UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
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Paychex, Inc. | ||||
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Notice of 2014 Annual Meeting of Stockholders and Proxy Statement
Wednesday, October 15, 2014 at 10:00 a.m. Eastern Timeproxy statement 2016 AND NOTICE OF ANNUAL MEETING OF STOCKHOLDERS more connected how Paychex makes clients more connected to their employees, their businesses PAYCHEX®
The Strong, One Manhattan Square, Rochester, NY, 14607
NOTICE OF 20142016 ANNUAL MEETING OF STOCKHOLDERS
Wednesday, October 15, 2014
12, 2016 10:00 a.m. Eastern Time*Time*
The Strong, One Manhattan Square, Rochester, NY 14607
**A continental breakfast will be available from 9:00 a.m. - 10:00 a.m. Eastern Time
The principal business of the 20142016 Annual Meeting of Stockholders (the “Annual Meeting”) will be:
| 1. | To elect nine nominees to the Board of Directors for a term of |
| 2. | To hold an advisory vote to approve named executive officer compensation; |
| 3. | To ratify the selection of the |
| 4. | To transact such other business as may properly come before the meeting or any adjournment thereof. |
Stockholders are cordially invited to attend the Annual Meeting. Stockholders of record at the close of business on August 18, 2014,15, 2016 will be entitled to notice of and to vote at the Annual Meeting and at any adjournments or postponements thereof.
If you are unable to attend the Annual Meeting, you will be able to listen to the meeting via the Internet. We will broadcast the Annual Meeting as a live webcast through our website. Please note that you will not be able to vote or ask questions through the webcast. The webcast will be accessible athttp://investor.paychex.com/webcasts and will remain available for replay for approximately one month following the meeting.
By Order of the Board of Directors
Stephanie L. Schaeffer Corporate Secretary September 9, 2016
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Important notice regarding the availability of proxy materials for the 2014
2016 Annual Meeting of Stockholders to be held on October 15, 2014:12, 2016:
Paychex, Inc.’s Proxy Statement and Annual Report for the year ended May 31, 20142016 are available at
http://investor.paychex.com/annual-report.aspxannual-report.aspx..
Welcome to the Paychex, Inc. 20142016 Annual Meeting of Stockholders
Proposals That Require Your VoteVOTE YOUR SHARES
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Who Can VoteHOW TO VOTE
August 18, 2014 is the record date fixed by the Board of Directors. Stockholders of record as of that date are entitled to notice of and to vote at the 2014 Annual Meeting of Stockholders.
How to Vote In Advance of the Meeting
Your vote is very important and we hope that you will attend the Annual Meeting. EvenYou are eligible to vote if you plan to attendwere a stockholder of record at the Annual Meeting in person, we recommend that youclose of business on August 15, 2016. Please read the proxy statement and vote right away using oneany of the following advance voting methods.
Stockholders of Record:
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VOTE BY INTERNET Visit the website listed on your proxy card. | VOTE BY TELEPHONE Call the telephone number listed on your proxy card. | VOTE BY MAIL Sign, date, and return your proxy card in the enclosed envelope. | VOTE VIA MOBILE DEVICE Scan this QR code. |
Make sure to have your proxy card or voting instruction card in hand and follow the instructions.
You canBeneficial Stockholders:
If you are a beneficial stockholder, you will receive instructions from your bank, broker, or other nominee that you must follow in order for your shares to be voted. Many of these institutions offer telephone and online voting. If you wish to vote in advance, in oneperson at the annual meeting, you will need to obtain a legal proxy from your bank, broker, or other nominee to present when voting.
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Voting at our 2014 Annual Meeting of Stockholders
All stockholders of record may vote in person at the Annual Meeting, which will be held on Wednesday, October 15, 2014 at 10:00 a.m. Eastern Time at The Strong in Rochester, New York. Beneficial owners, whose shares are held by a bank, broker, or other holder of record, must obtain a legal proxy in order to vote in person at the Annual Meeting.
Proxy Summary |
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider and you should read the entire proxy statement before voting. For more complete information regarding the performance of Paychex, Inc. (the “Company” or “Paychex”) for the fiscal year ended May 31, 2016 (“fiscal 2016”), please review the Company’s Annual Report on Form 10-K for fiscal 2016.
Paychex, Inc. 2016 Annual Meeting of Stockholders
| October 12, 2016 10:00 a.m., Eastern Time |
| The Strong, One Manhattan Square, Rochester, New York 14607 |
Meeting Agenda and Voting Matters
| Item | Management Proposal | Board Vote Recommendation | Page Reference (for more detail) | |||
Proposal 1 | Election of directors for a one-year term | FOR each director nominee | 3 | |||
| Advisory vote to approve named executive officer compensation | FOR | 18 | |||
Proposal 3 | Ratification of |
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Fiscal 2016 Business Highlights
| For the fiscal year ended May 31, | |||||||||||||||
| $ in millions, except per share amounts | 2016 | 2015 | % Change | ||||||||||||
Service revenue | $ | 2,906 | $ | 2,698 | 8 | % | |||||||||
Operating income, net of certain items(1) | $ | 1,101 | $ | 1,012 | 9 | % | |||||||||
Net income | $ | 757 | $ | 675 | 12 | % | |||||||||
Stock price (high/low)(2) | $ | 54.78/$41.59 | $ | 51.72/$40.10 | n/a | ||||||||||
Stock price as of fiscal year end | $ | 54.22 | $ | 49.41 | 10 | % | |||||||||
| (1) | Operating income, net of certain items, differs from what is reported under United States (“U.S.”) generally accepted accounting principles (“GAAP”) as operating income. Refer to Appendix A for a description of this non-GAAP financial measure and for a reconciliation of this measure to our operating income results as reported under U.S. GAAP. |
| (2) | Based on 52-week high and low sale prices as reported on the NASDAQ Global Select Market as of May 31, 2016 and 2015. |
Paychex has also focused on returning value to our stockholders and continued with shareholder-friendly actions during fiscal 2016. In July 2015, the Company increased its quarterly dividend by 11% to $0.42 per share. In July 2016, the Company again increased its quarterly dividend by $0.04 per share, or 10%, to $0.46 per share. The Company continued to repurchase its common stock opportunistically and in fiscal 2016 purchased 2.2 million shares for $107.9 million.
| Paychex, Inc. 2016 Proxy Statement • 1 |
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General Information
Note: Dividends as a percentage of net income for fiscal 2016 are calculated on net income, excluding a discrete item for a net tax benefit recognized in the first quarter of fiscal 2016 derived from prior years’ income from customer-facing software we produced.
Pay-for-Performance
Key pay-for-performance events related to named executive officer compensation that were tied to Company performance for fiscal 2016 were:
Payouts under the Annual Officer Incentive Program were at 103% of target for our Chief Executive Officer and 101% of target for our Senior Vice Presidents.
Performance shares granted in July 2014 reached the end of the two-year performance period in May 2016. Achievement was in excess of target and resulted in a payout at 110% of target. The shares earned are restricted for an additional one-year period.
Performance non-qualified stock options earned at 63.0% of the target for the Long-Term Incentive Plan award granted in July 2011 based on targets for fiscal 2016. Previously, 23.5% of the target had been accelerated and vested based on targets established for the fiscal year ended May 31, 2014. The remaining 39.5% earned vested in July 2016.
For more information on compensation for our named executive officers, and how it ties to performance, refer to the Compensation Discussion and Analysis and Named Executive Officer Compensation sections of this proxy statement.
Additional Information
Please refer to the Frequently Asked Questions section beginning on page 52 for important information about proxy materials, voting, annual meeting procedures, Company documents, communications, and the deadlines to submit shareholder proposals for the 2017 Annual Meeting of Stockholders. Additionally, questions may be directed to Investor Relations at (800) 828-4411 or by written request to 911 Panorama Trail South, Rochester, NY 14625, Attention: Investor Relations. General information regarding the meeting and links to key documents can be found on the 2016 Annual Meeting of Stockholders web page athttp://investor.paychex.com/annual-meeting.aspx.
| Paychex, Inc. 2016 Proxy Statement • 2 |
Election of Directors |
Paychex, Inc.
911 Panorama Trail South
Rochester, NY 14625
Paychex, Inc. (“Paychex,” the “Company,” “we,” or “our”)“our ”), a Delaware corporation, is furnishing this Proxy Statementproxy statement to stockholders in connection with the solicitation of proxies on behalf of the Board of Directors of the Company (the “Board”) for the 20142016 Annual Meeting of Stockholders (the “Annual Meeting”). This Proxy Statementproxy statement summarizes information concerning the matters to be presented at the Annual Meeting and related information to help stockholders make an informed vote. Distribution of this Proxy Statementproxy statement and a form of proxy to stockholders is scheduled to begin on or about September 9, 2014.
2014 Annual Meeting of Stockholders
The Annual Meeting will be held on Wednesday, October 15, 2014 at 10:00 a.m. Eastern Time at The Strong, One Manhattan Square, Rochester, NY, 14607.
Proposals Subject to Vote
The table below shows the proposals subject to vote at the Annual Meeting, along with information on what vote is required to approve each of the proposals, assuming the presence of a quorum at the Annual Meeting, and the Board’s recommendations for each proposal. With respect to Proposals 1, 2, and 3, you may vote “FOR,” “AGAINST,” or “ABSTAIN.”
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Stockholders Entitled to Vote and Outstanding Shares
Stockholders of record of our common stock as of the close of business on August 18, 2014 (the “Record Date”) will be eligible to vote at the Annual Meeting. Each share outstanding as of the Record Date will be entitled to one vote. As of August 18, 2014, 363,169,516 shares of common stock were issued and outstanding. The holders of a majority of the shares entitled to vote (181,584,759 shares) must be present at the Annual Meeting in person or by proxy in order to constitute a quorum. A quorum is necessary to hold a valid meeting.
How to Vote
Your vote is very important and we hope that you will attend the Annual Meeting. We strongly urge all stockholders, even those attending the Annual Meeting, to vote by proxy prior to the Annual Meeting.
General Information
Registered Stockholders
If your shares are registered directly in your name with the Company’s transfer agent, American Stock Transfer & Trust Company, LLC, you are considered a stockholder of record with respect to those shares. Please vote by proxy in accordance with the instructions on your proxy card, or the instructions you receive through electronic mail.
A registered shareholder can vote in one of four ways:
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Proxies submitted by Internet or telephone must be received by 11:59 p.m. Eastern Time on Tuesday, October 14, 2014. If you vote by telephone or the Internet, you do not need to return your proxy card.
Beneficial Stockholders
If your shares are held in a brokerage account in the name of your bank, broker, or other holder of record (this is called “street name”), you are not a registered stockholder, but rather are considered a “beneficial owner” of those shares. Your bank, broker, or other holder of record will send you instructions on how to vote your shares. If you are a beneficial owner, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote in person at the Annual Meeting.
