Patrick Watson
KENNAMETALAbout Patrick Watson
Patrick Watson is Kennametal’s Chief Financial Officer, promoted in June 2022 after serving as Corporate Controller . During his CFO tenure, the company’s FY2025 performance was mixed: sales were $2.0B (flat vs. FY2024), EBITDA $285M (14.5% margin; adjusted EBITDA $299M, 15.2%), and ROIC declined to 6.2% (adjusted ROIC 6.8%) from FY2024 (sales $2.0B, EBITDA $300M/14.7%, adjusted EBITDA $313M/15.3%, ROIC 7.0%, adjusted ROIC 7.6%) . Age and education were not disclosed in the proxies reviewed.
Past Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Kennametal Inc. | Corporate Controller | – Jun 2022 | Internal finance leadership culminating in promotion to CFO |
External Roles
Not disclosed for Patrick Watson in the proxies reviewed .
Fixed Compensation
| Metric | FY2022 | FY2023 | FY2024 |
|---|---|---|---|
| Base Salary ($) | 275,167 | 400,000 | 475,000 |
| Target Bonus % of Salary | 35% (as Controller) | 60% (as CFO) | 70% (raised to 75% for FY2025) |
| Actual Bonus Paid ($, Non-Equity Incentive Plan) | 94,789 | 232,320 | 281,750 |
Notes:
- In June 2022, Watson’s salary was increased to $400,000 upon promotion to CFO; FY2022 AIP used prior salary and 35% target .
- For FY2025, his AIP target increased to 75% (from 70%) .
Performance Compensation
Annual Incentive Plan (AIP) – Design and FY2025 Outcomes (Corporate NEOs)
| Metric | Weighting | FY2025 Payout vs Target | Vesting/Timing |
|---|---|---|---|
| Kennametal Revenue | 20% | Included in total | Paid after fiscal year-end; no first-half payments |
| Kennametal Adjusted EBITDA | 50% | Included in total | Paid after fiscal year-end |
| Kennametal PWCPS | 30% (12‑month period) | Included in total | Paid after fiscal year-end |
| ESG Modifier | ±10% | −10% applied; Corporate NEOs paid 63.2% of target | Applied to annual payout |
PSU Program – Metrics, Weighting, and Performance
| Award Year | Metric | Weighting | Performance/Payout |
|---|---|---|---|
| FY2023 PSUs | Adjusted ROIC (3 one‑year tranches) | 66.66% | Cumulative 91.1% multiple across ROIC tranches; with EBITDA margin tranche, total 91.5% of target for FY2023–FY2025 period |
| FY2023 PSUs | Avg Adjusted EBITDA Margin (3‑yr) | 33.34% | 92.4% payout multiple for FY2023–FY2025 period |
| FY2024 PSUs | Adjusted ROIC (tranche) | 66.66% | First ROIC tranche: 67.3% multiple of target; cumulative FY2022 PSUs were 67.3% due to 0% EBITDA margin tranche |
| FY2024 PSUs | Avg Adjusted EBITDA Margin (3‑yr) | 33.34% | To be calculated at FY2024–FY2026 end |
| FY2025 PSUs | Adjusted ROIC (tranche) | 66.66% | First ROIC tranche: 81.1% multiple of target |
| FY2025 PSUs | Avg Adjusted EBITDA Margin (3‑yr) | 33.34% | To be calculated at FY2025–FY2027 end |
Program design:
- 60% of LTI value in PSUs; 40% in RSUs; RSUs vest one‑third annually over 3 years .
- PSU tranches earn annually on Adjusted ROIC, with a separate 3‑year EBITDA margin component; service condition requires employment through distribution/payout date .
FY2024 Grants of Plan‑Based Awards (Watson)
| Grant Date | Instrument | Quantity (Units) | Grant Date Fair Value ($) |
|---|---|---|---|
| 8/9/2023 | PSUs (ROIC, tranche for FY2024) | Target 2,674; Threshold 1,337; Max 5,348 | 73,027 |
| 8/15/2023 | RSUs | 9,234 | 239,992 |
| 8/15/2023 | PSUs (ROIC + 3‑yr EBITDA margin cycle) | Target 7,696; Threshold 3,848; Max 15,392 | 200,019 |
Vesting schedules:
- RSUs: 1/3 per year on grant anniversary .
- PSUs: 22.22% per year for ROIC tranches; 33.34% tied to 3‑year average EBITDA margin, all subject to service requirement through payout/distribution date .
Equity Ownership & Alignment
Beneficial Ownership (as of Aug 15, 2023)
| Category | Shares/Units |
|---|---|
| Total Beneficial Ownership of Common Stock | 43,224 |
| Performance Unit Awards (deemed earned, service condition) | 4,068 |
| Restricted Units (unvested) | 13,927 |
| Options Exercisable within 60 days | 17,985 |
| Total Ownership of Common Stock (company’s internal calculation incl. certain units) | 61,219 |
Ownership policy and alignment:
- CFO stock ownership guideline: 3x base salary; unearned PSUs excluded; vested/unvested RSUs count .
