Woodward, Inc.

Fiscal 2024 NEO Target Pay Mix

Our executive compensation program focuses on pay-for-performance, and a significant portion of our executive compensation is variable and at-risk. The Human Capital & Compensation Committee uses its discretion in determining the appropriate mix of fixed and variable compensation for each NEO. The balance between each element of compensation may change from year-to-year based on corporate strategy and objectives, business conditions, and other considerations.

For fiscal year 2024, our currently employed NEOs had the following target pay mix, which reflects our pay-for-performance philosophy. The information below reflects the target annual pay mix for each NEO as approved by the Human Capital & Compensation Committee. It is presented without regard to the one-time increase in award size to mitigate the impact of the grant date change, as discussed above, which we believe provides a more meaningful view into the typical target pay mix for our NEOs. The numbers in the below charts do not add up to 100% due to the impacts of rounding.

Base Salary

Base salary is the only fixed component of our NEOs’ total compensation and provides stable, competitive pay to attract, motivate, and retain our NEOs. Base salaries typically reflect each NEO’s experience, skills, knowledge, and responsibilities, although comparative market data also plays a role in setting base salary levels. We do not apply specific formulas to determine salary changes. Instead, the salaries of our NEOs are reviewed on an annual basis by the Human Capital & Compensation Committee based on our compensation philosophy and strategy. Salary changes for our NEOs are typically approved by the Human Capital & Compensation Committee in September and generally become effective on or about January 1 st each year.

Following its annual review, in September 2023, the Human Capital & Compensation Committee approved the following adjustments to the base salaries of our NEOs:

(1)

Base salary changes became effective on or about January 1 st of the applicable calendar year.

(2)

Because base salary adjustments were effective during the second quarter of the fiscal year, amounts disclosed in the Summary Compensation Table differ from the annualized base salary amounts included in this table.

(3)

Mr. Lacey's and Mr. Voskuil's base salary increases were intended to more closely align their respective base salaries with the competitive medians for their roles.

Short-Term Incentive Compensation

All executive officers participate in the Enterprise Incentive Plan (the “EIP”), one of the Company’s annual short-term incentive plans. The EIP is designed to incentivize performance on key annual financial and strategic priorities that are critical to our long-term success. The EIP performance metrics and targets reflect rigorous targets focused on key business success factors that drive performance and challenge our management to achieve higher financial and operational performance at the enterprise level. Under the EIP, the Human Capital & Compensation Committee establishes a target incentive award for each executive officer as a percentage of base salary, establishes performance metrics for the fiscal year, and measures performance on an enterprise basis following the completion of the fiscal year. For fiscal year 2024, the EIP was based 80% on financial metrics and 20% on strategic metrics.

Financial Metrics (80% Weight)

For the fiscal year 2024 EIP, the Human Capital & Compensation Committee determined to use Adjusted Earnings Per Share (“EPS”) and Adjusted Free Cash Flow (each as defined below) as the financial metrics. For each financial metric, the Human Capital & Compensation Committee established quantitative threshold, target, and maximum performance levels. The performance metrics were established to set challenging yet attainable targets.

For purposes of the EIP performance metrics for fiscal year 2024, “Adjusted EPS” and “Adjusted Free Cash Flow” mean, respectively, (i) the Company’s reported diluted earnings per share, and (ii) the Company’s reported cash from operations, less capital expenditures, and in each case (i) and (ii) calculated without consideration to unusual income, expenses, gains, losses or other impacts totaling in excess of 2% of the Company’s net earnings for the fiscal year, including but not limited to any such items that are related to or associated with any:

a)

acquisitions or divestitures;

b)

reorganization or restructuring activities;

c)

litigation or claim judgments or settlements;

d)

impact of any changes in or assumptions related to tax or other statutes, regulations or other applicable laws or accounting principles, and in each case, that were not previously contemplated;

e)

foreign exchange fluctuations;

f)

asset write-downs; or

g)

other significant elements or items as provided in Section 11.2 of the Woodward 2017 Omnibus Incentive Plan.

In addition to the foregoing, if at the end of the performance period, the Human Capital & Compensation Committee believes that the achievement of the specific performance metrics under the EIP is not reflective of the Company’s expected level of financial, operating or other performance, the Human Capital & Compensation Committee may in its discretion modify the amount of any EIP payout to be made under the plan.

Consistent with the definitions above, for fiscal year 2024, in addition to (i) the adjustments to U.S. GAAP diluted earnings per share described in the Section titled “Non-U.S. GAAP Measures” in Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations, in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024, filed with the SEC on November 26, 2024, and (ii) the adjustments to free cash flow as described in Annex A to this proxy statement, a downward adjustment was made, for EIP purposes, to Adjusted EPS and Adjusted Free Cash Flow in respect of unusual income from the Company’s China on-highway business totaling in excess of 2% of the Company’s net earnings for the fiscal year.

