Performance-based remuneration components

In 2024, the members of the Board of Management participated in the following performance-based (variable) remuneration components:

Short-Term Incentive (STI)

Functioning

The Short-Term Incentive (STI) is the short-term variable remuneration instrument, with a term of one year. The STI is based in equal parts (one-third each) on Group financial targets, segment financial targets, and ESG targets. To determine the final target achievement, the Supervisory Board applies a personal performance factor, based on which the calculated target achievement can be adjusted between 0.8 and 1.2. When deciding to apply the performance factor, the Supervisory Board assesses the strategic personal targets agreed with the respective member of the Board of Management and also assesses individual value adherence. Target achievement is applied to the target amount resulting from the service contract for the Board of Management member, which is then adjusted according to the performance factor. Maximum target achievement per target parameter is limited to 150 %. If the performance factor is applied, total target achievement is limited to a maximum of 180 % of the target amount.

Contribution to long-term development of the Company

The economic success of the current financial year is be reflected by means of the STI. In addition, by deriving budget values from the four-year medium-term planning, the STI also contributes to the Company’s long-term development. The details provided below for the STI generally refer to unadjusted KPIs, which correspond to the actual values published in the Annual Report. Based on these values, the Supervisory Board makes target-relevant adjustments that are necessary for appropriate incentivization. Any adjustments are explained in the corresponding footnotes.

The objective of the Group financial targets is to reinforce the cross-department collaboration in the Board of Management team. At the same time, the Supervisory Board considers it to be important that the performance of members of the Board of Management with responsibility for operating business is determined on the basis of the success of their respective segment. For members of the Board of Management who do not have any operational responsibility, this measurement takes place at Group level and, depending on the area of responsibility, includes or excludes U.S. business (see the figure in the section on segment targets). Furthermore, the Supervisory Board supports the significance of the sustainability strategy by implementing two ESG targets in the variable remuneration with an assessment period of one year.

Target achievement for the STI in the 2024 financial year

2024 was a successful financial year for Deutsche Telekom AG, allowing it to exceed the original capital market expectations for the year in the relevant areas. Total target achievement for the successful 2024 financial year can be seen in the following table. Target achievement was calculated on the basis of precise figures (not rounded). For reasons of clarity, the figures reported in the table are rounded. The STI will be paid out in the 2025 financial year after the 2025 Shareholders’ Meeting.

Group financial targets

Prior to the start of the financial year, the Supervisory Board derives the target and threshold values for the Group financial targets, the segment financial targets, and the ESG targets from the medium-term company planning. The 100 % target value corresponds to the budget value from the planning. Target achievement for each target parameter can range between 0 % and 150 %.

Service revenues are defined as revenues that are generated through customers’ use of services (i.e., revenue from fixed network and mobile communications, voice services, incoming and outgoing calls, and data services) plus roaming revenues, monthly basic charges and visitor revenues, as well as revenue generated from the ICT business (information and communications technologies). As a result, the service revenues are an important indicator for the successful implementation of the growth strategy of the Group.

Earnings before interest, taxes, depreciation and amortization after leases (EBITDA AL) is the most important KPI when it comes to measuring the operational performance of the Company and reflects the growth strategy on the customer side (consumers and business customers) as well as savings for promoting investment. EBITDA AL is calculated by adjusting EBITDA for depreciation of right-of-use assets from leases and for interest expenses on recognized lease liabilities.

Free cash flow after leases (FCF AL) is a further important KPI when it comes to measuring the operational performance of the Group that is directly linked to the finance strategy (the ability to pay a dividend and the ability to reduce liabilities). When determining FCF AL, the free cash flow (cash generated from operations minus payments for investments) is adjusted for the repayment of lease liabilities.

For the 2024 financial year, the following target values and target achievement derived from them applied:

In terms of service revenues, EBITDA AL, and FCF AL, results were considerably better than assumed in the budget, leading to target achievement of 121 %, 146 %, and 150 %, respectively. This results in weighted target achievement for the Group financial targets for the 2024 financial year of 140 %.

Segment financial targets

The explanations for the Group financial targets described above in regard to the targets of service revenues and EBITDA AL apply to the segment financial targets.

In terms of segment financial targets, the Supervisory Board decided to introduce the OPEX ratio as a profitability target in place of external indirect costs. In recent years, stronger focus has been placed on savings, i.e., optimizing the absolute cost basis to increase the segments’ and the Group’s operational efficiency. The target parameter “OPEX ratio” will now provide incentive to reduce the ratio of external indirect costs to service revenues, as profitability can also be improved through a higher net margin. This will ensure a certain degree of flexibility with regard to operational decisions, allowing, for example, an increase in absolute costs with a higher-than-average increase in service revenues and thus in the result. Savings made in terms of external indirect costs and a higher net margin contribute to the improvement of the operational performance that is reflected in EBITDA AL and FCF AL and, consequently, have a positive impact on the valuation of the Company on the capital market. In terms of the external adjusted indirect costs AL, adjusted indirect costs are also calculated, in a similar manner to the determination of EBITDA AL, by adjusting for depreciation of right-of-use assets from lease arrangements and for interest expenses on recognized lease liabilities.

