EXHIBIT 10.1



NATCO Group Inc.

2005 Incentive Bonus Plan



Plan
Participants



| |  |  | Plan participants will include all eligible employees as reflected in Attachment A. Participants will be grouped by Segments and major business unit functions:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gas Technologies
| | - |  | ----------------



| |  |  | Oil & Water Technologies
| | - |  | ------------------------



| |  |  | Automation & Controls
| | - |  | ---------------------



| |  |  | Global Marketing
| | - |  | ----------------



| |  |  | Corporate
| | - |  | ---------



| |  |  | Each participant has a pre-established bonus target which is expressed as a percentage of his/her base salary.
| | - |  | --------------------------------------------------------------------------------------------------------------



Purpose of the Plan



| |  |  | To drive appropriate behavior consistent with the achievement of corporate goals and objectives and to reward the successful achievement of same (Pay for Performance).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation Philosophy



| |  |  | Compensation at NATCO consists of three interwoven parts: Short-term cash compensation reflected in 1.) base salary and 2.) annual incentive bonus opportunity; and 3.) long-term
incentive compensation (in the form of stock options and/or restricted stock).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The company targets 50th percentile compensation for overall comparisons to industry peers with the opportunity to achieve up to 75th percentile if performance warrants.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The bonus plan also serves to unify managements efforts by using consolidated results as the principle measures of performance while recognizing segment, business unit results
and individual contribution in determining final awards.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Identified employees are eligible to participate in the plan but are not entitled to, or guaranteed, a bonus payment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



Metrics



| |  |  | The plan is based upon the achievement of pre-established and measurable goals which are most relevant to the preservation and/or creation of shareholder value.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Each metric within the plan has a minimum threshold level which must first be satisfied before any related award amount is released to the bonus pool.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Target corporate performance (at 100% payout) is tied generally to the achievement of 2005 business plan results and stated objectives.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 50% of each plan participants bonus will be based upon NATCO corporate financial performance, using:
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | EBITDA (to drive value creation)
| | - |  | --------------------------------



| |  |  | ROA (to earn competitive rates of return)
| | - |  | -----------------------------------------



| |  |  | No cap on upside
| | - |  | ----------------



---

| |  |  | 30% of each plan participants bonus will be based upon Segment performance using:
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Segment EBITDA (to drive value creation)
| | - |  | ----------------------------------------



| |  |  | ROA (to earn competitive rates of return)
| | - |  | -----------------------------------------



| |  |  | No cap on upside
| | - |  | ----------------



| |  |  | 20% of each plan participants bonus will be based on the achievement of Business Unit goals (to drive specific behaviors)
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Bonuses for the corporate staff will be weighted 50% on corporate objectives plus 30% of individual segment achievement (as if a participant) plus 20% for achievement of Business
Unit goals.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Segments that do not satisfy their segment EBITDA threshold may still participate in the corporate financial pool at the discretion of the Governance, Nominating & Compensation
(GNC) Committee of the Board of Directors and recommendation of management. Business Unit payouts would be permitted.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Individual contribution factors will range from 0 to 1.5x and will be applied to total potential award (bell curve rankings).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



Elements of 2005 Bonus Plan



| |  |  | The total pool is the sum of all eligible participants target bonuses multiplied by their base salaries as of 1/1/05, subject to adjustment by management and approval of the
GNC Committee to reflect current and/or projected financial or operating conditions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The bonus accrual will be based upon 100% payout at target levels, as adjusted.
| | - |  | -------------------------------------------------------------------------------



|                                      |  |            |   |  |     |   
|------------------------------------- |  | ---------- | - |  | --- | --
|                                      |  | Weightings |   |  |     |   
|Corporate Financial Goals             |  | 50         | % |  |     |   
|- EBITDA                              |  |            |   |  | (30 | )%
|- ROA                                 |  |            |   |  | (20 | )%
|                                      |  |           
|Segment Financial and Operating Goals |  | 30         | % |  |     |   
|- Segment Earnings                    |  |            |   |  | (15 | )%
|- ROA                                 |  |            |   |  | (15 | )%
|                                      |  |           
|Business Unit Goals                   |  | 20         | % |  |     |   
|                                      |  |            |   |  |     |   
|                                      |  | 100        | % |  |     |   
|                                      |  |            |   |  |     |   



| |  |  | Target generally is 100% of budgeted EBITDA, before bonus, for each Segment. At target, the projected bonus pool for 2005 is $3.8MM.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



Corporate Financial Goals (50% of Total Pool):



|                     |  |                            |  |     |  |     |  |     |  |     |  |      |  |        
|-------------------- |  | -------------------------- |  | --- |  | --- |  | --- |  | --- |  | ---- |  | -------
|                     |  | % of Target Performance(1)
|      Payout Factor |  | 75%                        |  | 80% |  | 85% |  | 90% |  | 95% |  | 100% |  | 115%(2)
|- EBITDA             |  | .50                        |  | .60 |  | .70 |  | .80 |  | .90 |  | 1.00 |  | 1.25   
|- ROA                |  | .40                        |  | .50 |  | .60 |  | .70 |  | .80 |  | .90  |  | 1.00   

---

|(1) | Amounts to be interpolated between achievement milestones.
|--- | ----------------------------------------------------------

|(2) | Payout increase 1.67 basis points for each 1% of achievement thereafter.
|--- | ------------------------------------------------------------------------



---

Segment Financial and Operating Goals (30% of Total Pool):



Gas Technologies



|                     |  |                            |  |     |  |     |  |     |  |      |  |        
|-------------------- |  | -------------------------- |  | --- |  | --- |  | --- |  | ---- |  | -------
|                     |  | % of Target Performance(1)
|      Payout Factor |  | 84%                        |  | 88% |  | 92% |  | 96% |  | 100% |  | 115%(2)
|- Segment Profit/ROA |  | .50                        |  | .60 |  | .65 |  | .80 |  | .90  |  | 1.00   

---

|(1) | Amounts to be interpolated between achievement milestones.
|--- | ----------------------------------------------------------

|(2) | Payout increase 1.67 basis points for each 1% of achievement thereafter.
|--- | ------------------------------------------------------------------------



Oil & Water Technologies



|                     |  |                            |  |     |  |     |  |     |  |     |  |     |  |      |  |        
|-------------------- |  | -------------------------- |  | --- |  | --- |  | --- |  | --- |  | --- |  | ---- |  | -------
|                     |  | % of Target Performance(1)
|      Payout Factor |  | 70%                        |  | 75% |  | 80% |  | 85% |  | 90% |  | 95% |  | 100% |  | 115%(2)
|- Segment Profit     |  | .50                        |  | .55 |  | .60 |  | .70 |  | .80 |  | .90 |  | 1.00 |  | 1.25   
|- ROA                |  | .30                        |  | .40 |  | .50 |  | .60 |  | .70 |  | .80 |  | .90  |  | 1.00   

---

|(1) | Amounts to be interpolated between achievement milestones.
|--- | ----------------------------------------------------------

|(2) | Payout increase 1.67 basis points for each 1% of achievement thereafter.
|--- | ------------------------------------------------------------------------



Automation & Controls



|                     |  |                            |  |     |  |     |  |     |  |     |  |     |  |      |  |        
|-------------------- |  | -------------------------- |  | --- |  | --- |  | --- |  | --- |  | --- |  | ---- |  | -------
|                     |  | % of Target Performance(1)
|      Payout Factor |  | 70%                        |  | 75% |  | 80% |  | 85% |  | 90% |  | 95% |  | 100% |  | 115%(2)
|- Segment Profit/ROA |  | .50                        |  | .55 |  | .60 |  | .70 |  | .80 |  | .90 |  | .95  |  | 1.00   

---

|(1) | Amounts to be interpolated between achievement milestones
|--- | ---------------------------------------------------------

|(2) | Payout increase 1.67 basis points for each 1% of achievement thereafter.
|--- | ------------------------------------------------------------------------



Corporate and Global Marketing



| |  |  | Corporate Financial Goals 50%
| | - |  | -----------------------------



| |  |  | Segment Financial and Operating Goals (30%)
| | - |  | -------------------------------------------



| |  |  | Prorata Segment Profit (15%) and ROA (15%) by contribution to consolidated EBITDA (as if a participant)
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Gas Technologies (Corporate and Global Marketing)
| | - |  | -------------------------------------------------



| |  |  | Oil & Water Technologies (Corporate and Global Marketing)
| | - |  | ---------------------------------------------------------



| |  |  | Automation & Controls (Corporate only)
| | - |  | --------------------------------------



---

|(1) | Amounts to be interpolated between achievement milestones
|--- | ---------------------------------------------------------



| |  |  | Business Unit Goals (20% of Total)
| | - |  | ----------------------------------



| |  |  | To be established by management committee administering the incentive program, subject to concurrence by GNC Committee
| | - |  | ----------------------------------------------------------------------------------------------------------------------



Funding of the Bonus Pool



| |  |  | Each portion of bonus pool only funds after related threshold amount is satisfied.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | The pool amounts are subject to the following limitations for 2005:
| | - |  | -------------------------------------------------------------------



| |  |  | No segment pool calculated at target levels can exceed 11% of projected segment EBITDA
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Board discretion
| | - |  | ----------------



---

| |  |  | Total Adjusted Pool Amounts are available to segments based on pro rata allocations
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Total Adjusted Pool Amount, after final individual participant allocations (based on performance factor), cannot exceed 110% of amount without prior approval of the Board of
Directors.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Individual
Contribution Factor



| |  |  | Individual contribution factors can range from 0  1.50 x based upon performance relative to pre-established written criteria
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Forced rankings  requires performance reviews
| | - |  | ----------------------------------------------



| |  |  | Sum-zero at each segment roll-up level
| | - |  | ----------------------------------------



Other



| |  |  | Discretionary pool of $125,000 for:
| | - |  | -----------------------------------



| |  |  | Recognition of non-bonus pool participants
| | - |  | ------------------------------------------



| |  |  | Institution of Pat-on-the Back Awards. Immediate recognition awards ranging from $100-2,500 per award allocated to departments based on budgeted payroll, one sheet of
paper request for recognition, one level up approval.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------