Participants in the Paychex Employee Stock Ownership Plan Stock Fund
If you are a participant in the Paychex Employee Stock Ownership Plan Stock Fund (“ESOP”) of the Paychex, Inc. 401(k) Incentive Retirement Plan (the “401(k) Plan”), you will receive a proxy card and can vote those shares using the methods previously described under Registered Stockholders. This will serve as a voting instruction for Fidelity Management Trust Company (the “Trustee”), who is the holder of record for the shares in the ESOP. As a participant in the ESOP, you have the right to direct the Trustee on how to vote the shares of common stock credited to your account at the Annual Meeting. The participants’ voting instructions will be tabulated confidentially. Only the Trustee and/or the tabulator will have access to each participant’s individual voting direction. If you do not submit voting instructions for your shares of common stock in the ESOP, those shares will be voted by the Trustee in the same proportions as the shares for which voting instructions were received from other participants. Voting instructions by ESOP participants must be received by 11:59 p.m. Eastern Time on Friday, October 10, 2014. The Trustee will then vote all shares of common stock held in the ESOP by the established deadline.
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General Information
Changing or Revoking Your Proxy
Registered stockholders may change a properly executed proxy at any time prior to it being voted at the Annual Meeting by:
providing written notice of revocation to the Corporate Secretary;
submitting a later-dated proxy via the Internet, telephone, or mail; or
voting in person at the Annual Meeting.
Beneficial stockholders should contact their broker, bank, or other holder of record for instructions on how to change their vote.
If you are a participant in the ESOP, you may change a properly executed proxy at any time prior to 11:59 p.m. Eastern Time on October 10, 2014, by submitting a proxy that has a more recent date than the original proxy by internet, telephone, or mail. You may not, however, change your voting instructions in person at the Annual Meeting because the Trustee will not be present.
Manner for Voting Proxies
All votes properly cast and not revoked will be voted at the Annual Meeting in accordance with the stockholder’s directions. You should specify your choice for each matter on your proxy card. However, if you do not specify your choices on your returned proxy card, then your shares will be voted in accordance with the Board’s recommendations. Should any matter not described above be properly presented at the Annual Meeting, the persons named on the proxy form will vote in accordance with their judgment as permitted.
If you are a beneficial owner, in order to ensure your shares are voted the way you would like, you must provide voting instructions to your bank, broker, or other holder of record. If you do not provide your voting instructions to that party, whether your shares can be voted depends on the type of item being considered for vote. New York Stock Exchange (“NYSE”) rules allow your bank, broker, or other holder of record to use its own discretion and vote your shares on routine matters. A bank, broker, or other holder of record does not have discretion to vote your shares on non-routine matters (known as “broker non-votes”). Proposals 1 and 2 are not considered to be routine matters under the current NYSE rules, and so your bank, broker, or other holder of record will not have the discretionary authority to vote your shares on those items. Proposal 3 is considered a routine matter under NYSE rules, so your bank, broker, or other holder of record will have discretionary authority to vote your shares on that item.
Broker non-votes are not considered votes for or against a proposal and therefore will have no direct impact on any proposal since they are not deemed to be duly cast nor entitled to vote, but they will be counted for the purpose of determining the presence or absence of a quorum.Therefore, we urge you to give voting instructions to your bank or broker on all voting items.
Abstentions are also counted for the purposes of establishing a quorum, but will have the same effect as a vote against a proposal, except in regards to the election of directors. For this item, abstentions will have no direct impact.
Announcement of Voting Results
We will announce the preliminary voting results at the Annual Meeting. The Company will report the final results in a Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) within four business days following the Annual Meeting.
Beneficial Ownership
BENEFICIAL OWNERSHIP OF PAYCHEX COMMON STOCK
The following table contains information, as of July 31, 2014, on the beneficial ownership of the Company’s common stock by:
each principal stockholder known to be a beneficial owner of more than 5% of the Company’s common stock. This includes any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended;
each director and nominee for director;
each of the Company’s named executive officers (“NEOs”); and
all directors, NEOs, and executive officers of the Company as a group.
Under the rules of the SEC, “beneficial ownership” is deemed to include shares for which the individual, directly or indirectly, has or shares voting or disposition power, whether or not they are held for the individual’s benefit, and includes shares that may be acquired within 60 days by exercise of options. This information is based upon reports filed by such persons with the SEC.
| Name | Amount of Shares Owned (1) | Non-vested Shares of Restricted Stock(2) | Stock Options Exercisable by September 29, 2014(3) | Total Shares Beneficially Owned | Percent of Class | |||||||||||||
Principal Shareholders: | ||||||||||||||||||
B. Thomas Golisano (4),(5),(6) 1 Fishers Road Pittsford, NY 14534 | 37,935,354 | — | — | 37,935,354 | 10.4% | |||||||||||||
FMR LLC(7) 245 Summer Street Boston, MA 02210 | 19,938,247 | — | — | 19,938,247 | 5.4% | |||||||||||||
Directors: | ||||||||||||||||||
B. Thomas Golisano (4),(5),(6) | 37,935,354 | — | — | 37,935,354 | 10.4% | |||||||||||||
Joseph G. Doody | 9,490 | 1,506 | 44,441 | 55,437 | ** | |||||||||||||
David J. S. Flaschen | 33,095 | 1,506 | 80,862 | 115,463 | ** | |||||||||||||
Phillip Horsley | 105,048 | 1,506 | 38,676 | 145,230 | ** | |||||||||||||
Grant M. Inman(6) | 194,510 | 1,506 | 80,862 | 276,878 | ** | |||||||||||||
Pamela A. Joseph | 15,888 | 1,506 | 70,862 | 88,256 | ** | |||||||||||||
Martin Mucci | 96,309 | 107,744 | 790,905 | 994,958 | ** | |||||||||||||
Joseph M. Tucci | 38,388 | 1,506 | 80,862 | 120,756 | ** | |||||||||||||
Joseph M. Velli | 17,721 | 1,506 | 67,862 | 87,089 | ** | |||||||||||||
Named Executive Officers: | ||||||||||||||||||
Martin Mucci | 96,309 | 107,744 | 790,905 | 994,958 | ** | |||||||||||||
Efrain Rivera | 12,149 | 23,479 | 134,962 | 170,590 | ** | |||||||||||||
Mark A. Bottini | 7,165 | 26,033 | 127,333 | 160,531 | ** | |||||||||||||
John B. Gibson | 971 | 7,178 | 13,477 | 21,626 | ** | |||||||||||||
Michael E. Gioja | 16,899 | 23,479 | 132,238 | 172,616 | ** | |||||||||||||
| All directors, NEOs, and executive officers of the Company as a group (16 persons) | 38,535,524 | 234,372 | 2,003,091 | 40,772,987 | 11.1% | |||||||||||||
** Indicates that percentage is less than 1%.
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Beneficial Ownership
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Election of Directors
2016.
PROPOSAL 1 ·1: ELECTION OF DIRECTORS FOR AONE-YEAR TERM
Proposal Snapshot
What am I voting on?
Stockholders are being asked to elect nine director nominees for a one-year term. This section includes information about the Board and each director nominee.
Voting Recommendation
The Board recommends a vote FOReach of the nine director nominees.
The Board is elected by the stockholders to oversee the overall success of the Company, review its operational and financial capabilities, and periodically assess its long-term strategic objectives. The Board serves as the ultimate decision-making body of the Company, except for those matters reserved to stockholders. The Board appointsselects and oversees the members of senior management, who are charged by the Board with conducting the day-to-day business of the Company. The Board acts as an advisor to senior management and ultimately monitors management’s performance.
Election Process
The Company’s By-Laws provide for the annual election of directors. The By-Laws provide that each director shall be elected by a majority of the votes cast for the director at any meeting for the election of directors at which a quorum is present. If a nominee that is an incumbent director does not receive a required majority of the votes cast, the director shall offer to tender his or her resignation to the Board. The Governance and Compensation Committee of the Board (the “G&C Committee”) shall consider such offer and will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will consider the G&C Committee’s recommendation and will determine whether to accept such offer.
20142016 Nominees for Director
At the 20142016 Annual Meeting, there are nine nominees for election as director, as listed on the following pages. Each of the nominees is a current member of the Board, having been elected by the stockholders at the 20132015 Annual Meeting of Stockholders. The nine persons listed have been nominated for election to the Board by the Company’s G&C Committee. The nominees, with the exception of Mr. Golisano and Mr. Mucci, are independent under both the NASDAQ Stock Market (“NASDAQ”) and SECSecurities and Exchange Commission (“SEC”) director independence standards.
If elected, each nominee will hold office until the 2015 Annual Meeting of Stockholders and until his or her successor is elected and has qualified.qualified or until his or her earlier resignation or removal. We believe that all of the nominees will be available to serve as a director. However, if any nominee should become unable to serve, the persons named in the enclosed proxy may exercise discretionary authority to vote for substitute nominees proposed by the Board.
| Paychex, Inc. 2016 Proxy Statement • 3 |
Election of Directors |
The Board believes that the combination of the various qualifications, skills, and experience of the 20142016 director nominees wouldwill continue to contribute to an effective and well-functioning Board. We have provided biographical information on each of the nominees. Included within this information, we identify and describe the key experience, qualifications, and skills our directors bring to the Board that are important in light of our business and structure.
The Board of Directors recommends the election of each of the director nominees identified on the following pages. Unless otherwise directed, the persons named in the enclosed proxy will vote the proxyFOR the election of each of these director nominees.
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Election of Directors
Summary of Director Nominees
The Board is committed to ensuring that it is composed of a highly capable and diverse group of directors, with a broad-range of experience, who are well-equipped to oversee the success of the business and effectively represent the interests of stockholders. Our Board’s composition represents a balanced approach to director tenure, allowingThe G&C Committee believes that all directors should: possess the Board to benefit fromhighest personal and professional ethics; share the experiencevalues of longer-serving directors combined with fresh perspectives from newer directors.
the Company; have relevant experience; be accomplished in their field; and show innovative and sound business judgment. The Board has identified particular qualifications, attributes, skills and experience that are important to be represented on the Board as a whole, in light of the Company’s business and current needs. The Board believes the combination of the various qualifications, attributes, skills, and experience of the director nominees contribute to a well-functioning and effective Board.
Election of Directors |
B. Thomas Golisano | ||||||
Age 74 Director since 1979 Board Committees: • Executive | Mr. Golisano founded Paychex in 1971 and is Chairman of the Board of the Company. He served as President and Chief Executive Officer of the Company until October 2004. He serves on the board of trustees of the Rochester Institute of Technology. Mr. Golisano joined the Twinlab Consolidated Holdings, Inc. board in April 2016 and serves as a director of numerous non-profit organizations and private | |||||
The Board has concluded that Mr. Golisano is qualified to lead the Board due to his relevant executive leadership experience and extensive knowledge of the operations of the Company. These skills were attained through his role of founder and former Chief Executive Officer of Paychex. |
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Twinlab Consolidated Holdings, Inc.