The following table sets out the fiscal year 2024 EIP financial metrics, weighting, performance targets, and payout factor approved by the Human Capital & Compensation Committee. We employ the use of a flatter funding curve for performance that is within close range of target to moderate payouts in that zone.

Strategic Metrics (20% Weight)

For the fiscal year 2024 EIP, the Human Capital & Compensation Committee established two strategic metrics for “Safety” and “People & Culture” performance. Safety of our employees is a top priority, and promoting and strengthening People & Culture at Woodward is a cornerstone of our human capital management strategy. The strategic metrics are qualitative in nature and measured following the completion of the fiscal year. When determining performance under the strategic metrics, the Human Capital & Compensation Committee evaluated performance during the fiscal year, considering both the successes and disappointments we experienced.

The objective of the Safety metric is to drive a safety culture and mindset across the Company where safety is the first consideration for all employees, and to proactively strive to effectively increases layers of risk protection. Performance under the Safety metric was measured based on meaningful progress in our fatality and serious injury (“FSI”) prevention project, as well as the successful early phase rollout of our Human and Organizational Performance (“HOP”) program to key facilities during the fiscal year. HOP is an approach to safety management that focuses on understanding how people and organizations work, and how to improve their performance in order to prevent accidents and incidents. We intend to implement HOP company-wide by the end of fiscal year 2026. We believe FSI prevention and HOP are driving meaningful cultural change at Woodward and improving safety outcomes.

The objective of the People & Culture Metric is to foster a culture of inclusivity, belonging and engagement where the power of diverse people, perspectives, and experiences are welcomed and recognized as a core component of our organizational success. Performance under the People & Culture metric was measured based on positive progress made by the Company’s Inclusion Council during the fiscal year, the implementation of leader-led psychological safety training to drive a culture of inclusivity, and positive trends in engagement surveys related to employee perceptions of inclusive leadership.

Summary of EIP Payout Calculations

The final payout factor and payout amounts for each of our NEOs, as approved by the Human Capital & Compensation Committee, are shown below.

For purposes of the EIP, “base salary” means eligible base wages earned during the applicable year.

Long-Term Incentive Compensation

As noted above, we made changes to our LTI Plan for fiscal year 2024. The LTI Plan for fiscal year 2024 executive compensation consisted of time-based equity in the form of stock options and/or RSUs (weighted 50%) and performance-based equity in the form of PSUs (weighted 50%). The Human Capital & Compensation Committee adopted equal relative weightings for each element to balance Woodward’s need for long-term retention provided by time-based equity with Woodward’s desire to provide management with the opportunity to earn additional incentive compensation based on the achievement of the company’s long-term financial objectives, which will ultimately deliver shareholder value.

The PSU awards are designed to replace our previous cash long-term incentive (“Cash LTI”) plan, and thus no Cash LTI awards were made for fiscal year 2024. The Human Capital & Compensation Committee believes the PSUs more effectively link executive compensation to company performance, as the value of PSUs better reflects changes in the Company’s stock price thereby further aligning management and stockholder interests. Previous Cash LTI awards for the fiscal year 2022-2024 and 2023-2025 performance cycles will continue to be subject to earnout and vest based on the original criteria.

Due to the impact of the one-time increase in award sizes to mitigate the impact of the grant date change (as described above), as well as the payout of Cash LTI compensation to certain of our executive officers, the compensation amounts reported in this proxy statement do not directly reflect the 50-50 split between time-based and performance-based awards. We anticipate this will resolve in future years as we maintain consistent annual grant dates and the Cash LTI plan phases out.

The Human Capital & Compensation Committee believes our LTI Plan design effectively supports our long-term business and strategic goals and directly ties the long-term goals of our executive leadership team to the interests of our stockholders. The LTI Plan is also an important tool we use to motivate and retain our executive officers.

In consultation with our CEO (other than with respect to himself) and FW Cook, the Human Capital & Compensation Committee approves a grant date fair value for the LTI awards for each executive officer, taking into account the factors as described above.

Time-Based Equity Compensation

Effective for fiscal year 2024, our executive officers (and all other employees who receive an annual equity award) received Equity Choice with respect to the form of their annual time-based equity awards (with each choice having the same grant date fair value). We believe stock options are aligned with stockholder interests because the participant does not benefit from the award unless there is shareholder value creation (i.e., an increase in the stock price) after the date of grant. Also, the value of the RSU awards is directly tied to the performance of the Company's stock price, which aligns the interests of participants with the long-term success of the Company. The combined availability of stock options and RSUs gives our executives the opportunity to balance the incentive award in a manner that suits their particular risk profile and their own preferences in financial or tax planning. In determining to adopt the Equity Choice program, the Human Capital & Compensation Committee considered historical Woodward equity compensation practices, market trends, employee preferences and flexibility, and the impact of Equity Choice on employee attraction and retention.

Stock options vest over a period of four years from the grant date at the rate of 25% per year, generally subject to continued service to the Company (no change from prior year). The grant date was February 12, 2024. The Black-Scholes value applied for each stock option was $58.15. The exercise price of the stock options is equal to the closing price as quoted on Nasdaq on the grant date.

