It’s not always the case that bosses of big businesses getting paid big money hits the right notes in the public eye. There have been times that public limited companies - those on stock exchanges, beholden to shareholders as well as a board - have been criticised when trying to up payment terms for the decision-makers at the top.
That seems to go extra when it’s a bank or other finance-driven entity, or an organisation which operates in an area which perhaps straddles social goodwill.
So, when British American Tobacco (BAT) - as the name suggests, a cigarette producer which owns several major brand names - puts forward plans for the CEO to become one of the highest paid bosses in the FTSE 100, with the possibility to earn up to £18.2m a year, it may raise some eyebrows.
Or, to be more blunt, may require some big explaining.
BAT certainly think their plan is worthwhile, but trebling the salary of Tadeu Marroco - CEO since mid-2023 - will invoke questions from several stakeholders. Importantly to note, the £18.2m is only a total possible payout if targets are hit, with Mr Marroco’s guaranteed pay set at £1.8m across salary, pensions and benefits. He earned £6m in total last year, say the Financial Times.
Increasing CEO pay is not a new thing for London Stock Exchange-listed companies, who for a long time have had to watch similar businesses in the US pay considerably more.
Last year Lord Michael Spencer called for CEOs to be paid similarly to “top-rate footballers”, saying that sporting stars getting huge money was acceptable but that bank or energy bosses earning £20m a year was “materially less than their peer groups in America” but saw outsiders fuming it was “an outrage”.
Many have cited this pay gap as a possible reason for a talent drain Stateside, while on a broader view, valuation gaps of the companies themselves have seen many London-listed companies become targets for takeovers by private equity groups or overseas corporations.
Last year the London Stock Exchange Group gave CEO David Schwimmer a double pay deal to a possible maximum of over £13m. But the former bosses of Reckitt Benckiser, InterContinental Hotels Group and Smith & Nephew all departed for different reasons regarding pay, including to US-listed companies.
So, to stop that prospect happening, BAT regard it as worthwhile raising Mr Marroco’s potential pay.
“The increasingly competitive global market for senior talent has resulted in upwards pressure on pay. With many US-based candidates we observe that pay disparities are particularly evident with incentive opportunities, which tend to be far above typical UK levels,” BAT said this week in a report.
That’s not just limited to CEO pay either, but many senior hires over the last few years.
But for the top boss to achieve his top pay, certain factors must be met.
Cigarettes are a slow-dying industry perhaps, but BAT is betting its future on a smokeless environment. Vaping and the use of other e-cigarette products is on the rise and Mr Marroco must improve profitability in that alternatives sector. Naturally, the share price is heavily linked to his pay and bonuses too - it must rise 50 per cent for him to max out.
The BAT share price is down eight per cent over five years and down around 14 per cent since a fairly recent high point in May 2022, but is also up 25 per cent over the past one year and five per cent since the start of 2025.
In another bump typical of the risks associated with investing, however, the price dropped around eight per cent on Thursday morning when BAT announced full year profits, which were undercooked against analyst expectations and included a £6bn charge related to a long-standing lawsuit in Canada.
That issue, regulatory challenges around the products they make and competition from newer, more agile firms concentrating on those modern cigarette alternative products, must all be weighed up by possible investors against the prospect of a share price rise and - the real appeal of this type of company - a weighty near-eight per cent dividend yield.
All of that comes in Mr Marroco’s juggling act to move the company into a new era, while battling significant legacy challenges, as AJ Bell investment director Russ Mould points out.
“It’s all very well making grand pledges to be a ‘smokeless business’ by 2035 but it does beg the question of what’s going to replace the revenue and cash flow provided by selling cigarettes, given it is this which allows the company to sustain generous dividends and share buybacks,” he said.
“In 2024, areas like vaping and e-cigarettes contributed £250m out of its near-£12bn worth of adjusted operating profit. This clearly illustrates the size of the task over the next decade better than the company’s observation that these areas of the business are now contributing some 17.5 per cent of revenue.
“The company has a big job on its hands to restore its existing business to a decent level of performance, never mind achieving a complete transformation of the company. For now, CEO Tadeu Marroco is likely to be judged on getting the basics right rather than anything more ambitious,” he added.
Ambitious can probably sum up many FTSE companies’ ambitions, at least in the way they view their own plans, if not the eventual execution of them. Shareholders must first vote on the proposed pay deal for Mr Marroco at the AGM in April before it comes into effect. They can, of course, hinder that if they don’t feel it’s in the best interests of the company.
Then we will see if UK plc is continuing to make ground on its US rivals in CEO pay terms - and, in the longer term, whether that was a good judgement on BAT’s part.