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Joseph G. Doody | ||||
Age 64 Director since 2010 Board Committees: • Audit | Mr. Doody has served as Vice Chairman of Staples, Inc., an office products company, since February 2014. Previously | |||
The Board has concluded that Mr. Doody is qualified to serve as a director of the Company due to his significant leadership and international experience. His management of a large division of a multinational company enables him to provide our Board with important operational expertise. In addition, his deep knowledge of small- to medium-sized businesses brings thorough understanding of the risks and opportunities affecting the Company’s clients and potential clients. Mr. Doody’s current responsibilities include strategic planning and business development, which allow him to provide valuable input into the Company’s plans for market growth. |
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Casella Waste Systems, Inc. | ||||
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David J.S. Flaschen | ||||
Age 60 Director since 1999 Board Committees: • Audit (Chairman) • Investment • Corporate Development Advisory • G&C | Mr. Flaschen is an investor and advisor to a number of private companies providing business, marketing, and information services. Mr. Flaschen is also the co-founder of Tap Quality, LLC, which specializes in mobile and internet lead generation for the solar energy industry, and Regrub, LLC, a Smashburger franchisee group in the U.S. From 2005 to 2011, he was a partner with Castanea Partners, a private equity investment firm. Mr. Flaschen is a director of various private | |||
The Board has concluded that Mr. Flaschen is qualified to serve as a director of the Company as a result of his extensive executive experience in information and marketing services. Over the course of his career, Mr. Flaschen has worked internationally with a number of businesses, including Thomson Financial and AC Nielson. He also brings a high degree of financial literacy obtained from his years in the financial services industry, and his ability to assess financial performance of other companies through review and understanding of financial |
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Informa plc (London Exchange)
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Election of Directors |
Phillip Horsley | ||||||
Age 77 Director since 2011 (previously served from 1982-2009, reappointed in 2011) Board Committees: • Investment • G&C | Mr. Horsley is the founder of Horsley Bridge Partners, a leading manager of private equity investments for institutional clients. The firm was founded in 1983 and Mr. Horsley retired in 2010. | |||||
The Board has concluded that Mr. Horsley is qualified to serve as a director of the Company due to his strong background in finance and business and his expertise in investment management. His investment experience is particularly valuable in Investment Committee decisions. In addition, Mr. Horsley has acquired an extensive knowledge of the Company’s history and operating environment via his long-term relationship with the Company. |
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None
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Grant M. Inman | ||||
Age 74 Director since 1983 Board Committees: • Investment (Chairman) • Audit • G&C | Mr. Inman is the founder and General Partner of Inman Investment Management, a private investment company formed in 1998. Mr. Inman is a trustee of the University of California, Berkeley Foundation and is also a director of several private companies. Mr. Inman was the independent lead director for Lam Research Corporation until November 2015. | |||
The Board has concluded that Mr. Inman is qualified to serve as a director of the Company due to his strong background in finance and business, and his entrepreneurial experience. His expertise in assessing financial performance of other companies is also beneficial. In addition, Mr. Inman’s tenure on the Board provides him with extensive knowledge of the Company. Mr. Inman brings a diverse perspective to the |
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None
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Pamela A. Joseph | ||||
Age 57 Director since 2005 Board Committees: • Audit • Corporate Development Advisory • Executive | Ms. Joseph | |||
The Board has concluded that Ms. Joseph is qualified to serve as a director of the Company due to her extensive executive experience in the financial services |
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TSYS and TransUnion
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Election of Directors |
Martin Mucci | ||||||
Age 56 Director since 2010 Board Committees: • Executive (Chairman) • Corporate Development Advisory | Mr. Mucci has served as President and Chief Executive Officer of the Company since September 2010. Mr. Mucci joined the Company in 2002 as Senior Vice President, Operations. Prior to joining Paychex, he held senior level positions with Frontier Telephone of Rochester, a telecommunications company, over the course of his 20-year career. Mr. Mucci was a member of the Board of Directors of Cbeyond, Inc. until it was purchased by Birch Communications in July 2014. He is a member of the Upstate New York Regional Advisory Board of the Federal Reserve Bank of New York and is a Trustee Emeritus of St. John Fisher College. | |||||
The Board has concluded that Mr. Mucci is qualified to serve as a director of the Company because he provides day-to-day leadership as the current Chief Executive Officer of Paychex, giving him intimate knowledge of the Company, its operations, challenges, and opportunities. In addition, Mr. Mucci’s educational background provides him with strong financial literacy. |
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None
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Joseph M. Tucci | ||||
Age 69 Director since2000 Board committees: • G&C (Chairman) | Mr. Tucci has been the Chairman of the Board of Directors of EMC Corporation, the world leader in information infrastructure technology and solutions, since January 2006. He has been Chief Executive Officer and President of EMC Corporation since January 2001, and President since January 2000. | |||
The Board has concluded that Mr. Tucci is qualified to serve as a director of the Company due to his extensive executive leadership experience as Chief Executive Officer of EMC Corporation. Mr. Tucci has spent over 40 years in the technology industry in senior roles at large, complex, and global technology companies. His experience | ||||
EMC Corporation (Chairman of the Board) and VMware, Inc. (Chairman of the Board) | ||||
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Election of Directors
Joseph M. Velli | ||||
Age 58 Director since2007 Board Committees: • Investment • Executive • Corporate Development Advisory (Chairman) • G&C | Mr. Velli | |||
The Board has concluded that Mr. Velli is qualified to serve as a director of the Company due to his extensive | ||||
Computershare Ltd. (Australian Exchange) (Chairman of Remuneration Committee)
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Director Compensation
Director Compensation |
FOR THE FISCAL YEAR ENDED MAY 31, 20142016
Director compensation is set by the G&C Committee and approved by the Board. The Board’s authority cannot be delegated to another party. The Company’s management does not play a role in setting Board compensation. The Company compensates the independent directors of the Board using a combination of cash and equity-based compensation. Martin Mucci, President and Chief Executive Officer (“CEO”), receives no compensation for his services as director. Rather, the compensation received by Mr. Mucci in his role as President and CEO is shown in the Fiscal 20142016 Summary Compensation Table, contained in the Named Executive Officer Compensation section of this Proxy Statement.proxy statement.
The table below presents the total compensation received from the Company by all directors except Mr. Mucci for fiscal year ended May 31, 20142016 (“fiscal 2014”2016”).
Name (a) | Fees Earned or Paid in Cash ($) (b) | Stock Awards ($) (c) | Option Awards ($) (d) | Total ($) | Fees Earned or Paid in Cash ($) (b) | Stock Awards ($) (c) | Option Awards ($) (d) | Total ($) | ||||||||||||||||||||||||
B. Thomas Golisano | $ | 250,000 | $ | — | $ | — | $ | 250,000 | $ | 300,000 | $ | — | $ | — | $ | 300,000 | ||||||||||||||||
Joseph G. Doody | $ | 80,000 | $ | 60,824 | $ | 54,654 | $ | 195,478 | $ | 85,000 | $ | 62,038 | $ | 67,211 | $ | 214,249 | ||||||||||||||||
David J. S. Flaschen | $ | 112,500 | $ | 60,824 | $ | 54,654 | $ | 227,978 | ||||||||||||||||||||||||
| David J.S. Flaschen | $ | 120,000 | $ | 62,038 | $ | 67,211 | $ | 249,249 | ||||||||||||||||||||||||
Phillip Horsley | $ | 82,500 | $ | 60,824 | $ | 54,654 | $ | 197,978 | $ | 87,500 | $ | 62,038 | $ | 67,211 | $ | 216,749 | ||||||||||||||||
Grant M. Inman | $ | 92,500 | $ | 60,824 | $ | 54,654 | $ | 207,978 | $ | 97,500 | $ | 62,038 | $ | 67,211 | $ | 226,749 | ||||||||||||||||
Pamela A. Joseph | $ | 85,000 | $ | 60,824 | $ | 54,654 | $ | 200,478 | $ | 92,500 | $ | 62,038 | $ | 67,211 | $ | 221,749 | ||||||||||||||||
Joseph M. Tucci | $ | 90,000 | $ | 60,824 | $ | 54,654 | $ | 205,478 | $ | 95,000 | $ | 62,038 | $ | 67,211 | $ | 224,249 | ||||||||||||||||
Joseph M. Velli | $ | 87,500 | $ | 60,824 | $ | 54,654 | $ | 202,978 | $ | 95,000 | $ | 62,038 | $ | 67,211 | $ | 224,249 | ||||||||||||||||
Fees Earned or Paid in Cash (Column (b))
The amounts reported in the Fees Earned or Paid in Cashthis column reflect the annual cash compensation paid to the independent directors during fiscal 2014,2016, whether or not such fees were deferred. Annual cash compensation for independent directors is comprised solely of annual retainers, which are paid in quarterly installments. These retainers are paid for participation on the Board with separate retainers for committee membership. In addition to their committee membership retainers, the chairs of the Audit Committee and G&C Committee receive retainers in recognition for their time contributed in preparation for committee meetings. The annual retainers in effect for fiscal 20142016 are as follows:
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Board cash compensation for the independent directors remained unchanged for fiscal 2014. Mr. Golisano, who is not an independent director, receivedreceives an annual retainer of $250,000$300,000 for his services as Chairman of the Board, paid in quarterly installments.
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Director Compensation
Director Compensation |
Equity Awards: Stock Awards (Column (c)) and OptionsOption Awards (Column (d))
The amounts reported in the Stock Awards and Option Awardsthese columns reflect the grant-date fair value of restricted stock awards and option awards, respectively, granted to each director, and do not reflect whether the recipient has actually received a financial gain from these awards (such as a lapse in the restrictions on a restricted stock award or by exercising stock options). For fiscal 2014,2016, the equity-based compensation structure for independent directors was based on a total value of approximately $115,000$125,000 per director, with approximately 50% awarded in the form of stock options and 50% in the form of restricted stock. In July 2013,2015, all independent directors received an annual equity award under the Paychex, Inc. 2002 Stock Incentive Plan, as amended and restated October 13, 2010, (the “2002 Plan”) composed of the following:
Restricted Stock Awards | Option Awards | Restricted Stock Awards | Option Awards | |||||
Grant Date | July 11, 2013
| July 11, 2013 | July 9, 2015 | July 9, 2015 | ||||
Exercise Price
| NA | $38.89 | NA | $47.43 | ||||
Quantity | 1,564
| 12,156 | 1,308 | 11,489 | ||||
Fair Value(1)
| $38.89 | $4.50 | $47.43 | $5.85 | ||||
Vesting Schedule | On the first anniversary of the date of grant.
| On the first anniversary of the date of grant. | On the first anniversary of the date of grant. | On the first anniversary of the date of grant. | ||||
Certain Restrictions | Shares may not be sold during the director’s tenure as a member of the Board, except as necessary to satisfy tax obligations.
| Shares may not be sold during the director’s tenure as a member of the Board, except as necessary to satisfy tax obligations. | n/a | |||||
Other(2) | Upon the discretion of the Board, unvested shares may be accelerated in whole or in part for certain events including, but not limited to, director retirement. | Unvested options outstanding upon the retirement of a Board member will be canceled. | Upon the discretion of the Board, unvested shares may be accelerated in whole or in part for certain events including, but not limited to, director retirement. | Unvested options outstanding upon the retirement of a Board member will be canceled. |
| (1) | The fair value of restricted stock awards is determined based on the closing price of the underlying common stock on the date of grant. The fair value of stock option awards is determined using a Black-Scholes option pricing model. The assumptions used in determining the fair value of |
| (2) | Retirement eligibility for this purpose begins at age 55 or older with ten years of service as a member of the Board. |
As of May 31, 2014,2016, each director had the following equity awards outstanding:
Director | Restricted Stock Outstanding (Shares) | Stock Options Outstanding (Shares) | ||
Joseph G. Doody | 1,564 | 44,441 | ||
David J. S. Flaschen | 1,564 | 80,862 | ||
Phillip Horsley | 1,564 | 38,676 | ||
Grant M. Inman | 1,564 | 80,862 | ||
Pamela A. Joseph | 1,564 | 70,862 | ||
Joseph M. Tucci | 1,564 | 80,862 | ||
Joseph M. Velli | 1,564 | 67,862 |
Director Compensation
Subsequent Events
In July 2014, the Board granted each independent director 10,850 options to purchase shares of the Company’s common stock at an exercise price of $41.70 per share and 1,506 shares of restricted stock. The terms of these awards were similar to the equity awards granted in July 2013. The award quantities are based on an estimated total value of approximately $125,000 per director. The independent directors also received an increase of $5,000 in the annual cash retainer for the fiscal year ending May 31, 2015 (“fiscal 2015”). Mr. Golisano, who is not an independent director, received a $50,000 increase in his annual cash retainer for fiscal 2015.