The segment financial targets for the individual members of the Board of Management are broken down as follows:

In contrast to the Group financial targets, the target values for the segment financial targets are not published in detail because of the large number of KPIs and the differences from one Board of Management member to another.

ESG targets

The Supervisory Board has implemented “energy consumption” and “CO₂ emissions” as sustainability targets again for the 2024 reporting year.

The aim of the “energy consumption” target is to incentivize the members of the Board of Management to behave in a way so as to ensure that energy consumption that is harmful to the environment remains at least stable in the medium term (2027 compared with 2023, excluding T‑Mobile US). This target is supported by programs and investments in energy-saving measures for all energy sources, optimization of infrastructure, and the use of innovative technology components.

The aim of the “CO₂ emissions” target is to motivate the Board of Management members to sustainably promote green energy, to optimize consumption levels in buildings, and to successively convert the Group’s vehicle fleet from fossil fuels to emission-free or low-emission engine types.

The level of ambition and the target achievement for both ESG targets were calculated excluding T‑Mobile US. This is due in part to the intensive build-out of the 5G network in the United States, particularly in rural areas, which leads to increased electricity consumption. T‑Mobile US, like the Group as a whole, has covered 100 % of its electricity requirements from renewable energy sources since 2021. In addition, the Scope 1 emissions at T‑Mobile US are subject to strong fluctuations due to unforeseeable natural disasters and the associated temporary use of equipment such as diesel generators to restore and back up damaged network infrastructure. To be able to account for the country-specific situation in this key market, the decision was taken not to include T‑Mobile US in the ESG targets in respect of short-term variable remuneration. This step aims to ensure that the right incentives are set for the Board of Management toward the sustainable development of the business, while at the same time safeguarding the stability of network operations.

A value of 183 kt CO2e (excluding T-Mobile US) is reported for the “CO₂ emissions” target in this year’s management report, which differs from the figure in the Remuneration Report. This is down to the fact that the figure disclosed in the management report now also includes “fugitive emissions.” This emission type results from the use of refrigerants and fire suppressants and has become relevant for management purposes in recent years. Previously, the proportion of these emissions was difficult to measure. To ensure a reliable data basis, fugitive emissions have been successively incorporated into the data collection process and the planning process. From 2025 onwards, this emission type will therefore also be part of the “CO₂ emissions” target, increasing the respective baseline as a starting point for future planning.

The level of ambition and the target achievement for the ESG targets can be seen in the following table:

The strong target achievement values for 2024 are primarily attributable to additional measures to reduce energy consumption and CO₂ emissions in the Germany and Europe segments. These include, in particular, efficiency measures in building use, such as early termination of leases for space, which reduced heating and electricity requirements. In network operations, especially in mobile communications, additionally implemented measures achieved higher levels of efficiency faster than expected, resulting in optimized energy consumption.

This leads to weighted target achievement for the ESG targets in the 2024 financial year of 130 %.

Performance factor

To measure the performance factor, the Supervisory Board focuses on the one hand on value adherence by the individual member of the Board of Management and on the other, on achievement of the strategic implementation targets that were agreed with each member of the Board of Management individually prior to the start of the financial year.

Value adherence is determined based on the behavior of the member of the Board of Management in terms of the following categories, which represent the Group’s six Guiding Principles:

The members of the General Committee of the Supervisory Board rate each value adherence category per Board of Management member on a scale between one and ten points, and then calculate the average value for each Board member. The mathematical result is then put forward as a proposed value to the Supervisory Board which then decides on total target achievement.

For the 2024 financial year, the Supervisory Board agreed the following personal strategic implementation targets with the Board members and derived the relevant target achievement from them after the end of the reporting year.

In a comprehensive evaluation, the Supervisory Board translated the scores for value adherence and the personal strategic implementation targets into the following performance factors for each member of the Board of Management: All scores higher than 1.0 have the effect of a bonus, while scores lower than 1.0 have the effect of a penalty. On this basis, Dr. Ferri Abolhassan and Claudia Nemat were assigned a factor of 1.05. A factor of 1.1 was applied to Timotheus Höttges, Birgit Bohle, Srinivasan Gopalan, Dr. Christian P. Illek, Thorsten Langheim, and Dominique Leroy. 

Mandatory personal investment

Members of the Board of Management are obligated to invest a sum totaling at least one-third of the annual gross STI as determined by the Supervisory Board in Deutsche Telekom AG shares. They have the option of extending their personal investment to 50 % of the gross STI. The shares are subject to a four-year lock-up period starting from the date of purchase. The shares acquired by the member of the Board of Management for this purpose are held in a special blocked security deposit of the administering bank so that it is not possible to access the shares early.