Effective for fiscal year 2024, RSUs now vest over a period of three years from the grant date at the rate of 33.33% per year, generally subject to continued service to the Company. RSUs previously vested at the rate of 25% per year over four years. The Human Capital & Compensation Committee determined to shorten the RSU vesting period to better align the Company’s RSU awards with market practice.

As described above, to mitigate the impact of the grant date change, the Human Capital & Compensation Committee approved a one-time 36% increase in the “Annualized Target Grant Date Fair Value” for the annual time-based equity award to all eligible employees, including our executive officers. The amounts reported below in “Grant Date Fair Value Received” reflect the value actually received by the NEO after accounting for the one-time increase.

The time-based equity awards granted to our NEOs under the regular LTI Plan in fiscal year 2024 were as follows:

One-Time RSU Award to Mr. Hobbs

As discussed above, we closed the Cash LTI plan to new participants during fiscal year 2023. Mr. Hobbs’ employment began during fiscal year 2023, but the Company had not determined to close the Cash LTI plan until after his employment start date. Mr. Hobbs’ offer letter provided that he would begin participating in the 2022-2024 and 2023-2025 Cash LTI cycles on a prorated basis beginning in fiscal year 2024. To fulfill the Company’s commitment to Mr. Hobbs and to provide him with an award with a grant date fair value approximate to the value he would have received under the Cash LTI plan had he been permitted to participate, the Human Capital & Compensation Committee approved a one-time RSU award with a grant date fair value of $174,410. The RSUs vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date, which is similar to the timing of payments that Mr. Hobbs would have received under the Cash LTI plan. RSUs were provided to align delivered pay with Company share price performance after the grant date. The award was sized by an external valuation firm based on Company performance under the two applicable Cash LTI cycles as of November 27, 2023. This one-time RSU award was granted to all eligible employees who were similarly impacted.

Performance-Based Equity Compensation

Performance-based equity was introduced to the executive compensation program for the first time and awarded in the form of PSUs. Performance is measured over a three-year period based on the achievement of total shareholder return ("TSR") relative to the companies in the S&P MidCap 400 Index. The PSUs will vest only if the pre-established performance targets are achieved. If the Company’s absolute TSR during the performance period is negative, the maximum payout is capped at 100%. The ultimate payout (if any) is based on the following performance criteria:

Measuring performance on a relative basis mitigates the impact of macroeconomic factors (both positive and negative) that are beyond the control of management, and thus provides rewards that are more directly aligned with performance through different economic cycles. This measurement method aligns the interests of the executive officers and stockholders by rewarding performance that exceeds that of comparable companies. The S&P MidCap 400 was selected as the peer group because its constituents represent similarly-sized investment opportunities for Woodward’s shareholders.

All fiscal year 2024 PSUs were granted on November 27, 2023. As described above, to mitigate the impact of the grant date change, the Human Capital & Compensation Committee approved a one-time 16% increase to the “Annualized Target Grant Date Fair Value” for the annual PSU award to all eligible employees, including our executive officers. Thus, the amounts reported below in “Grant Date Fair Value Received” reflect the value actually granted to the NEO after accounting for the one-time increase.

The target number of PSUs is equal to the award grant date fair value divided by the Monte Carlo valuation for each PSU, which is determined as of the date of grant. The PSU awards to our NEOs in fiscal year 2024 were as follows:

Long-Term Cash Compensation

As noted above, the PSU awards are designed to replace our previous Cash LTI plan. The Cash LTI plan was closed to new participants as of the beginning of fiscal year 2023 and no Cash LTI awards were made for fiscal year 2024. Nonetheless, the three-year performance cycle for the 2022 Cash LTI awards was completed in the 2024 fiscal year.

2022 Cash LTI – 2024 Fiscal Year Performance

In November 2024, the Compensation & Human Capital Committee certified the following performance achievement and associated payouts under the fiscal year 2022-2024 Cash LTI awards.

(1)

Performance under the Cash LTI plan is measured pursuant to a relative measurement methodology that compares our performance to the companies in the S&P MidCap 400 Index. “Return on Capital” is measured by taking net income, adjusted for accounting changes and after-tax interest expense, divided by the sum of total debt, stockholder’s equity, and any non-controlling interest. “Growth in Earnings per Share” is measured by taking net income, adjusted for any accounting changes, divided by the number fully diluted common shares outstanding, which is then compared to a baseline earnings per share to calculate the growth in diluted earnings per share during such cycle.

(1)

Mr. Blankenship began participating in the 2022-2024 Cash LTI cycle on the first day of fiscal year 2023. Thus, his participation in the 2022-2024 cycle is prorated at 66.7%.

(2)

Messrs. Lacey and Hobbs do not participate in the Cash LTI plan because their respective employments with the Company began after the Cash LTI plan was closed to new participants.