Deutsche Telekom AG - The 2009 financial year

* The compensation system for the Board of Management will be revised in 2010. Report on the compensation of the Board of Management. The compensation of each member of the Board of Management is reported in the notes to the consolidated financial statements, broken down in accordance with statutory requirements into fixed and performance- related components and long-term incentives. For details, please refer to pages 208–214 of the Annual Report under “Compensation of the Board of Management and the Supervisory Board.” These disclosures in the notes to the consolidated financial statements are also an integral part of this Corporate Governance Report. A summary of the structure and main features of Board of Management compensation is given below. The compensation system for the Board of Management, including the main elements of their service contracts, is defined and regularly reviewed by the Supervisory Board.* Since the introduction of the Act on the Appro- priateness of Management Board Remuneration (Gesetz zur Angemessen- heit der Vorstandsvergütung – VorstAG) and the update of the Deutsche Corporate Governance Code in 2009, the entire Supervisory Board approves the individual provisions of the Board of Management members’ service contracts. Since then, the General Committee has the function of preparing the resolution for the Supervisory Board. The compensation of the Board of Management members is comprised of several elements. It includes fixed as well as short- and longer-term variable components, various fringe benefits that are also detailed for each Board member in the notes and which are generally payable in the form of benefits in kind, insurance contri- butions, or taxable non-cash benefits, as well as Board of Management pension entitlements. The variable components include both components tied to the annual business results and long-term incentives containing risk elements. The annual variable component is based on the extent to which each member of the Board of Management achieves the targets assigned to him by the Supervisory Board before the beginning of each financial year. If the targets associated with the variable elements of remuneration are achieved in full, around two thirds of the remuneration will be variable and one third fixed. Benefits based on the Mid-Term Incentive Plan are offered as long-term incentives containing risk elements. There are also entitlements from stock option plans (see below for details of the 2001 Stock Option Plan). The Mid-Term Incentive Plan of Deutsche Telekom AG (MTIP) is a Group-wide long-term compensation instrument for senior executives. The members of the Board of Management have participated in it since the 2004 financial year. The plan has a term of three years and will be issued annually on a rolling basis. It consists of two share-based, additive and equally weighted performance parameters. For the 2009 financial year – as for 2007 and 2008 – one absolute and one relative plan target have been set. The abso- lute plan target is related to the increase in value of the Deutsche Telekom share. The relative plan target requires the total return of the Deutsche Telekom share to outperform the Dow Jones Euro STOXX Total Return Index. The tranche of the 2007 MTIP achieved the relative share price develop- ment target but not the absolute share price development target. This means 50 percent of the award amount can be paid out for the 2007 tranche. For details, please refer to the notes to the consolidated financial state- ments on pages 208–214 of the Annual Report. The 2001 Stock Option Plan was closed for the Board of Management in 2004. Options granted to current and former members of the Board of Management from tranches of the 2001 Stock Option Plan can still be exercised, provided the necessary conditions are met. For details, please refer to the notes to the consolidated financial statements on pages 208–214 of the Annual Report. These disclosures in the notes to the consolidated financial statements are also an integral part of this Corporate Governance Report. The terms of the service contracts of the Board of Management members are linked to the term of appointment as a member of the Board of Manage- ment. To account for the Company’s entitlement to terminate the appoint- ment without this constituting cause for the simultaneous termination of the service contracts, the contracts of all the members of the Board of Management of Deutsche Telekom AG contain a clause specifying the maximum severance amount payable to the Board members in the event of their departure in such circumstances. As a rule, the Board member’s contracts stipulate a clause prohibiting them from joining a competitor after their departure. Service contracts for members of the Board of Management include a provision in case of premature termination without good cause allowing a compensation payment which, in line with the recommendations of the Corporate Governance Code, is restricted to a maximum of two years’ remuneration (severance cap) and may not exceed the remuneration due for the remaining term of the service contract. 43To our shareholders Corporate governance