Procedure to determine the total remuneration of the Board of Management and to review the Board of Management remuneration system
Determining total remuneration
In accordance with § 87 (1) AktG, the Supervisory Board defines the total remuneration for each member of the Board of Management. To this end, the Supervisory Board obtains support from the General Committee for issues regarding the remuneration of the Board of Management. The General Committee drafts suggestions for the Board of Management remuneration system, analyzes further developments, and prepares decisions for the definition of targets and derives the target achievement levels. These suggestions are then discussed and resolved by the Supervisory Board. Where the Supervisory Board calls on an external remuneration expert to develop the remuneration system and/or to assess the appropriateness and customariness of the remuneration, care must be taken to ensure that the expert is independent of the Board of Management and the Company.
The Supervisory Board determines the specific total target remuneration and the maximum remuneration for the forthcoming financial year and ensures that the remuneration of Board of Management members is appropriate and customary, and that the members of the Board of Management are remunerated at a level appropriate to their tasks and performance and to the situation of the Company. A horizontal and vertical comparison of remuneration is regularly performed as part of the review of appropriateness. The remuneration structure is geared towards sustainable, long-term development, with long-term targets weighted more heavily than short-term targets. The performance criteria for variable remuneration components are defined by the Supervisory Board for every Board of Management member and are aligned with the strategic targets. It is not possible to retrospectively amend the target values or benchmarks.
The General Committee determines target achievement of the variable remuneration component for each financial year; this is subsequently reviewed and approved by the Supervisory Board.
Horizontal comparison of remuneration
With regard to the horizontal comparison of remuneration, Deutsche Telekom AG primarily aligns itself with the remuneration granted by DAX 40 companies. As these companies vary widely, a benchmarking of the 13 largest DAX companies is also used. This considers the criteria “revenue,” “headcount,” and “market capitalization” in order to perform a statistical evaluation of Deutsche Telekom AG within the reference group. Here, the objective is to ensure that the remuneration at Deutsche Telekom AG is in line with market standards, yet also competitive compared with other DAX-listed companies. Based on the statistical evaluation, Deutsche Telekom AG is currently in the upper quarter of the DAX 40 companies and therefore aims to ensure that the remuneration of the Board of Management is also on this level.
In addition to the general alignment with the level of remuneration at DAX 40 companies, the Supervisory Board also regularly observes and reviews the development of European and global remuneration levels in the telecommunications sector. There are two reasons why the Supervisory Board does not consider this to be currently a useful comparison, however. For one thing, European telecommunications companies vary considerably in size, which makes them unsuitable for comparison. Deutsche Telekom AG’s market capitalization is now bigger than the total capitalization of its European competitors Vodafone, Telefónica, Orange, BT, and Swisscom together. On top of this, it is very difficult to draw a comparison with telecommunications companies in the United States, for example, due to the different framework conditions for remuneration systems and remuneration levels in effect there.
If the Supervisory Board comes to the conclusion in the course of its review that the remuneration is not in line with market standards based on this benchmark, it reserves the right to make adjustments. The same applies where the Supervisory Board sees a need for action as a result of other exogenous developments (e.g., inflationary trends). Adjustments to remuneration that are planned or have been carried out are then reported on in the relevant remuneration report.
Vertical comparison of remuneration
The Supervisory Board also takes the remuneration structures and the conditions of employment within Deutsche Telekom into account when defining the remuneration of the Board of Management. A qualitative assessment is performed of the remuneration components that are offered at various employee levels within the Company, to analyze the differences in benefit design and average employee remuneration at each hierarchical level. The Supervisory Board limits its assessment to the German workforce and also takes into account senior management and the workforce as a whole, whereby a distinction is made between seven employee levels. With this comparison, the development of the remuneration over time is also taken into consideration, both for senior management and for the workforce as a whole.
Review of the Board of Management remuneration system
The General Committee prepares the regular review of the remuneration system by the Supervisory Board and recommends changes, if necessary. If a change to the system is made, it is submitted to the Shareholders’ Meeting once again for approval. If no material changes are made to the remuneration system, the system is resubmitted to the Shareholders’ Meeting no later than four years after the last approval of the system. If the Shareholders’ Meeting fails to give its approval to a remuneration system, the General Committee will recommend an amended remuneration system to the Supervisory Board, which the Supervisory Board will subsequently submit for approval to the next ordinary Shareholders’ Meeting.