Pilots' first pay increase will be backdated to January 1, 2016 and the last is slated for January 1, 2019, while the agreement will remain valid until the end of that year, Lufthansa said in a statement.
Pilots will also receive a one-off bonus payment of between 5,000 and 6,000 euros under the deal, or “around half a month of salary” per person, pilots' union Cockpit noted in its own statement.
With around 5,400 pilots covered by Lufthansa's collective bargaining agreement, the pay hike will add some 85 million euros ($90 million) per year to the group's costs.
Pilots at Lufthansa, Lufthansa Cargo and low-cost subsidiary Germanwings are all included in the agreement.
The deal is “acceptable”, Cockpit spokesman Markus Wahl said in the union's statement, but must still be approved by members in a vote.
Lufthansa and Cockpit turned to a mediator in December to unravel their intractable pay dispute.
Disruption from the pilots' latest strike in November cost the firm around 100 million euros — the latest in a series of walkouts that Lufthansa says have inflicted some 351 million euros of costs in total since 2014.
While the airline said it was happy with the result, it warned that the additional expense meant the pilots of 40 new aircraft it is adding to its fleet would not be covered by the compromise.
Meanwhile, tough talks are still to come for the two sides as they tackle remaining thorny issues including pilots' pensions.
Lufthansa shares rose on news of the deal, adding 0.93 percent to trade at 12.97 euros in Frankfurt at 1350 GMT, outpacing 0.08 percent gains for the DAX index of leading German shares.