- Hedging and pledging of company stock are prohibited without General Counsel’s prior approval; exceptions require demonstrable capacity to repay loans without resort to pledged stock .
2024 Stock Vested and Tax Withholding
| Item | Shares | Value ($) |
|---|---|---|
| Shares vested (RSU/PSU) in 2024 | 8,467 | 237,505 |
| Shares surrendered for tax withholding | 2,581 | 67,080 |
Kennametal currently grants RSUs and PSUs (no options in recent years); timing practices avoid coordination with MNPI; annual grants typically in August .
Employment Terms
Severance and Change‑in‑Control Mechanics
| Provision | Terms |
|---|---|
| Non‑CIC severance | 12 months salary continuation for executives with ≥2 years service; CEO 24 months |
| CIC cash severance | Double‑trigger; 2x base salary + 2x target bonus if terminated within 6 months prior to or 24 months post‑CIC, or resigns for good reason |
| Benefits continuation | Medical and welfare benefits for 2 years post‑termination in CIC scenario; cash payment if benefits cannot be provided |
| Non‑compete/forfeiture | Two‑year post‑employment non‑competition tied to option/RSU/PSU vesting; potential forfeiture/return of awards if “Injurious Conduct” within 12 months before or 24 months after termination |
| Retirement plan covenants | ERP/Restoration Plan benefits conditioned on non‑compete and non‑solicit for 3 years; company may recoup paid benefits upon violation |
| Clawbacks | NYSE/SEC‑compliant clawback policy adopted in Fiscal 2024; plan language provides for forfeiture/recoupment at administrator’s discretion |
| Tax gross‑ups | No partial excise tax gross‑ups in executive employment agreements |
| Agreement term | No predetermined term; compensation set by Committee and salary band; agreements in force upon commencing executive duties |
Potential Payments (Illustrative as of June 30, 2025; stock price $22.96)
| Scenario | Severance ($) | Unvested RSUs ($) | Unvested PSUs ($) | Health & Welfare ($) | Total ($) |
|---|---|---|---|---|---|
| Non‑CIC: Involuntary Not for Cause | 525,000 | — | — | — | 525,000 |
| Non‑CIC: Death | — | 496,257 | 724,962 | — | 1,221,219 |
| Non‑CIC: Disability | — | 496,257 | 724,962 | — | 1,221,219 |
| CIC: Involuntary Not for Cause or Resign for Good Reason | 1,837,500 | 496,257 | 724,962 | 35,246 | 3,093,965 |
FY2024 table for Watson showed similar structure with lower amounts (severance $1,700,000; total CIC $2,576,253) . FY2022 table reflected earlier role/award sizing (severance $400,000; total CIC $1,699,768) .
Compensation Committee and Peer Benchmarking
- Committee: Cindy Davis (Chair), Joseph Alvarado, William J. Harvey, Lorraine M. Martin; Pay Governance serves as independent consultant .
- Benchmarking target: approximately median total direct compensation vs custom manufacturing peer group; peer list refreshed over time to maintain size/complexity comparability .
Say‑on‑Pay & Shareholder Feedback
- FY2022 compensation approved with ~99% support (Oct 25, 2022) .
- FY2023 compensation approved with ~98% support (Oct 24, 2023) .
- FY2024 compensation approved with ~99% support (Oct 29, 2024) .
Investment Implications
- Pay‑for‑performance alignment: AIP emphasizes Adjusted EBITDA (50% weighting in FY2025) and working capital discipline (PWCPS 30%), with revenue at 20%—driving near‑term cash generation and operational efficiency . PSUs are anchored to Adjusted ROIC and 3‑year average EBITDA margin (balanced to 50/50 in FY2026), reinforcing capital‑efficiency and margin focus over multi‑year horizons .
- Retention/vesting cadence: RSUs vest annually (one‑third); recent awards include 8/15/2024 RSUs (three‑year schedule) and a cliff RSU vesting 8/1/2026—expect periodic tax‑withholding surrenders (e.g., 2,581 shares in FY2024) rather than open‑market selling pressure .
- Governance risk mitigants: Double‑trigger CIC, no excise tax gross‑ups, robust clawback, and strict non‑compete/forfeiture and anti‑hedging/pledging policies lower agency risk and discourage misalignment behaviors .
- Performance context: Company EBITDA and ROIC declined in FY2025 vs FY2024, reflected in lower AIP payouts (Corporate NEOs at 63.2% of target); PSU tranches for ROIC achieved sub‑100% multiples, indicating balanced downside accountability and lower immediate cash incentive pressure .
Overall, Watson’s compensation is structured with a high share of at‑risk pay tied to ROIC, EBITDA margin, and cash conversion, backed by conservative CIC and clawback provisions—supporting alignment while tempering near‑term payout sensitivity during softer performance periods .