47 Share-based payment

Share Matching Plan

Members of the Board of Management have a contractual obligation to invest one third of the Short-Term Incentive (STI) set by the Supervisory Board in shares of Deutsche Telekom AG. There is an option to voluntarily increase the investment volume to up to 50 % of the STI. Deutsche Telekom AG will transfer one additional share for every share acquired as part of this Board of Management member’s aforementioned personal investment (Share Matching Plan – SMP) on expiration of the four-year lock-up period starting from the date of purchase. The functioning of STI and SMP is set out in the following chart.

Functioning of the Share Matching Plan and the Short-Term Incentive for Board of Management members

Specific executives are contractually obligated to invest between a minimum of 10 % and a maximum of 50 % of the gross payment amount of their short-term variable remuneration component, which is based on the achievement of targets set for each person for the financial year (Short-Term Incentive), in Deutsche Telekom AG shares. Target achievement is generally determined based on the collective targets set for the respective organizational unit. Deutsche Telekom AG will award one additional share for every share acquired as part of this executive’s aforementioned personal investment (Share Matching Plan). These shares will be allotted to the beneficiaries of this plan on expiration of the four-year lock-up period.

Other executives in specific management groups who were not contractually obligated to participate in the Share Matching Plan are given the opportunity to participate on a voluntary basis. This offer is only made when the Group’s free cash flow target for the preceding year has been achieved. To participate, the executives invest between a minimum of 10 % and a maximum of 50 % of the target amount (100 %) of the short-term variable remuneration component (Short-Term Incentive) in shares of Deutsche Telekom AG. Deutsche Telekom AG will award one additional share for every two shares acquired as part of this executive’s aforementioned personal investment (Share Matching Plan). The additional shares will be allotted to the beneficiaries of this plan on expiration of the four-year lock-up period.

The individual Share Matching Plans are each recognized for the first time at fair value on the grant date. To determine the fair value, the expected dividend entitlements are deducted from Deutsche Telekom AG’s share price, as there are no dividend entitlements until the matching shares have been allocated. In the 2023 financial year, a total of 0.9 million (2022: 0.9 million) matching shares were allocated to beneficiaries of the plan at a weighted average fair value of EUR 17.75 (2022: EUR 15.37). The cost is to be recognized against the capital reserves pro rata temporis until the end of the service period and amounted to EUR 11 million in total for all tranches as of December 31, 2023 (December 31, 2022: EUR 11 million). In the reporting year, shares with a total value of EUR 8 million (2022: EUR 8 million) were transferred to plan participants. The capital reserves recognized for the Share Matching Plan as of December 31, 2023 amounted to EUR 29 million (December 31, 2022: EUR 26 million).

Long-Term Incentive Plan

Since the introduction of the new Board of Management remuneration system in 2021, Board of Management members also participate in the Group’s existing Long-Term Incentive Plan (LTI). The amount of the annual participation is contractually defined individually for each Board of Management member. The functioning of the LTI is summarized below:

Functioning of the Long-Term Incentive Plan for Board of Management members

Executives from the Deutsche Telekom AG Group also participate in the LTI provided they meet certain eligibility requirements or have an individual contractual commitment. For executives who are offered the option of voluntary participation in the SMP, investment in the SMP is a necessary condition for participation in the LTI. At the inception of the plan, the participating executives receive a package of phantom shares of Deutsche Telekom AG, the value of which is contingent on the management group to which they have been assigned, and the achievement of the collective targets (financial and strategic targets) of the organizational unit to which the executive belongs. The value of the phantom shares received lies between 15 % and 43 % of the participant’s annual target salary.

The initial number of phantom shares is contingent on the share price in a reference period at the inception of the plan. Over the term of the four-year plan, the value of the phantom shares changes in line with Deutsche Telekom AG’s share price development. The number of phantom shares will change in line with the achievement of the targets for four equally weighted key performance indicators (return on capital employed, adjusted earnings per share, employee satisfaction, and customer satisfaction), to be determined at the end of each plan year. In addition, a dividend is granted for the phantom shares over the term of the plan. This dividend is reinvested in phantom shares, increasing the number of phantom shares held by each plan participant. At the end of the four-year plan term, the final number of phantom shares will be converted on the basis of a share price calculated in a reference period at the end of the plan and paid out in cash together with the dividend for the last year of the plan, which is not converted into phantom shares.

