Stephen O'Brien

About Stephen O’Brien

Stephen D. O’Brien is Senior Vice President, President and General Manager – North America Water Heating at A. O. Smith (AOS). He was promoted to president of the North America Water Heating business unit in 2024, reflecting expanded P&L responsibility over the company’s largest segment . As a named executive officer, his compensation is tied to both corporate and business unit performance, with 2024 corporate outcomes of $534M net income and $708M EBIT, and five-year company TSR growing an initial $100 investment to $157 (down from $186 in 2023) . He is subject to a 3x base salary stock ownership guideline and is “on track” to meet it given his recent promotion; A. O. Smith prohibits executive hedging and pledging of Company stock .

Past Roles

Organization	Role	Years	Strategic Impact
A. O. Smith	President & GM – North America Water Heating (also SVP)	2024–present	Promotion expanded accountability for unit EBIT/PEBIT and growth targets within executive incentive plans .
A. O. Smith	Senior VP & General Manager – North America Water Heating (prior role)	Pre-2024–2024	Led North America Water Heating prior to promotion; bonus plan emphasis on PEBIT and net sales for the business unit .

Fixed Compensation

Item	2024	2025	Notes
Base Salary ($)	$470,000	$510,000	2024 salary set below market median; 2025 +8.5% recognizing advancement .
Target Annual Bonus (% of Salary)	60%	—	Target as % of base for 2024; market comparator at 92% of median .
Executive Life Insurance (Current Death Benefit)	$940,000	—	New executives eligible for 2x salary during employment; no post-retirement eligibility .
Company Retirement/Savings Contributions (2024)	$36,557	—	Includes 401(k) match/non-match and non-qualified contributions .
Perquisite Allowance	$0	—	Not eligible for grandfathered allowance; eligible for executive physicals and limited reimbursements .

Performance Compensation

2024 Annual Incentive (Plan Design and Outcome)

Component	Metric	Weighting	Target	Actual Attainment	Result/Payout
Corporate portion	EBIT	80% (of corporate portion)	$799.1M EBIT goal	68.1% of target	Drives corporate portion factor .
Corporate portion	Net Sales	20% (of corporate portion)	$4.0258B net sales goal	72.7% of target	Corporate portion overall 69.0% .
Business Unit portion (N.A. Water Heating)	PEBIT	80% (of BU portion)	BU PEBIT target	74.6% of target	Drives BU portion factor .
Business Unit portion (N.A. Water Heating)	Net Sales	20% (of BU portion)	BU net sales target	74.5% of target	BU portion overall 74.5% .
Weighting between BU vs Corporate for O’Brien	—	70% BU / 30% Corporate	—	—	—
Individual target bonus ($)	—	—	$282,000	—	—
Actual bonus paid ($)	—	—	—	—	$206,000

2024 Long-Term Incentives (Grant Structure, Metrics, Vesting)

Instrument	2024 Grant (O’Brien)	Performance Metric(s)	Payout Curve	Vesting
Restricted Stock Units (RSUs)	4,075 units; $330,157 FV	Time-based with minimum 3-year average ROE threshold (≥5%)	Vest only if ROE threshold met	Vests 2/12/2027 .
Performance Stock	Target 1,220; Max 1,830; $98,844 FV	Strategic ESG – Water savings (2024–2026)	0% at 0; 100% at 16M gallons; 150% at 20M gallons	3-year performance period 2024–2026 .
Performance Cash Units	Target $231,000	ROIC vs cost of capital over 2024–2026	0% at 20.3%; 100% at 30.8%; 200% at 36.5%	3-year performance period 2024–2026 .

Equity Ownership & Alignment

Category	Detail
Beneficial ownership (12/31/2024)	2,104 Common Shares; 10,020 RSUs; 3,127 options exercisable within 60 days; <1% of outstanding .
Unvested RSUs (counts; market value at 12/31/24)	1,100; 1,930; 2,905; 4,075 units with market values $90,684; $159,109; $239,488; $335,943 respectively .
Unvested Performance Stock (max potential)	1,305 (2023–25) and 1,830 (2024–26) max; target 870 (2023–25) and 1,220 (2024–26) .
Stock options (status/prices)	3,127 exercisable; strike $74.265; plus 1,563 unexercisable at $60.820; expirations as disclosed (latest 02/07/32) .
Scheduled near-term vests (supply watch)	RSUs vest: 2/7/2025 (1,110); 4/1/2025 (1,930); 2/13/2026 (2,905); 2/12/2027 (4,075) .
Ownership guidelines	3x base salary; O’Brien “on track” to meet, given recent role change .
Hedging/pledging	Company policy prohibits hedging and pledging for all directors, officers, and employees .

