Cigarette Giant’s Bold Move on CEO Compensation

 

It’s no secret that hefty executive paychecks often attract scrutiny, especially in industries with societal implications. When British American Tobacco (BAT), one of the world’s leading cigarette producers, proposed a pay package that could make its CEO one of the highest-paid executives in the FTSE 100, it inevitably raised eyebrows. The company plans to increase CEO Tadeu Marroco’s earnings to a staggering potential £18.2 million per year—a move that has triggered significant debate.

 

The Pay Breakdown: Big Numbers, Bigger Expectations

Marroco, who took over as CEO in mid-2023, currently has a guaranteed salary of £1.8 million, covering salary, pensions, and benefits. Last year, he earned £6 million in total compensation. However, the new proposal significantly boosts his potential earnings—though the £18.2 million figure is conditional, tied to performance targets.

This development comes amid broader discussions about executive pay in London-listed firms. Many argue that UK companies must offer competitive salaries to retain top talent, particularly as American counterparts pay significantly more.

 

The London Pay Gap and the Risk of Talent Drain

The debate over CEO pay isn’t new. In recent years, London Stock Exchange-listed companies have struggled to compete with the lucrative salaries offered by US firms. Some executives, including those from Reckitt Benckiser and InterContinental Hotels Group, have left for better-paying roles abroad.

Lord Michael Spencer, a prominent financier, has likened CEO salaries to footballer wages, arguing that while sports stars command astronomical salaries without controversy, business leaders face backlash for similar compensation levels. Last year, the London Stock Exchange Group doubled CEO David Schwimmer’s pay to over £13 million in response to these concerns.

 

A Changing Industry: The Shift from Cigarettes to Alternatives

BAT’s justification for the pay increase lies in its evolving business model. As cigarette consumption declines, the company is pivoting towards alternative products like e-cigarettes and vaping. The company has set ambitious targets to become a predominantly smokeless business by 2035.

For Marroco to earn his maximum compensation, BAT’s stock price must rise by 50%. However, the company has faced mixed financial results. Over the past five years, its stock has dropped by 8%, including a 14% decline since May 2022. That said, the share price has rebounded 25% in the past year and is up 5% since early 2025.

 

Financial Hurdles and Investor Reactions

BAT’s recent financial results have not eased concerns. The company’s shares dropped by 8% after it announced annual profits that fell short of analyst expectations. Additionally, a long-standing lawsuit in Canada resulted in a £6 billion charge, further weighing on investor confidence.

Despite these challenges, BAT remains a major player in the tobacco industry, with an attractive dividend yield of nearly 8%. However, the question remains: can Marroco successfully transition the company into a new era while maintaining its financial strength?

 

The Shareholder Verdict: April’s Key Vote

While BAT argues that higher pay is necessary to retain leadership talent, shareholders will have the final say. They are set to vote on the proposed pay increase at the company’s annual general meeting in April. If investors believe the package is excessive or unjustified, they could block the deal.

The outcome of this vote will not only determine Marroco’s pay but could also set a precedent for executive compensation across UK companies. Whether BAT’s gamble pays off or backfires remains to be seen—but one thing is clear: in the world of corporate pay, perception matters just as much as performance.