The individual LTIs are each recognized for the first time at fair value on the grant date. The fair value of a plan is calculated by multiplying the number of phantom shares by Deutsche Telekom AG’s share price at the measurement date discounted to the reporting date. For members of the Board of Management of Deutsche Telekom AG, the fair value is calculated on the grant date taking into account a discount for a maximum payment amount of 200 %. This maximum payment amount does generally not apply for other executives. In the 2023 financial year, a total of 3.84 million (2022: 4.87 million) phantom shares were granted at a weighted average fair value of EUR 18.92 (2022: EUR 16.12). A plan must be remeasured at every reporting date until the end of the service period and expensed pro rata temporis. The cost of the LTI plans amounted to EUR 140 million for all tranches in the reporting year (2022: EUR 128 million). In 2023, the provision was utilized in the amount of EUR 90 million (2022: EUR 59 million). In addition, the carrying amount increased by EUR 4 million as a result of discounting. The provision amounted to EUR 302 million as of December 31, 2023 (December 31, 2022: EUR 248 million).

For detailed information on Board of Management member remuneration, please refer to the remuneration report published separately by the Board of Management and the Supervisory Board.

“Shares2You” shares program for employees

Since the 2021 financial year, employees in Germany, and since the 2022 financial year, also employees of some Group companies outside Germany, have been given the option to voluntarily invest an amount of between EUR 50 and EUR 1,000 per year in shares in Deutsche Telekom AG. Each participating employee receives one additional free share in Deutsche Telekom AG for every two shares acquired by way of this personal investment (Shares2You). The shares acquired by the participants, including the free shares, are subject to a four-year lock-up period and are blocked during this time, for example with regard to sale. The program is not subject to any minimum service period or performance conditions.

The cost for the free shares must be recognized against the capital reserves at the inception of the plan. In the 2023 financial year, a total of 0.9 million free shares were granted to plan participants. A corresponding expense of EUR 18.2 million was recognized as of December 31, 2023. In total, 2.5 million shares at a fair value of EUR 20.96 for the 2022 tranche and 2.7 million shares at a fair value of EUR 20.24 for the 2023 tranche were transferred to plan participants in the 2023 financial year.

Stock-based compensation at T‑Mobile US

In June 2023, the shareholders of T‑Mobile US approved the “2023 Incentive Award Plan,” which replaces the Omnibus Incentive Plan from 2013. Under T‑Mobile US’ 2023 Incentive Award Plan, up to 33 million T‑Mobile US shares are authorized for stock options, stock appreciation rights, restricted stock units (RSUs), and performance awards to employees, consultants, and non-employee directors. As of December 31, 2023, there were around 33 million T‑Mobile US shares available for future grants under this incentive plan.

T‑Mobile US grants RSUs to eligible employees and certain non-employee directors, and performance-based restricted stock units (PRSUs) to eligible key executives of the company. RSUs entitle the grantee to receive shares of T‑Mobile US’ common stock at the end of a vesting period of up to three years. PRSUs entitle the holder to receive shares of T‑Mobile’ US common stock at the end of a vesting period of up to three years if a specific performance goal is achieved. The number of shares ultimately received is dependent on the actual performance of T‑Mobile US measured against a defined performance target.

The RSU and PRSU plans resulted in the following share-related development:

The program is measured at fair value on the grant date and recognized as expense, net of expected forfeitures, following a graded vesting schedule over the related service period. The fair value of stock awards for the RSUs is based on the closing price of T‑Mobile US’ common stock on the date of grant. The fair value of stock awards for the PRSUs was determined using the Monte Carlo model. Stock-based compensation expense was EUR 674 million as of December 31, 2023 (December 31, 2022: EUR 655 million).