Objectives of the remuneration system of the Board of Management and reference to the corporate strategy
The remuneration system of the Board of Management presented here defines the framework conditions in accordance with which the Supervisory Board can grant the members of the Board of Management remuneration components. The Supervisory Board believes that the structure and the main components of the former remuneration system are still sound, as underpinned by the high approval rate at the Shareholders’ Meeting with over 94 % of votes in favor. The new proposal therefore keeps most of the existing set-up, with selective adjustments and additions.
This remuneration system was developed over a period of around one year alongside the regulatory developments. It was continually refined within the context of the General Committee meetings and interim states were also regularly discussed at the Supervisory Board meetings. Feedback from analysts and investors has also been incorporated into the revision. At its meeting on January 27, 2025, the Supervisory Board approved the Board of Management remuneration system presented here (subject to approval by the Shareholders’ Meeting) with effect from January 1, 2025.
The new system places greater emphasis on the opportunity/risk profile than the remuneration system in effect until now. The possibility of losing all remuneration components depending on the development of total shareholder return (TSR) has been introduced for both the Long-Term Incentive (LTI) and the Share Matching Plan (SMP). Furthermore, Board of Management members can benefit from positive TSR developments in the Share Matching Plan through higher matching ratios. This aims to bring the interests of shareholders and Board of Management members closer into line.
The Supervisory Board made a deliberate decision to introduce multipliers for the Short-Term Incentive (STI) and LTI with a potential bonus (reward) or malus (penalty) effect. By using multipliers to link the financial targets with the ESG and strategy targets in the STI and LTI, the Supervisory Board is seeking to reinforce its conviction that Board of Management members should first and foremost work towards achieving the financial objectives of the Group and the segments for which they are responsible. However, an attractive Board of Management remuneration should not only be tied to Deutsche Telekom’s financial success and a sustainable increase in shareholder return, but it should also reflect the successful implementation of ESG and strategy targets. Thus, Board of Management members will have an incentive not only to strive for good financial performance, but also to act strategically and in a sustainable manner in line with the long-term corporate targets. Linking the financial targets and the ESG and strategy targets through multipliers and setting individual caps for every target parameter also makes it impossible for individual target parameters to be exceeded in order to compensate for lower target achievement levels in other target parameters.
The performance factor, which was perceived by some as lacking transparency, is no longer part of the remuneration system. The newly introduced multipliers are fully backed up by quantifiable targets – with the exception of the personal strategic targets – and achievement of these targets is disclosed in the remuneration report.
The long-term environmental target parameters derived from the sustainability strategy are being moved from the STI to the LTI. The measurable target parameters of “customer retention/satisfaction” and “employee satisfaction” that are critical to Deutsche Telekom’s success will thus now be part of the STI, allowing changes in customer and employee satisfaction to be reflected more promptly in Board of Management remuneration. By structuring the STI, SMP, and LTI in this way, the Supervisory Board seeks to ensure that performance (pay for performance), responsibility, and a forward-looking approach are rewarded.
The Share Ownership Guidelines for the Chair of the Board of Management are being expanded. In the future, the Chair of the Board of Management will be required to demonstrate ownership of shares in the equivalent value of two years’ annual basic remuneration instead of one. This will now have to be evidenced no later than the payout date of the fourth STI from the date of initial appointment, instead of after payment of the third STI, as before.
The remuneration system presented here provides for an increase in the maximum remuneration for the Chair of the Board of Management and the ordinary members of the Board of Management so that the Company remains competitive going forward in line with national market standards and can attract and retain qualified leaders. In addition, a further temporary increase in the maximum remuneration is planned for the current Chair of the Board of Management, Timotheus Höttges. This measure is intended to take account of the fact that the current Chair of the Board of Management was willing to extend his term again prematurely so that Deutsche Telekom can continue its successful trajectory. The maximum remuneration for the Chair of the Board of Management is being increased only temporarily for the current Chair to the amount proposed. Once Timotheus Höttges’ Board appointment ends, the maximum remuneration for the Chair of the Board of Management will return to EUR 11,000,000.
When drafting the remuneration system for members of the Board of Management, the Supervisory Board worked on the basis of the following principles:
- Conforming to regulatory/statutory requirements in Germany as well as the principles of good corporate governance
- Promoting the implementation of the long-term strategy for sustainable corporate development
- Determining appropriate remuneration levels that are in line with market standards
- Strong focus on pay for performance and long-term orientation
- Focus on shareholders’ interests while accounting for stakeholders’ interests
- Intuitive and easy-to-understand remuneration system
- As consistent as possible with the remuneration system for executives within the Group
The Supervisory Board prepared the remuneration system presented here in line with the regulations of the German Stock Corporation Act (AktG) as well as the recommendations for the remuneration system for management board members in Section G of the German Corporate Governance Code (GCGC) as amended on April 28, 2022.
The remuneration of Board of Management members is aligned with Deutsche Telekom’s strategy. Deutsche Telekom AG has the strategic ambition to be the Leading Digital Telco and a reliable partner in society and for the environment. At the center of the strategy is the flywheel. It describes how Deutsche Telekom successfully positions itself in the market. At the 2024 Capital Markets Day, two new components were added to the flywheel: “Data & AI” and “Global Scale.”
Deutsche Telekom is investing above average in the network build-out, to give customers the best product experience at all times. The superior quality of its networks and products has won over more than 300 million customers to date and makes Deutsche Telekom the most valuable telecommunications brand in the world. Through the products it already offers consumers and business customers and by developing new areas of business, Deutsche Telekom will continue to grow in the future and tap into new revenue sources. The size and variety of the customer base allows the Company to fully utilize the networks and leverage additional efficiencies, enabling it to generate above-average financial results, which will be reinvested into the business so that the flywheel continues to turn.
Customer and business processes will be optimized further with consistent use of existing data and the deployment of artificial intelligence. In addition, Deutsche Telekom uses a unique transatlantic portfolio to realize economies of scale and further strengthen its leading position, thus accelerating the flywheel even more. The strategy is centered on a strong team, a unique brand, and clear anchoring of societal, social, and ecological values in the Company. The remuneration system for the Board of Management thus substantially contributes to promoting the long-term corporate strategy. By selecting appropriate liquidity and profitability KPIs as financial target parameters, this system creates incentives to generate the required means to be able to successfully implement Deutsche Telekom’s investment strategy. By using KPIs on customer and employee satisfaction and environmental concerns, further stakeholder interests are also appropriately taken into consideration through non-financial target parameters.
Through consideration of the share price in various components of the remuneration of the Board of Management and the direct obligation to acquire and retain shares in the Company, the objective is to ensure the greatest possible reconciliation of interests between the shareholders and the Board of Management of Deutsche Telekom AG.
The remuneration system is supposed to reflect the challenging task of Board of Management members to lead a global telecommunications company in a fast-moving, highly competitive, and strongly regulated environment. At the same time, the Board of Management remuneration should be globally competitive to support Deutsche Telekom AG when searching for highly qualified managers. Through this approach, the Board of Management remuneration system provides incentives to successfully implement the corporate strategy, to ensure a sustainable development of the Company, and is also focused on creating value for the shareholders in the long-term. This meets all requirements of the Stock Corporation Act and all recommendations of the German Corporate Governance Code as amended on April 28, 2022 governing the Board of Management’s remuneration.