| Director | Restricted Stock Outstanding (Shares) | Stock Options Outstanding (Shares) | ||||||||
| Joseph G. Doody | 1,308 | 66,780 | ||||||||
| David J.S. Flaschen | 1,308 | 87,201 | ||||||||
| Phillip Horsley | 1,308 | 61,015 | ||||||||
| Grant M. Inman | 1,308 | 87,201 | ||||||||
| Pamela A. Joseph | 1,308 | 87,201 | ||||||||
| Joseph M. Tucci | 1,308 | 93,201 | ||||||||
| Joseph M. Velli | 1,308 | 90,201 | ||||||||
Deferred Compensation Plan
We maintain a non-qualified and unfunded deferred compensation plan in which all independent directors are eligible to participate. Directors may elect to defer up to 100% of their Board cash compensation.The Company does not contribute to this plan. Gains and losses are credited based on the participant’s selection of a variety of designated investment choices, which the participant may change at any time. We do not match any participant deferral or guarantee a certain rate of return. The interest rates earned on these investments are not above-market or preferential. Refer to the Non-Qualified Deferred Compensation table and discussion within the Named Executive Officer Compensation section of this Proxy Statementproxy statement for a listing of investment funds available to participants and the annual rates of return on those funds. During fiscal 2014,2016, no independent directors deferred compensation under the plan.
| Paychex, Inc. 2016 Proxy Statement • 9 |
Director Compensation |
Benefits
We reimburse each director for expenses associated with attendance at Board and committee meetings.
Stock Ownership Guidelines
The G&C Committee set stock ownership guidelines for our independent directors with a value of five times his or her annual Board retainer, not including any committee retainers. The ownership guidelines were established to provide long-term alignment with stockholders’ interests. The independent directors are expected to attain the ownership guideline within five years after the later of first becoming a director or the initial adoption of the guideline. Directors must hold underlying stock received through restricted stock awards until their service on the Board is complete, with the exception of those shares sold as necessary to satisfy tax obligations. For the purpose of achieving the ownership guideline, unvested restricted stock awarded to the directors is included. All independent directors are compliant with the stock ownership guidelines.
Prohibition on Hedging or Speculating In Company Stock
Directors must adhere to strict standards with regards to trading in Paychex stock. Also, the Company prohibits directors from hedging Paychex stock. They may not, among other things:
speculatively trade in Paychex stock;
short sell any securities of the Company; or
buy or sell puts or calls on the Company’s securities.
Pledging of Company Stock
During fiscal 2016, the Company approved a pledging policy for all Paychex directors, officers, and employees. This policy prohibits pledging Company securities as collateral for a loan or a line of credit without obtaining prior Company approval. Approval may be granted when the individual clearly demonstrates the intent and financial capacity to satisfy the obligations without resort to the pledged securities and where the total pledge represents no more than 25% of the pledgor’s beneficial ownership interest in the Company. This policy is effective prospectively. The Company’s pledging policy is posted on the Company’s website athttp://investor.paychex.com/governance.
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Beneficial OwnershipCorporate Governance
The following table contains information, as of July 31, 2016, on the beneficial ownership of the Company’s common stock by:
each principal stockholder known to be a beneficial owner of more than 5% of the Company’s common stock. This includes any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”);
each director and nominee for director;
each of the Company’s named executive officers (“NEOs”); and
all directors, NEOs, and executive officers of the Company as a group.
Under the rules of the SEC, “beneficial ownership” is deemed to include shares for which the individual, directly or indirectly, has or shares voting or disposition power, whether or not they are held for the individual’s benefit, and includes shares that may be acquired within 60 days by exercise of options. This information is based upon reports filed by such persons with the SEC.
| Name | Amount of Shares Owned (1) | Non-vested Shares of Restricted Stock(2) | Stock Options Exercisable by September 29, 2016(3) | Total Shares Beneficially Owned | Percent of Class | ||||||||||||||||||||
| Principal Shareholders: | |||||||||||||||||||||||||
B. Thomas Golisano(4),(5),(6) 1 Fishers Road Pittsford, NY 14534 | 37,932,285 | — | — | 37,932,285 | 10.4 | % | |||||||||||||||||||
Vanguard Group Inc.(7) PO Box 2600 V26 Valley Forge, PA 19482-2600 | 20,591,789 | — | — | 20,591,789 | 5.6 | % | |||||||||||||||||||
BlackRock (8) 400 Howard Street San Francisco, CA 94105 | 20,229,983 | — | — | 20,229,983 | 5.5 | % | |||||||||||||||||||
| Directors: | |||||||||||||||||||||||||
| B. Thomas Golisano(4),(5),(6) | 37,932,285 | — | — | 37,932,285 | 10.4 | % | |||||||||||||||||||
| Joseph G. Doody | 12,304 | 1,089 | 22,339 | 35,732 | * | * | |||||||||||||||||||
| David J.S. Flaschen | 35,909 | 1,089 | 87,201 | 124,199 | * | * | |||||||||||||||||||
| Phillip Horsley(6) | 107,862 | 1,089 | 61,015 | 169,966 | * | * | |||||||||||||||||||
| Grant M. Inman(6) | 202,374 | 1,089 | 87,201 | 290,664 | * | * | |||||||||||||||||||
| Pamela A. Joseph | 18,702 | 1,089 | 87,201 | 106,992 | * | * | |||||||||||||||||||
| Martin Mucci | 177,298 | 84,302 | 1,183,816 | 1,445,416 | * | * | |||||||||||||||||||
| Joseph M. Tucci | 46,532 | 1,089 | 87,201 | 134,822 | * | * | |||||||||||||||||||
| Joseph M. Velli | 20,535 | 1,089 | 90,201 | 111,825 | * | * | |||||||||||||||||||
| Named Executive Officers: | |||||||||||||||||||||||||
| Martin Mucci | 177,298 | 84,302 | 1,183,816 | 1,445,416 | * | * | |||||||||||||||||||
| Efrain Rivera | 34,608 | 19,200 | 335,068 | 388,876 | * | * | |||||||||||||||||||
| Mark A. Bottini | 30,441 | 18,865 | 267,000 | 316,306 | * | * | |||||||||||||||||||
| John B. Gibson | 2,503 | 18,698 | 168,786 | 189,987 | * | * | |||||||||||||||||||
| Michael E. Gioja(5) | 37,286 | 18,698 | 287,221 | 343,205 | * | * | |||||||||||||||||||
| All directors, NEOs, and executive officers of the Company as a group (16 persons) | 38,736,494 | 195,688 | 3,215,735 | 42,147,917 | 11.6 | % | |||||||||||||||||||
| Paychex, Inc. 2016 Proxy Statement • 11 |
Beneficial Ownership |
| ** | Indicates that percentage is less than 1%. |
| (1) | This column reflects shares held of record and Company shares owned through a bank, broker, or other holder of record. For executive officers, this also includes shares owned through the Paychex, Inc. 401(k) Incentive Retirement Plan (the “401(k) Plan”). |
| (2) | This column includes restricted stock awards to independent directors and executive officers that have not yet vested. These non-vested restricted stock awards have voting and dividend rights, and thus are included in beneficial ownership. |
| (3) | This column includes shares that may be acquired upon exercise of options, which are exercisable on or prior to September 29, 2016. Under SEC rules, shares that may be acquired within 60 days are included in beneficial ownership. |
| (4) | Included in shares beneficially owned for Mr. Golisano are 278,068 shares owned by the B. Thomas Golisano Foundation, of which Mr. Golisano is a member of the foundation’s six-member board of trustees. Mr. Golisano disclaims beneficial ownership of these shares. |
| (5) | Mr. Golisano has 7,750,295 shares pledged as security and Mr. Gioja has 6,700 shares pledged as security. |
| (6) | Included in shares beneficially owned are shares held in the names of family members, trusts, or other entities: Mr. Golisano — 66,945 shares; Mr. Horsley — 107,862 shares; and Mr. Inman — 136,949 shares. |
| (7) | Beneficial ownership is based on information contained in the Form 13F filed with the SEC on August 10, 2016 by Vanguard Group Inc. |
| (8) | Beneficial ownership is based on the combined information contained in the Form 13Fs filed with the SEC on August 10, 2016 by BlackRock Fund Advisors (10,110,305 shares) and BlackRock Institutional Trust Company, N.A. (10,119,678 shares). |
Equity Compensation Plans Information
The Company maintains equity compensation plans in the form of stock incentive plans. Under the Paychex, Inc. 2002 Stock Incentive Plan, as amended and restated (the “2002 Plan”), non-qualified or incentive stock options, restricted stock, restricted stock units, performance shares, and performance stock options have been awarded to employees and the Board. The latest restatement of the 2002 Plan was adopted on July 8, 2015 by the Board and became effective upon stockholder approval at the Company’s Annual Meeting of Stockholders held on October 14, 2015. More information on the Company’s stock incentive plans is available in the Company’s Annual Report on Form 10-K.
The following table details information on securities authorized for issuance under the Company’s stock incentive plans as of May 31, 2016:
| In millions, except per share amounts | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans | |||
| Equity compensation plans approved by security holders (1) | 7.0 | $35.24 | 22.2 |
| (1) | Amounts include performance awards granted, assuming achievement of performance goals at target. Actual amount of shares to be earned may differ from the target amount. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, executive officers, and beneficial owners of more than 10% of the Company’s common stock to file reports of their ownership and changes in their ownership of the Company’s equity securities with the SEC. Based solely on our review of information supplied to the Company and filings made with the SEC, the Company believes that during fiscal 2016, its directors, executive officers, and greater than 10% beneficial owners have complied in a timely manner with all applicable Section 16 filing requirements.
| Paychex, Inc. 2016 Proxy Statement • 12 |
Corporate Governance |
The Board recognizes the fundamental principle that good corporate governance is critical to organizational success and the protection of stockholder value. As such, the Board has adopted a set of Corporate Governance Guidelines as a statement of principles guiding the Board’s conduct. These principles are intended to be interpreted in the context of all applicable laws and the Company’s Restated Certificate of Incorporation, By-laws,Bylaws, as amended, and other governing documents. A copy of these guidelines can be found on our website at:http://investor.paychex.com/governance.
The Board’s current leadership structure is comprised of:
Chairman of the Board and non-independent director (Mr. Golisano);
the President and CEO as a non-independent director (Mr. Mucci);
an independent director serving as a Lead Independent Director (Mr. Tucci); and
six additionalAudit, G&C, Corporate Development Advisory, and Investment committees led by independent directors.
The Board believes this structure provides a well-functioning and effective balance between strong Company leadership and appropriate safeguards and oversight by independent directors. The Board currently separates the role of Chairman of the Board from the CEO. We believe that the Company is best served by having a Chairman who has in-depth knowledge of the Company’s operations and the industry, but is not involved in the day-to-day operations of the Company. Mr. Golisano’s extensive experience as founder and former CEO qualifies him to lead the Board, particularly as it focuses on strategic risks and opportunities facing the Company.