The relationship between share investment obligations from the STI and participation in the SMP can be seen in the following figure:

Share Matching Plan (SMP)

Functioning

The personal investment made by the member of the Board of Management results in participation in the SMP. Once the four-year lock-up period is over, the member of the Board of Management has free access to their personal investment and receives an additional share free of charge for each share purchased by way of personal investment. The matching shares transferred are available to the Board of Management member immediately, to use as they wish. The transfer of the shares results in a non-cash benefit for the member of the Board of Management and is taxed in the salary statement which follows the transfer of the shares. When the matching shares mature, the transfer value of the shares resulting from the share price development during the term is capped at a maximum of 150% of the gross STI paid out for the year of the personal investment. If the value of the matching shares is higher on the transfer date, the number of shares to be transferred is reduced. In this case, the matching ratio is less than 1:1.

The table below shows the relevant amount of the STI applicable to personal investment in 2023 and 2024, the minimum investment obligation and maximum possible investment amount resulting from it, the amount invested by each member of the Board of Management, and the specific number of shares acquired in each case. The number of shares acquired in 2024 is equal to the number of matching shares granted by Deutsche Telekom AG. The table also shows the number of matching shares transferred in 2023 and 2024, based on personal investment in the 2019 and 2020 financial years. The personal investments made by Adel Al-Saleh in the years 2020 to 2023 remain locked up until the end of the original lock-up period, in spite of his resignation effective midnight on December 31, 2023. Following his resignation, Adel Al-Saleh lost any claim to matching shares earned during his time on the Board of Management, without entitlement to substitution or compensation. The personal investment by Dr. Ferri Abolhassan in 2023 and 2024 and the transfer of matching shares took place during his time as executive (business leader) and therefore do not constitute Board of Management remuneration as shown in the table below.

Overview of the number of shares granted as part of the Share Matching Plan (SMP)

As of December 31, 2024, the following commitments were made for matching shares resulting from the personal investment of each member of the Board of Management. With his resignation from the Board of Management effective midnight on December 31, 2023, Adel Al-Saleh lost any claim to matching shares, without entitlement to substitution or compensation. The following overview also does not include the commitments for matching shares of Dr. Ferri Abolhassan because these relate to his time as executive (business leader).

Long-Term Incentive (LTI; in the former system: Variable II)

The LTI for members of the Board of Management has been share-based since the introduction of the Board of Management remuneration system in the 2021 financial year. The first payment from the 2021 tranche of the LTI will be made in 2025. A tranche of Variable II, which preceded the current LTI, was paid out in the 2024 financial year for the last time. The term and the strategic performance parameters (return on capital employed (ROCE), adjusted earnings per share (EPS), customer satisfaction and employee satisfaction) remain the same for the two plans. The targets for the performance parameters ROCE and adjusted EPS were derived from the four-year medium-term planning, and both represent KPIs for Deutsche Telekom AG. The Supervisory Board can make target-relevant adjustments to the financial target figures that are necessary for appropriate incentivization. Footnotes are provided explaining these adjustments. These two parameters were supplemented with customer satisfaction, which is measured using the globally recognized TRI*M method, and employee satisfaction, which the Supervisory Board assesses based on what it considers to be particularly relevant questions for the pulse and employee surveys carried out during the year. The four parameters are weighted equally and the resulting target achievement level can vary between 0 and 150 %.

The aim of moving to a share-based plan is to further harmonize the interests of the Board of Management and those of shareholders. The LTI is also intended to ensure long-term retention of the members of the Board of Management in the Company. At the start of plan of a tranche, the participation contribution of a Board member is converted into phantom shares of the Company and divided equally among four years. During the term of the plan, the number of phantom shares increases due to the dividends paid out during the term, which are also converted into phantom shares. The number of phantom shares also changes depending on the level of achievement of the target parameters resolved by the Supervisory Board for each plan year of the tranche. Upon expiration of the plan, the number of phantom shares obtained is converted into a monetary amount that is based on the non-weighted averages of the closing prices of the Deutsche Telekom AG share in the XETRA trading system of Deutsche Börse AG during the last ten trading days before the end of the plan, and this sum is then paid out to the member of the Board of Management together with the dividend for the last plan year. The level of achievement of each target parameter is limited to a maximum of 150 %. The maximum amount paid out within the LTI is limited to a maximum of 200 % of the award amount, taking the share price development into account. The following figure demonstrates the functionality of the LTI effective as of 2021:

The term of the 2021 tranche of the LTI plan ended on December 31, 2024. The Supervisory Board set the final level of target achievement of the 2021 tranche at 278 %. The LTI amount paid out in the 2025 financial year is limited to a maximum of 200 % of the award amount. Target achievement of the target parameters for the completed 2021 tranche of the LTI is outlined in detail below. The remuneration report does not provide an overview of target achievement for individual years of open LTI tranches on account of the lack of clarity.

Due to the fact that the LTI is designed as a share-based plan with phantom shares starting from the 2021 tranche, dividends and the share price impact on the total target achievement of the LTI during the four-year term of the plan. The following chart provides a sample overview of the composition of total target achievement for the 2021 tranche for an ordinary member of the Board of Management, taking dividends and the share price into account: