In order to subdue him, you must first "kill" him, and then attack and subdue him a second time before sundown (though typically immediately works best). To kill him out right, you must kill him twice in one day. When he has been subdued or killed, his body can be looted for three black bonecharms.

What happens if you kill Paolo and Byrne?

If Paolo is captured or killed, Byrne swiftly begins to build a new chapel and increase the number of Overseers in the district. He also warns all citizens to attend services or be punished. If Paolo survives, in the low chaos ending they can be seen working together on the council.

Does killing Paolo count as a kill?

In Dishonored 2, a character killed whilst in a chokehold counts as a kill. Killing Paolo during the mission The Clockwork Mansion will not count as a kill, nor does killing him once during the mission Dust District.