Our Lead Independent Director has responsibility for conducting regularly scheduled executive sessions of the independent directors and such other responsibilities as the independent directors may assign. Regularly scheduled executive sessions of the independent members of the Board, without members of management present, are held in conjunction with meetings of the Board. As appropriate, matters presented to the Board by the G&C Committee are reviewed and discussed in executive session by the independent directors.
The Board and its standing committees that meet regularly conduct annual self-evaluations to assess the qualifications, attributes, skills, and experience represented on the Board and to determine whether the Board and its committees are functioning effectively.
Board Oversight of Risk Oversight
One of the most important functions of the Board is oversight of risks inherent in the operation of the Company’s business. Senior management is responsible for the day-to-day management of risks facing the Company. The Board implements its risk oversight function both as a whole and through delegation to Board committees. The Board receives regular reports from officers on particular risks withinto the Company, through review ofreviews the Company’s strategic plan, and through regular communicationregularly communicates with its committees. The Board committees, which meet regularly and report back to the full Board, play significant roles in carrying out the risk management function. In general, the committees oversee the following risks:
The Audit Committee oversees risks related to financial controls; legal, regulatory and compliance risks; data security risk; and fraud risk.
The Investment Committee has established a policy outlining risk-tolerance and detailing requirements for the Company’s investment portfolios, and oversees compliance with that policy.
The G&C Committee oversees risks related to compensation programs, as discussed in greater detail on the next page, as well as risks related to corporate governance matters including succession planning, director independence, and related person transactions.
| Committee | Primary Risk Oversight Area | |
| Audit Committee | • Risk related to financial statement accuracy and reporting; • Internal controls; • Legal, regulatory, and compliance risks; • Information security, technology, and privacy and data protection; and • Other operational and fraud risks. | |
| Investment Committee | • Risk related to investing activities. | |
| G&C Committee | • Risks arising from the Company’s compensation policies and practices for all employees and non-employee directors; and • Governance structure and processes including succession planning, director independence, and related person transactions. |
Corporate Governance |
The responsibilities of each committee are detailed in the individual committee charters, summarized in the “Board Meetings and Committees” section that follows.
The G&C Committee regularly reviews the risks and rewards associated with our compensation programs. The programs are designed with features that mitigate risk without diminishing the incentive nature of the compensation. As part of its risk oversight, the G&C Committee conducts an annual assessment of risks arising from the Company’s compensation programs. The G&C Committee reviewed such programs with its independent compensation consultant. The G&C Committee’s assessment included identification of risk with the various forms of compensation, the inherent risk in performance-based compensation metrics, and existing risk mitigation controls. Risk mitigation includes, but is not limited to, the balance of fixed and variable compensation, the balance of short- and long-term compensation, stock ownership guidelines, level of oversight, and controls over financial reporting.
Based on this review, the G&C Committee concluded that itsthe Company’s compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.
Our Corporate Governance Guidelines require that our Board meet at least four times per year. The Board held fourfive meetings and one special meeting via teleconference in fiscal 2014.2016. To the extent practicable, directors are expected to attend all Board meetings and meetings of the committees on which they serve. During fiscal 2014,2016, each director attended more than 85%100% of the Board meetings and committee meetings on which the director served. Directors are expected to attend the Company’s Annual Meetings of Stockholders. All of our current directors attended the 20132015 Annual Meeting of Stockholders. All directors are independent within the meaning of applicable SEC and NASDAQ director independence standards, with the exception of Mr. Golisano and Mr. Mucci.
The Board has established fourfive standing committees with the following responsibilities and director assignments:
Audit Committee | ||||
Committee Members:(1) David J.S. Flaschen (Chair)(2) Joseph G. Doody Grant M. Inman Pamela A. Joseph
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| Serve as an independent and objective party to monitor the Company’s financial reporting process, internal control system, and financial risk management • Review the performance and independence of the Company’s independent
• Provide an open avenue of communication among the independent accountants, financial and senior management, the internal auditors, and the | ||
• | Review significant risk exposures and processes to monitor, control, and report such | |||
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| Executive Committee | ||||
Martin Mucci (Chair) B. Thomas Golisano Pamela A. Joseph Joseph M. Velli 1 Meeting in fiscal 2016 | • Exercise all the powers and authority of the Board except as limited by law. | |||
Corporate Governance
Investment Committee | ||||
Committee Members: Grant M. Inman (Chair) David Phillip Horsley Joseph M. Velli
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| Review the Company’s investment policies and strategies, and the performance of the Company’s investment • Determine that the investment portfolios are managed in compliance with the established investment policy. | ||
| Paychex, Inc. 2016 Proxy Statement • 14 |
Corporate Governance |
| Governance and Compensation Committee | ||||
Committee Members:(3) Joseph M. Tucci (Chair) David Phillip Horsley Grant M. Inman Joseph M. Velli
| •
| Evaluate and determine compensation for the directors, CEO, and senior executive • Provide general oversight with respect to governance of the Board, including periodic review and assessment of corporate governance • Evaluate compensation policies for mitigating factors on risk that are reasonably likely to have a material adverse effect on the • Identify, evaluate, and recommend to the Board candidates for nomination for election to the • Review annually the independence of directors. | ||
| Corporate Development Advisory Committee(4) | |||
Committee Members: Joseph M. Velli (Chair) David J.S. Flaschen Pamela A. Joseph Martin Mucci 1 Meeting in fiscal 2016 | • Review and provide guidance to management and the Board with respect to the Company’s acquisition or divestiture opportunities, as appropriate, and review related strategy. • Authority to approve acquisitions or divestitures in accordance with the parameters set by the Board. | ||
| (1) | All members of the Audit Committee meet the independence, experience, and other applicable NASDAQ listing requirements and applicable SEC rules regarding independence. |
| (2) | Mr. Flaschen qualifies as an “Audit Committee Financial Expert,” as defined by applicable SEC rules. |
| (3) | All members of the G&C Committee meet the NASDAQ independence criteria. |
| (4) | This committee was first established in January 2016. |
The Audit, Investment, G&C, and G&CCorporate Development Advisory Committees’ responsibilities are more fully described in each committee’s charter adopted by the Board, which are accessible on the Company’s website athttp://investor.paychex.com/governance.
The G&C Committee is responsible for recommending candidates to the full Board to either fill vacancies or stand for election at each annual meeting of stockholders. The committee follows the Board’s Nomination Policy, which is included in the G&C Committee Charter. The Board does not have a formal policy regarding diversity. However, the Board has determined that it is necessary for the continued success of the Company to ensure that the Board is composed of individuals having a variety of complementary experience, education, training, and relationships relevant to the then-current needs of the Board and the Company.
In evaluating candidates for nomination to the Board, including candidates for nomination recommended by a stockholder, the Nomination Policy requires G&C Committee members to consider the contribution that a candidate for nomination would be expected to make to the Board and the Company. This is based upon the current composition and needs of the Board, and the candidate’s demonstrated business judgment, leadership abilities, integrity, prior experience, education, training, relationships, and other factors that the Board determines relevant. In identifying candidates for nomination to fill vacancies created by the expiration of the term of any incumbent director, the Nomination Policy requires G&C Committee members to determine whether such incumbent director is willing to stand for re-election and, if so, to take into consideration the value to the Board and to the Company of their continuity and familiarity with the Company’s business. The Board has previously used a third-party search firm to identify director candidates and the G&C Committee is authorized by its charter to continue this practice.
Corporate Governance
The Nomination Policy requires the G&C Committee to consider candidates for nomination to the Board recommended by any reasonable source, including stockholders. Stockholders who wish to do so may recommend candidates for nomination by identifying such candidates and providing relevant biographical information in written communications to the Chairman of the G&C Committee in accordance with the policy described in the section entitled “Communications with the Board of Directors.”
| Paychex, Inc. 2016 Proxy Statement • 15 |
Corporate Governance |
Policy on Transactions with Related Persons
Related persons include our executive officers, directors, director nominees, and holders of more than 5% of ourthe Company’s common stock, as well as their immediate family members. It is generally the Company’s policypractice to avoid transactions with related persons. However, there may be occasions when a transaction with a related person is in the best interest of the Company. The Company’s policies and procedures for review and approval of related-person transactions appear in the Company’s Standards of Conduct, Conflict of Interest, and Employment of Relatives Standards, which are internally distributed, and in the Company’s Code of Business Ethics and Conduct, which is posted on the Company’s website athttp://investor.paychex.com/governance.
Officers are required to disclose specifiedany potential conflicts of interest or related-party transactions, which include: certain financial interests in or relationships with any supplier, customer, partner, subcontractor, or competitor; serving on the board of non-profit organizations; and engaging in any activity that could create the appearance of a conflict of interest, including financial involvement or dealings with employees or representatives of the types of entities listed above. Annually, officers and directors complete a Director’s and Officer’s Questionnaire, within which they provide information regarding whether the individual or any member of their immediate family had any interest in any actual or proposed transaction with the Company or any of its subsidiaries where the amount involved exceeded $120,000. The Company reviewsindividuals are also asked about any other economic relationships that might be conflicts of interest. The responses are reviewed by our Financial Reporting and determinesLegal Departments to determine if a conflict of interest exists related to any such transactions.transaction. For officers, the Company’s Chief Financial Officer (“CFO”) oversees the review of such transactions.
Members of the Board are required to disclose to the Chairman of the Board or the Chairman of the G&C Committee any situation that involves, or may reasonably be expected to involve, a conflict of interest with the Company, includingCompany. This includes engaging in any conduct or activities that would impair the Company’s relationship with any person or entity with which the Company has or proposes to enter into a business or contractual relationship.
The Company’s financeFinancial Reporting department annually reviews the Company’s listing of related parties for determination of potential related-person transactions that wouldshould be disclosabledisclosed in the Company’s periodic reports or proxy materials under United States (“U.S.”) generally accepted accounting principles (“GAAP”) and SEC rules or proxy materials under SEC rules. The G&C Committee is required to consider all questions of possible conflicts of interest of Board members and executive officers, including review and approval of transactions of the Company in excess of $120,000 in which a director, executive officer, or an immediate family member of a director or executive officer has an interest. The factors considered by the G&C Committee in their review, include: the business objective of the transaction; the individual’s involvement in the transaction; whether the transaction would impact the judgment of the officer or director to act in the best interest of the Company; and any other matters the G&C Committee deems appropriate. For fiscal 2014,2016, no instances of conflict or non-compliance have occurred. Should a conflict of interest be identified, relevant information and circumstances would be reviewed to determine if action is required relative to continuing the arrangement.
For fiscal 2016, the following transactions in excess of $120,000 were identified and communicated to the G&C Committee:
Mr. Tucci, a member of theour Board, is the Chairman of the Board, CEO, and Chief Executive OfficerPresident of EMC Corporation. During fiscal 2014,2016, the Company purchased through negotiated transactions approximately $4.7$4.9 million of data processing equipment and software from EMC Corporation. Mr. Tucci was not personally involved in the negotiation of these transactions.
Mr. Doody, a member of theour Board, is the President for North American Commercial, a significant business segmentVice Chairman of Staples, Inc. During fiscal 2014,2016, the Company purchased through negotiated transactions approximately $1.3$2.3 million of office supplies from Staples, Inc. Mr. Doody was not personally involved in the negotiation of these transactions.