Note: 2024 stock vested for O’Brien totaled 3,455 shares ($276,314 value realized), and no option exercises occurred in 2024 .

Employment Terms

Topic	Key Terms
Employment contract	No individual fixed-term employment agreement; serves at Board’s pleasure .
Severance (Qualifying Termination)	18 months continuation of base salary and target bonus; pro rata actual annual bonus; medical continuation; outplacement (up to 25% of salary); pro rata/continued vesting as specified .
Change-in-Control (CIC) + QT	Lump sum equal to 15 months of base+target bonus, plus 9 months base+target bonus for non-compete; pro rata target bonus; equity: options/RSUs vest; performance awards paid at target (pro rata); medical/outplacement benefits .
Clawback	Company-wide clawback compliant with SEC/NYSE; extends to equity recipients and detrimental conduct, beyond accounting restatements .
Hedging/Pledging	Prohibited for executives .
Estimated payout illustrations (as of 12/31/2024)	QT total: $2,214,292 (includes severance $1,128,000; pro rata bonus $206,000; RSU $309,617; performance units $396,000; performance stock $36,220; benefits/outplacement) . CIC+QT total: $3,074,746 (includes severance $1,504,000; pro rata bonus $282,000; RSU $275,978; performance units $169,000; performance stock $67,255; outplacement $27,940; modified 280G gross-up $748,573) .
Non-compete/Non-solicit	Participation conditioned on signing non-compete, non-solicitation, confidentiality; CIC severance includes separate non-compete consideration .

Compensation Structure Analysis

Pay mix and leverage: For NEOs, 65–80% of total target comp is variable; O’Brien’s target bonus is 60% of base and his 2024 LTI target was $660,000 (86% of market median), with 50% RSUs, 35% performance cash, and 15% performance stock, adding meaningful multi-year retention and performance linkage .
Performance calibration: Annual bonus emphasizes profitability (EBIT/PEBIT at 80% of the respective portion) with a smaller revenue component (20%), balancing growth and margin; 2024 corporate payout was 69% and BU payout 74.5% .
ESG and capital efficiency in LTI: ROIC governs performance cash; strategic ESG (water savings) anchors performance stock; RSUs include a 3-year average ROE threshold (≥5%) .
Governance flags: A modified 280G “gross-up” may apply upon CIC for certain executives, with O’Brien’s illustrative CIC+QT scenario including a $748,573 excise tax gross-up at year-end 2024 assumptions; company-wide hedging/pledging bans and clawback mitigate alignment risk .

Say-on-Pay & Benchmarking Context

Say-on-pay approval was ~97% at the 2024 Annual Meeting; the committee targets market median using WTW market data and maintains caps (200% of target) on variable plans .
Peer method: Broad-based WTW database (regressed to size), not a fixed named peer group; corporate revenue comparator used $3.75B/$3.85B for 2024/2025 benchmarking .

Investment Implications

Alignment and retention: Significant unvested RSUs and performance awards vesting through 2027, plus 18-month severance (and enhanced CIC economics), support retention in a key profit center; upcoming RSU vests on 2/7/2025 and 4/1/2025 may create mechanical selling (tax withholding) but also reflect growing in-the-money retention value .
Incentive quality: Heavy weighting to EBIT/PEBIT and ROIC favors returns-focused execution, while ESG-linked performance stock may modestly diversify incentives; the ROE threshold on RSUs adds a baseline profitability guardrail .
Governance watchpoints: The presence of modified 280G gross-up provisions (illustrative values disclosed) is an investor-relations negative in many governance frameworks, though balanced by robust clawback and prohibitions on hedging/pledging .
Execution risk: 2024 corporate payout below target (69%) and BU payout at 74.5% indicate moderated growth/margin realization versus plan; as the leader of North America Water Heating, O’Brien’s 2025 results versus PEBIT/net sales targets will be a key signal for compensation outcomes and stock support through pay-versus-performance optics .