term benefits relate to participation in the annually issued four-year tranches of Variable II, which was granted for the last time for the 2020 financial year and has been replaced since the 2021 financial year by the share-based LTI. The following graphic shows the target parameters allocated to Variable II, for each of which target achievement can vary between 0 and 150 %.

Components of Variable II

Components of Variable II (graphic)

The LTI, granted for the first time in 2021, is based on the share price and is set out in detail together with the Share Matching Plan (SMP) as part of the disclosures on share-based payment.

Details on the components of the Long Term Incentive Plan can be found in Note 44 “Share-based payment.”

As of December 31, 2021, Deutsche Telekom recognized provisions for Board of Management and Supervisory Board remuneration from short-term benefits of EUR 13.4 million (2020: EUR 11.6 million) and from other long-term benefits of EUR 14.8 million (2020: EUR 14.3 million). Furthermore, the present value of the defined benefit obligation (DBO) from the Board of Management pension amounts to EUR 27.3 million (2020: EUR 28.0 million).

The remuneration of the Board of Management and the Supervisory Board totaled EUR 33.9 million in the reporting year (2020: EUR 32.2 million).

Since the introduction of the new Board of Management remuneration system in 2021, new members of the Board of Management are no longer entitled to receive a Board of Management pension. Current members of the Board of Management with a contribution-based pension commitment did not receive any contributions for 2021. The pension credit accrued up to December 31, 2020 is fixed and non-forfeitable. Upon retirement, these Board of Management members shall receive their pension credit in the form of a lump sum. A special arrangement applies for the pension commitment of Timotheus Höttges, which is structured as defined benefits and upon his retirement will be paid out in the form of life-long pension payments with a pension for surviving dependents in the form of entitlements for widows and orphans. The pension commitment may be in the form of a life-long retirement pension upon reaching the age of 62 or in the form of an early retirement pension upon reaching the age of 60. Opting for the early retirement pension scheme is connected with actuarial deductions. The maximum pension level of 50 % of annual basic remuneration was reached in 2018. Since then, an annual dynamic increase of 2.4 % has been of 2.4 % has been applied to the reference variable. The reference variable for both the pension level and the dynamic increase is the basic remuneration applicable as of December 31, 2018. The pension payments to be made upon retirement increase dynamically, at a rate of 1 % per year. In the event of a permanent incapacity for work (invalidity), the beneficiary is also entitled to the pension credit accrued.

Employees elected to the Supervisory Board of Deutsche Telekom AG continue to be entitled to a regular salary as part of their employment contract. The amount of the remuneration is the adequate compensation for their job or activity within the Company. Besides this, no major transactions took place with related individuals.

The members of the Board of Management and Supervisory Board of Deutsche Telekom AG are members of supervisory boards or management boards of other companies or are shareholders of other companies with which Deutsche Telekom AG maintains relations in the ordinary course of business.

All related-party transactions are performed on an arm’s length basis.