Mr. Golisano, Chairman of the Board of the Company, is a member of the Board of Trustees of the Rochester Institute of Technology. During fiscal 2016, the Company spent approximately $0.2 million primarily related to tuition for Company employees with the Rochester Institute of Technology. Mr. Golisano was not personally involved in the negotiation of these transactions.
Ms. Joseph, a member of our Board, is the former Chairperson of Elavon. During fiscal 2016, the Company received $0.9 million from Elavon related to a revenue sharing arrangement for merchant processing services. Ms. Joseph was not personally involved in the negotiation of this arrangement.
| Paychex, Inc. 2016 Proxy Statement • 16 |
Corporate Governance |
Governance and Compensation Committee Interlocks and Insider Participation
None of the members of the G&C Committee were at any time during fiscal 2014,2016, or at any other time, an officer or employee of the Company. Mr. Tucci, a member of the Board, is Chairman of the G&C Committee, and is also an executive of EMC Corporation. As previously noted, the Company purchases data processing equipment and software from EMC Corporation. During fiscal 2014,2016, no member of the G&C Committee or Board was an executive officer of another entity on whose compensation committee or board of directors an executive officer of Paychex served.
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Corporate Governance
Communications with the Board of Directors
The Board has established procedures to enable stockholders and other interested parties to communicate in writing with the Board, including the chairman of any standing committee of the Board. Written communications should be clearly marked: “Stockholder and Other Interested Parties — Board Communication,”Communication” and be mailed to Paychex, Inc. at 911 Panorama Trail South, Rochester, New York 14625-2396, Attention: Corporate Secretary. In the case of communications intended for committee chairmen, the specific committee must be identified. Any such communications that do not identify a standing committee will be forwarded to the Board. The Corporate Secretary will promptly forward all stockholder and other interested party communications to the Board or to the appropriate standing committee of the Board, as the case may be.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, executive officers, and beneficial owners of more than 10% of the Company’s common stock to file reports of their ownership and changes in their ownership of the Company’s equity securities with the SEC. Based solely on our review of information supplied to the Company and filings made with the SEC, the Company believes that during fiscal 2014, its directors, executive officers, and greater than 10% beneficial owners have complied in a timely manner with all applicable Section 16 filing requirements.
CODE OF BUSINESS ETHICS AND CONDUCT
The Company has a Code of Business Ethics and Conduct that applies to all of its directors, officers, and employees. The Company requires all of its directors, officers, and employees to adhere to this code in addressing legal and ethical issues that they encounter in the course of doing their work. This code requires our directors, officers, and employees to avoid conflicts of interest, comply with all laws and regulations, conduct business in an honest and ethical manner, and otherwise act with integrity and in the Company’s best interest. All newly hired employees are required to certify that they have reviewed and understand this code. In addition, each year all employees are reminded of and asked to affirmatively acknowledge their obligation to follow the code. The Code of Business Ethics and Conduct is available for review on the Company’s website athttp://investor.paychex.com/governance. The Company intends to disclose any amendment to, or waiver from, a provision of its Code of Business Ethics and Conduct that relates to any element of the code of ethics definition enumerated in Item 406 of SEC Regulation S-K by posting such information on its website at the address specified above.
Say-On-Pay Vote
Say-on-Pay Vote |
PROPOSAL 2·2: ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
Proposal Snapshot
| • | What am I voting on? |
Stockholders are being asked to approve, on an advisory basis, the compensation of our NEOs as described in the Compensation Discussion and Analysis (“CD&A”) and the Named Executive Officer Compensation sections of this proxy statement.
| • | Voting Recommendation |
The Board of Directors recommends a voteFOR the advisory vote approving the NEO compensation, as disclosed in this proxy statement.
We are asking our stockholders to provide advisory approval of the compensation of our NEOs. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders an opportunity to express their views on the overall compensation of our NEOs and the philosophy, policies, and practices as described in this Proxy Statement. Ourproxy statement.Our stockholders are given the opportunity to vote, on a non-binding, advisory basis, on say-on-pay proposals annually, with the next opportunity to vote on such a proposal being the 20152017 Annual Meeting of Stockholders.Before you vote, we encourage you to read the Compensation Discussion and Analysis (“CD&A”)&A and Named Executive Officer Compensation sections of this Proxy Statement,proxy statement, which provide detailed information on the Company’s compensation policies and practices, and overall compensation of our NEOs.
Compensation Programs Highlights
Our executive compensation programs are designed to attract, motivate, and retain highly qualified NEOs, who are critical to our success. We strongly believe that our executive compensation -— both pay opportunities and pay actually realized -— should be tied to Company performance. Under our compensation programs, the NEOs are rewarded for the achievement of specific annual and longer-term strategic and financial goals of the Company. Some key aspects of our compensation programs that you should consider are:
NEO compensation is evaluated and determined by our G&C Committee, which is entirely comprised of independent directors. This committee utilizes the services of an independent consultant to advise them on matters of executive compensation.
Our executive compensation program is designed to implement core compensation principles, including alignment with stockholders’ interests, long-term value creation, and pay-for-performance. A significant portion of pay is at risk where the amount realized will be dependent on achievement of financial targets or, in the case of certain time-vested equity awards, the value of the Company’s stock.
A mix of annual and long-term incentive programs creates a balance between short-term and long-term focus, reducing risk in the compensation programs.
Our equity-based, long-term incentive awards include a mix of options, time-vested restricted stock awards, and performance shares.
In addition, we have responsible compensation practices that ensure consistent leadership and decision-making, certain of which are intended to mitigate risk. These include:
Stock ownership guidelines for directors and executive officers, designed to align the executives’ long-term financial interests with those of our stockholders.
Prohibition of hedging of the Company’s stock for both directors and executive officers.
Prohibition of pledging Company stock as collateral without prior approval by the Company.
A long-standing insider trading policy.
Certain recoupment, non-compete, and other forfeiture provisions within our Annual Officer Performance Incentive Program (the “annual incentive program”) and equity-based compensation agreements. These allow the Company to cancel all or any outstanding portion of equity awards and recoup the gross value of any payouts under the annual incentive program, vested restricted shares, or profits from exercises of options.
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Say-on-Pay VoteSay-On-Pay
At the 2015 Annual Meeting of Stockholders held in October 2015, over 96% of the total stockholder votes cast were in favor of the Company’s NEO compensation as presented in our 2015 proxy statement. The G&C Committee considered this favorable outcome and believed it conveyed our stockholders’ support of the committee’s decisions and the existing executive compensation programs. As we evaluated our compensation practices and talent needs throughout fiscal 2016, we remained mindful of the strong support for our compensation policies and practices communicated by our stockholders at the last annual meeting. As a result, the G&C Committee retained the core design of our executive compensation programs as it believes the program continues to attract, retain, and provide appropriate incentive for senior management.
Advisory Vote
The G&C Committee, along with the Board, believe that the policies, procedures, and amounts of compensation discussed here, and described further in this Proxy Statement,proxy statement, are effective in achieving the desired goals of aligning our executive compensation structure with the interests of our stockholders. To indicate approval of our NEO compensation, a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting must be voted for the proposal.
This say-on-pay vote is advisory and therefore is not binding on the Company, the G&C Committee, or our Board. Our Board values the opinions of our stockholders and, to the extent that there is any significant vote against the NEO compensation as disclosed in this Proxy Statement,proxy statement, we will consider our stockholders’ concerns and the G&C Committee will evaluate whether actions are necessary to address these concerns.
The Board of Directors recommends a voteFOR the proposal to approve the NEO compensation on an advisory vote approving the Named Executive Officer compensation,basis, as disclosed in this Proxy Statement.proxy statement.
CD&A
CD&A |
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
The CD&A provides you with a description of our executive compensation policies and programs, the decisions made by the G&C Committee regarding executive compensation, and the factors contributing to those decisions. This discussion focuses on the compensation of our NEOs for fiscal 2014,2016, who were:
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Martin Mucci | President and Chief Executive Officer (principal executive officer) | |||
Efrain Rivera | Senior Vice President, Chief Financial Officer, and Treasurer (principal financial officer) | |||
Mark A. Bottini | Senior Vice President, Sales | |||
John B. Gibson | Senior Vice President, Service | |||
Michael E. Gioja | Senior Vice President, Information Technology, Product Management and Development |
COMPENSATION DISCUSSION AND ANALYSIS TABLE OF CONTENTS | ||||
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| Paychex, Inc. 2016 Proxy Statement • 20 |
CD&A |
Business and Financial Highlights
During fiscal 2014, we continued our strategy as aOur mission is to be the leading provider of payroll, human resource, insurance, and benefits outsourcing by being an essential partner with America’s businesses. We believe success in this mission will lead to small-strong long-term financial performance.
Our executive compensation is tied to medium-sized businesses throughout the U.S. Our primary goalfinancial and operational performance and is intended to support the success of our clients and their businesses through innovative technology solutions and outstanding personal service.
drive sustained, long-term increases in stockholder value. We delivered solid financial results for fiscal 2014.2016. Reported financial results for fiscal 20142016 and the respective growth percentages compared to the fiscal year ended May 31, 20132015 (“fiscal 2013”2015”) were as follows:
Total service revenue was $2.5 billion, an increase of 8%. Our payroll service revenue continued to advance with growth of 4%, positively impacted by growth in revenue per check, client base, and checks per payroll. Our client base increased 2% to 580,000 payroll clients as of May 31, 2014. Checks per payroll increased for the seventeenth consecutive quarter, and grew 1.4% for fiscal 2014. Our Human Resource Services revenue achieved double-digit growth, primarily due to demand for our human resource outsourcing solutions.
| For the fiscal year ended May 31, | ||||||||||||
| $ in millions, except per share amounts | 2016 | 2015 | % Change | |||||||||
Payroll service revenue | $ | 1,730 | $ | 1,657 | 4 | % | ||||||
Human Resource Services revenue | 1,176 | 1,041 | 13 | % | ||||||||
Total service revenue(1) | 2,906 | 2,698 | 8 | % | ||||||||
Interest on funds held for clients | 46 | 42 | 9 | % | ||||||||
Total revenue | $ | 2,952 | $ | 2,740 | 8 | % | ||||||
Operating income, net of certain items(1), (2) | $ | 1,101 | $ | 1,012 | 9 | % | ||||||
Net income(3) | $ | 757 | $ | 675 | 12 | % | ||||||
Diluted earnings per share(3) | $ | 2.09 | $ | 1.85 | 13 | % | ||||||
Operating cash flows | $ | 1,018 | $ | 895 | 14 | % | ||||||
Operating income, net of certain items (refer to note 1 below), was $942.0 million, an increase of 9%.
| (1) | Total service revenue and operating income, net of certain items, are key financial measures that are metrics in the Company’s performance-based compensation plans. |
Net income was $627.5 million and diluted earnings per share was $1.71, both increasing 10%. This was impacted by a favorable comparison to fiscal 2013. In the fourth quarter of fiscal 2013, we increased our tax provision related to the settlement of a state income tax matter, which reduced diluted earnings per share by approximately $0.04 per share.
Note 1: Operating income, net of certain items, differs from what is reported under U.S. GAAP as operating income. Refer to Appendix A for a description of this non-GAAP financial measure and for a reconciliation of this measure to our operating income results as reported under U.S. GAAP.
