British American Tobacco (BAT), the tobacco giant behind numerous well-known cigarette brands, is facing scrutiny over its proposed pay package for CEO Tadeu Marroco. The plan could make him one of the highest-paid executives in the FTSE 100, potentially earning up to £18.2 million annually. This news comes as the company navigates a challenging landscape, aiming to transition towards a "smokeless" future while grappling with regulatory hurdles and declining traditional cigarette sales.
While the maximum payout is contingent on achieving specific performance targets, including a 50% share price increase, the proposal has already raised eyebrows. Marroco's guaranteed pay is set at £1.8 million, covering salary, pensions, and benefits. For comparison, he earned £6 million in total last year, according to the Financial Times.
BAT defends the substantial increase by citing the competitive global market for top executive talent. The company argues that US-based candidates often command significantly higher incentive opportunities, exceeding typical UK compensation levels. This echoes a broader trend of UK companies seeking to compete with US counterparts in executive pay to prevent talent drain. Last year, the London Stock Exchange Group doubled CEO David Schwimmer's potential pay package to over £13 million. Several prominent UK executives have recently departed for US-listed companies, citing pay as a contributing factor.
The proposed compensation aligns with BAT's ambitious goals. The company has pledged to become a "smokeless business" by 2035, focusing on alternative products like vaping and e-cigarettes. Marroco's performance will be judged on his ability to drive profitability in this burgeoning sector. Currently, these alternative products contributed £250 million out of BAT's nearly £12 billion adjusted operating profit in 2024. This highlights the scale of the challenge in replacing the revenue and cash flow generated by traditional cigarette sales, which currently fund generous dividends and share buybacks.
BAT's share price performance reflects these challenges. While it has seen a 25% increase over the past year and a 5% rise since the start of 2025, it is still down 8% over five years and 14% from a recent high in May 2022. The company's share price recently dropped by 8% following the announcement of full-year profits that fell short of analyst expectations, compounded by a £6 billion charge related to a long-standing lawsuit in Canada.
Analysts emphasize the complexities Marroco faces. Beyond the transition to smokeless products, he must address regulatory issues, competition from agile new firms, and restore the performance of the existing cigarette business. As AJ Bell investment director Russ Mould notes, Marroco will initially be judged on "getting the basics right" rather than more ambitious long-term goals.
The proposed pay package will be put to a shareholder vote at the AGM in April. The outcome will indicate whether investors believe the substantial increase is justified and in the best interests of the company. It will also serve as a barometer of the ongoing debate about executive compensation in the UK and its competitiveness with US levels. The ultimate test, however, will be whether BAT's gamble on Marroco's leadership pays off in the long run, as the company navigates a complex and evolving industry.
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