Other factors considered in evaluating the Company’s performance are as follows:
| (2) | Operating income, net of certain items, differs from what is reported under U.S. GAAP as operating income. Refer to Appendix A for a description of this non-GAAP financial measure and for a reconciliation of this measure to our operating income results as reported under U.S. GAAP. |
We had solid execution in operations, as demonstrated by client satisfaction results that remained near record levels. We achieved record levels of client retention, rising to approximately 82% of our beginning client base for fiscal 2014.
| (3) | Net income and diluted earnings per share for fiscal 2016 reflect a net tax benefit recognized for prior tax years related to customer-facing software we produced. Excluding this net tax benefit, net income and diluted earnings per share would have grown 9% and 10%, respectively, for fiscal 2016 compared to fiscal 2015. |
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CD&A |
| Strategy Focus | Fiscal 2016 Summary of Accomplishments | |||
| Flexible, convenient service | We had solid execution in operations, as demonstrated by client retention results in excess of 82% of our beginning client base for fiscal 2016. These results were consistent with fiscal 2015’s record high retention. Our total payroll client base grew 2% to approximately 605,000 clients as of May 31, 2016, as a result of both solid sales execution and high client retention. | |||
| Solid sales execution | We have made strong progress in the area of sales execution, with fiscal 2016 seeing strong growth, especially in the mid-market space. | |||
| Industry-leading, integrated technology | We continue to focus on our Paychex FlexSM platform, our cloud-based human capital management (“HCM”) suite of services and mobility offerings. In fiscal 2016, we completed the integration of key HCM modules with the release of Paychex Flex Time, Paychex Flex Benefits Administration and Paychex Flex Hiring. We believe this leading-edge technology, along with our personalized, flexible service, positively impacted our performance in the mid-market space, where we experienced especially strong sales results for fiscal 2016. Paychex Flex continues to receive positive recognition in the marketplace. | |||
| Comprehensive suite of value-added HCM services | We offer a complete suite of HCM services, which help manage the employer/employee relationship through all phases of an employee life cycle. The most recent addition to our suite of services was our full-service Paychex Employer Shared Responsibility (“ESR”) offering, which aides clients with navigation of the complexities of the Affordable Care Act (“ACA”). While first introduced in fiscal 2015, this service experienced strong growth during fiscal 2016. We have serviced our clients through the first year reporting requirements under ACA. | |||
| Continued service penetration | Our team-selling approach has resulted in a greater value of services being sold up-front to clients and thus greater penetration of our broad portfolio of HCM services. Paychex Flex also allows for customizable solutions for clients where additional services can easily be added. We continue to see client growth in our Human Resource Services including retirement services, insurance services, and our comprehensive human resource outsourcing services. The number of client worksite employees served within our comprehensive human resource outsourcing solutions achieved double-digit growth for fiscal 2016. | |||
| Strategic acquisitions | In December 2015, we acquired substantially all of the net assets of Advance Partners, a leading provider of integrated financial, operational, and strategic services to support independent staffing firms. Advance Partners offers customizable solutions to the temporary staffing industry, including payroll funding and outsourcing services. This acquisition allows us greater access to the temporary staffing industry, which services a large number of small- to medium-sized businesses, which is our target market. |
| Paychex, Inc. 2016 Proxy Statement • 22 |
CD&A |
Return to Stockholders:The value we return to our stockholders is very important to us. During fiscal 2016, we returned over $700 million to our stockholders through dividends and repurchases of outstanding shares of our common stock.
We have made strong progress
Note: Dividends as a percentage of net income for fiscal 2016 are calculated on net income, excluding a discrete item for a net tax benefit recognized in the areafirst quarter of sales execution, with fiscal 2014 reflecting our highest growth in new sales revenue in seven years. During fiscal 2014,2016 derived from prior years’ income from customer-facing software we saw results from our initiatives implemented in fiscal 2013 including new territories, market segmentation, and development of franchise and banking opportunities.produced.
We continuedPaychex continues to invest in our software-as-a-service (“SaaS”) solutions and mobility applications to position us for long-term growth. Progress continued on integrating our leading-edge technology and mobility platform with our world-class customer service through our Paychex Next Generation suite of innovative products. We continued to add more capabilitiespay substantial dividends to our mobility platform makingstockholders, in excess of 80% of our product the most comprehensive and client-friendly mobility application for information in the market place.
We expanded our portfolio of value-added products and services. This includes accounting and finance related services, the most significant of which was the launch of Paychex Accounting Online. This cloud-based accounting service is provided through a partnership with Kashoo, a leading cloud-based accounting provider. We also launched multiple product options to help clients assess and react to health care reform legislation.
We expanded our geographical footprint. We acquired a small payroll provider to increase our presence in Germany. We also entered into a joint-venture arrangement to offer payroll and human resource services in Brazil.
We returned capital to our stockholders.net income. In July 2013,2015, the Board approved a 6%an 11% increase in our quarterly dividend to stockholders to $0.35$0.42 per share, up from $0.38 per share. In July 2016, the Board again approved an increase in our quarterly dividend of $0.04 per share, or 10%, to $0.46 per share. In May 2014, the Board approved another increase inauthorized the dividendrepurchase of 9%, bringing the quarterly shareholder dividend to $0.38 per share. In fiscal 2014, we repurchased 6.2 million shares of Paychex common stock for approximately $250 million under a stock repurchase plan that expired in May 2014. The Board approved a new program to repurchase up to $350 million of Paychexour common stock, with thisthe authorization expiring May 31, 2017. During fiscal 2016, we repurchased 2.2 million shares for $107.9 million. In July 2016, we announced that our Board authorized the repurchase of up to $350 million of our common stock, with the authorization expiring May 31, 2019.
The following chart shows how a $100 investment in the Company’s common stock on May 2017.31, 2011 would have grown to $202 as of May 31, 2016, with dividends reinvested quarterly. The chart also compares the total stockholder return on the Company’s common stock to the same investment in the S&P 500 Index over the same period, with dividends reinvested quarterly. For Paychex, this represents a total of 102% return, or 15% on an annualized basis.
For more information about our fiscal 20142016 business results, see the section of our Fiscal 20142016 Annual Report on Form 10-K (“Form 10-K”) titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| Paychex, Inc. 2016 Proxy Statement • 23 |
CD&A |
How Pay is Tied to Company Performance
Our executive compensation programs are designed to ensure that the interests of the Company’s senior leaders are appropriately aligned with those of its stockholders by rewarding performance that meets established business and individual goals. Key features of the program that tie to Company performance are:
A significant portion of our NEO’sNEO annual compensation is at risk“at risk” based on performance. For fiscal 2014,2016, variable pay represented 86%84% of target total compensation for our CEO, and 77%74% of target total compensation on average for our other NEOs.
Variable compensation is comprised of an annual cash incentive program and longer-term equity-based incentives. Performance shares provide the opportunity for restricted stock to be awarded if pre-established financial goals are met for a two-year performance period. Time-vested stock options and restricted stock awards provide value based on our stock price performance.
Target compensation for the annual incentive program and performance shares is established at the beginning of the performance period by the G&C Committee. NEOs have an opportunity to earn actual compensation that varies from target based on achievement against pre-established performance metrics.
Performance targets incorporated into our executive compensation programs include the metrics of service revenue (a measure of business growth) and operating income, net of certain items (our measure of profitability.)profitability).
The financial measures used as targets for the annual incentive program and the performance shares are linked directly to our annual and longer-term strategic business plans that are reviewed and approved by the Board.
CD&A
The pay mix at target for our CEO and other NEOs for fiscal 20142016 is displayed below.
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| Paychex, Inc. 2016 Proxy Statement • 24 |
 CD&A |
Mr. Mucci became CEO in September 2010 and recently completed his fifth fiscal year in as CEO. The following illustrates the three-year directional relationship betweentrend in Company performance, based on two of our key financial metrics, and the total reported compensation (as defined below) of our CEO.CEO over his five-year tenure.
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CEO total compensation as reflected in this chart is equal to the amounts reported in the Summary Compensation Table included in the Named Executive Officer |
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CD&A
Amounts realized in fiscal 20142016 related to performance-based compensation programs for fiscal 20142016 and prior years included the following:
Payouts under the annual incentive program for fiscal 20142016 were earned at 112%103% of target for the CEO and 114%101% of target for the Senior Vice Presidents (“SVPs”). Achievement was measured against financial targets established at the beginning of fiscal 2014.2016.
The two-year performance period for the performance shares granted in July 20122014 ended on May 31, 2014.2016. The financial targets were set at the beginning of this two-year period. Achievement against these targets resulted in restricted shares earned at 110% of target.
The fiscal 2016 performance period for the LTIP granted in July 2011 ended on May 31, 2016. The financial targets were set at the grant date in July 2011 and were based on economic trends experienced at that time. Achievement against these targets resulted in restricted sharesstock options earned at 112%63.0% of target.
Intarget based on achievement against target for fiscal 2012, the NEOs were granted2016. Previously, vesting of a LTIPportion of this award in the form non-qualified performance stock options. Options would vest dependingaccelerated based on achievement against targets established for the fiscal year endingended May 31, 20162014 (“fiscal 2016”2014”). Vesting could accelerate on up to one-half of the options if targetsShares vested in July 2014 were met for fiscal 2014. For fiscal 2014, the NEOs achievement against performance targets resulted in 23.5% of the options granted vestingtotal target amount. The remaining 39.5% of target vested in July 2014.2016.
Refer to the section entitled “Elements of Compensation” and the subsections of “Annual Officer Performance Incentive Program” and “Equity-Based Compensation” within this CD&A for a more detailed discussion of variable compensation, performance targets established, and actual results against those targets.
Reported Compensation Versus Pay Actually Realized
The accompanying graph illustrates the difference between reported compensation in the Fiscal 2014 Summary Compensation Table and the pay actually realized by our CEO in fiscal years 2012, 2013, and 2014. We believe this supplemental information is important since aA significant portion of reported compensation is an incentive for future performance and realizable only if the Company meets or exceeds the applicable performance measures, or is based on the Company’s stock price performance. Long-term equity-based incentives make up the largest component of pay for the NEOs. For the CEO, Mr. Mucci, this accounts for 64% of his target compensation. The primarymain difference between reported compensation in the Summary Compensation Table and pay actuallycompensation realized is related to equity-basedin the value of equity awards. In reported compensation,equity-based awards are included in the year granted at grant-date fair value. In pay actually realized,equity-awards are included at the valueThe amount that can be realized upon lapseexercise of stock options or vesting of restricted stock awards or exercisecan differ significantly from the amounts initially reported in the year of stock option awards.
| Paychex, Inc. 2016 Proxy Statement •25 |
CD&A |
| Intrinsic Value as of May 31, 2016(3) | ||||||||||||||||||||||||||||||||
Fiscal Year | Awards | Value Reported at Grant Date (1) | Value Realized Through May 31, 2016(2) | Vested Shares | Unvested Shares(4) | Total Intrinsic Value Not Yet Realized | Increase in Realized and Unrealized Value Since | |||||||||||||||||||||||||
| 2014 | ||||||||||||||||||||||||||||||||
| Stock Options | $ | 1,174,236 | $ | — | $ | 1,871,832 | $ | 1,871,832 | $ | 3,743,664 | 219 | % | ||||||||||||||||||||
| Restricted Stock | $ | 784,877 | $ | 609,836 | $ | — | $ | 368,642 | $ | 368,642 | 25 | % | ||||||||||||||||||||
| Performance Shares | $ | 1,956,918 | $ | — | $ | — | $ | 3,478,321 | $ | 3,478,321 | 78 | % | ||||||||||||||||||||
| 2015 | ||||||||||||||||||||||||||||||||
| Stock Options | $ | 1,105,472 | $ | — | $ | 611,327 | $ | 1,833,992 | $ | 2,445,319 | 121 | % | ||||||||||||||||||||
| Restricted Stock | $ | 753,602 | $ | 285,718 | $ | — | $ | 653,253 | $ | 653,253 | 25 | % | ||||||||||||||||||||
| Performance Shares | $ | 1,879,113 | $ | — | $ | — | $ | 2,897,463 | $ | 2,897,463 | 54 | % | ||||||||||||||||||||
| 2016 | ||||||||||||||||||||||||||||||||
| Stock Options | $ | 1,069,161 | $ | — | $ | — | $ | 1,426,927 | $ | 1,426,927 | 33 | % | ||||||||||||||||||||
| Restricted Stock | $ | 742,640 | $ | — | $ | — | $ | 850,929 | $ | 850,929 | 15 | % | ||||||||||||||||||||
| Performance Shares | $ | 1,855,384 | $ | — | $ | — | $ | 2,287,379 | $ | 2,287,379 | 23 | % | ||||||||||||||||||||
| (1) | The value reported at grant date represents the amounts reported in the Summary Compensation Table for the respective fiscal year. These values were reported at grant-date fair value of the award. |
| (2) | The value realized through May 31, 2016 represents the value realized on stock option exercises or vesting of restricted stock and performance shares. Mr. Mucci has not exercised any stock options granted in fiscal years 2014, 2015, and 2016. The value reflected for restricted stock is the stock price on the date shares vested multiplied by the number of shares that vested during the period between date of grant and May 31, 2016. |
| (3) | Intrinsic value not yet realized for stock options is based on the closing stock price of $54.22 per share as of May 31, 2016 less the exercise price for the respective grants. Intrinsic value for restricted stock and performance shares is based on the closing stock price of $54.22 per share as of May 31, 2016 multiplied by the number of shares not yet vested. |
| (4) | The intrinsic value of unvested shares remains at risk as these awards are currently not exercisable. |
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Results of the 2013 Say-on-Pay Vote
At the 2013 Annual Meeting of Stockholders held in October 2013, over 94% of the total stockholder votes cast were in favor of the Company’s NEO compensation as presented in our 2013 Proxy Statement. The G&C Committee considered this favorable outcome and believed it conveyed our stockholders’ support of the committee’s decisions and the existing executive compensation programs. As we evaluated our compensation practices and talent needs throughout fiscal 2014, we remained mindful of the strong support for our compensation policies and practices communicated by our stockholders at the last annual meeting. As a result, the G&C Committee retained the core design of our executive compensation programs as it believes the program continues to attract, retain, and provide appropriate incentive for senior management. At the 2014 Annual Meeting, we will again hold an annual advisory vote to approve NEO compensation and the G&C Committee will continue to consider results from this and future advisory votes to approve NEO compensation.
Highlights of Executive Compensation Practices
The Board maintains governance standards and oversight of our executive compensation policies and practices. The following governance practices were in place during fiscal 2014,2016, and these practices, among other elements of our compensation programs, aid in mitigating risk associated with our compensation programs.
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| WHAT WE DO þPay for performance. As previously discussed, a significant portion of executive pay is not guaranteed, but rather tied to key financial metrics that are disclosed to our stockholders. | |||||
þ | Mitigate undue risk in compensation | |||||
þ | Balance of short-term and long-term incentives. Our incentive programs provide an appropriate balance of annual and longer-term incentives. | |||||
þ | Capped award payouts. Amounts or shares that can be earned under the annual incentive program, as well as under the longer-term performance share and performance option awards, are capped. | |||||
þ | Share ownership guidelines.There are restrictions on sales of vested awards until a NEO has attained ownership of the Company’s stock as follows: CEO | |||||
þ | Include double-trigger change in control provisions. Our Change in Control Plan for officers is a | |||||
þ | Include recoupment, non-compete, and other forfeiture provisions in our equity-award provisions and annual incentive program. Our annual incentive program and equity-based compensation agreements contain certain recoupment, non-compete, and other forfeiture provisions that will allow the Company to cancel all or any outstanding portion of equity awards and recover the payouts under the annual incentive program, gross value of any vested restricted shares, or profits from exercises of options. | |||||
þ | Utilize an independent compensation consulting firm. The G&C Committee benefits from its utilization of an independent compensation consulting firm, which provides no other services to the Company. | |||||
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| WHAT WE DON’T DO xNo employment agreements.We do not have employment contracts for our NEOs. Employment of all of our executive officers is “at will.” | |
x | No significant perquisites. The benefits our NEOs receive in the form of health insurance, life insurance, and Company matching contributions to the 401(k) Plan are the same benefits generally available to all of our employees. | |
x | No hedging, pledging or short sales transactions permitted. Our executive officers, including NEOs, and directors are prohibited from engaging in any hedging or other similar types of transactions with respect to the Company’s common stock. Pledging is prohibited without prior Company approval and not for more than 25% of the pledgor’s total beneficial ownership. | |
x | No dividends or dividend equivalents on unearned performance shares. Performance share awards do not earn or pay dividends until the shares are earned. | |
Refer to the remainder of this CD&A for a detailed discussion of the overall compensation philosophy, practice, and analysis of elements of the compensation awarded to our NEOs as provided in the Fiscal 20142016 Summary Compensation Table, included in the Named Executive Officer Compensation section of this Proxy Statement.proxy statement.
| Paychex, Inc. 2016 Proxy Statement • 27 |
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We use a combination of compensation elements, including base salary, annual incentive program, andequity-based awards delivered under our 2002 Plan. Each element and the related compensation decisions and results for fiscal 20142016 are discussed below.
Summary of Fiscal 2016 Elements of Compensation
Fiscal 2016 Compensation Results
Base Salary
We pay base salariessalary to attract talented executives and to provide a fixed base of cash compensation. Annually, baseBase salaries are reviewed to determine what, if any, increase is required.annually. Our practice is to make targeted base salary increases as determined necessary based on performance, market information, and scope of responsibilities. For fiscal 2014, Mr. Gioja received a base salary increase based on these factors.
| Paychex, Inc. 2016 Proxy Statement • 28 |
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Annual Officer Performance Incentive Program
The annual incentive program provides opportunity for compensation in the form of short-term pay for performance. The program was established to motivate NEOs to meet the financial goals set by the Company as presented to its stockholders, while maintaining alignment with stockholders’ interests.
The G&C Committee set a goal for net income of $400$450 million for fiscal 20142016 as the minimum performance hurdle for the NEOs to be eligible for payout under the program. The Company achieved this net income goal for fiscal 2014.2016. The annual incentive program is intended to comply with section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) for NEOs affected by the $1 million limitation on deductible compensation. Upon achievement of the minimum eligible performance, payouts under our annual incentive program are determined based upon the satisfaction of certain quantitative and qualitative components.
The quantitative component consists of certain predetermined performance targets, which are established at the beginning of each fiscal year, typically based on the Board-approved fiscal year financial plan. The targets for payout are established by the G&C Committee with consultation of management. They are set at specific financial goals, which are in alignment with stockholders’ interests. The performance targets established are intended to provide a balance between a focus on growing revenue and managing expenses. Once a target is determined, it is set for the year and is normally not changed. For extraordinary circumstances, the G&C Committee reserves the right to apply discretion.discretion and make changes.
The qualitative component of the annual incentive program consists of individual-specific qualitative goals established at the beginning of the fiscal year based on functions unique to the individual. The CEO can
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potentially receive up to 20% of base salary and all other NEOs can potentially receive up to 10% of base salary. The assessment of these goals is subjective and is not always based on quantifiable financial measurements. The G&C Committee may determine, at its sole discretion, whether satisfactory achievement has occurred, regardless of achievement against the pre-established individual goals. At its discretion for fiscal 2014,2016, the G&C Committee awarded NEOs alleach of the NEOs the maximum qualitative portion of the annual incentive program.award. The qualitative component of the annual incentive program is not considered material to the overall compensation for each NEO.
The weighting ofweight given each quantitative performance target is determined by the G&C Committee when the targets are established, and this weightingweight varies for each NEO based on the individual’s position. Each of the performance targets applicable to a NEO’s annual incentive program provide the NEO an opportunity to earn a percentage of their annualized base salary based on achievement at threshold, target, and maximum. The total percentage of base salary for all performance measures that the NEOs have the opportunity to earn are as follows:
| Quantitative Component | Quantitative Component | Qualitative Component | ||||||||||||||||||||||||||||||
Position | Threshold | Target | Maximum | Qualitative Component | Threshold | Target | Maximum | |||||||||||||||||||||||||
CEO | 30% | 110% | 180% | 20% | 30 | % | 110 | % | 180 | % | 20 | % | ||||||||||||||||||||
| SVP | 25% | 75% | 120% | 10% | 30 | % | 85 | % | 130 | % | 10 | % | ||||||||||||||||||||
A NEO has the opportunity to earn a payout at performance below or above target. Thresholds are set as the floor with any achievement below threshold resulting in no payout for the respective performance metric. Maximums are set as a ceiling on the amount of payout a NEO can receive for each performance metric. For fiscal 2016, the percentage of base pay for SVPs was raised 5% at threshold and 10% at both target and maximum compared to the 2015 annual incentive plan.
The performance metrics for the fiscal 20142016 annual incentive program for the NEOs were established as follows:
| Fiscal 2014 Year-over-Year Growth Rates | % of Plan Dollars | Fiscal 2016 Year-over-Year Growth Rates | % of Plan Dollars | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Bonus Objectives(1) | Threshold | Target | Maximum | Threshold | Target | Maximum | Achievement as a % of Target | Threshold | Target | Maximum | Threshold | Target | Maximum | Achievement as a % of Target | ||||||||||||||||||||||||||||||||||||||||||
Service revenue | 1% | 6% | 8% | 96.0% | 100.0% | 102.0% | 100.7% | 3 | % | 7 | % | 9 | % | 96.0 | % | 100.0 | % | 102.0 | % | 99.7 | % | |||||||||||||||||||||||||||||||||||
| Operating income, net of certain items | 3% | 8% | 10% | 96.0% | 100.0% | 102.0% | 101.2% | 4 | % | 8 | % | 10 | % | 96.0 | % | 100.0 | % | 102.0 | % | 100.0 | % | |||||||||||||||||||||||||||||||||||
Annualized new business revenue (2) | 2% | 10% | 14% | 92.7% | 100.0% | 103.7% | 98.2% | 4 | % | 10 | % | 13 | % | 94.5 | % | 100.0 | % | 102.7 | % | 100.6 | % | |||||||||||||||||||||||||||||||||||
| (1) | The annual incentive program allows for certain adjustments to metrics as reported in our consolidated financial statements. |
| (2) | Annualized new business revenue is the approximate amount of revenue to be earned over the firsttwelve-month period, from the sale in the current fiscal year, of certain payroll, human resource, |
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The NEOs have an opportunity to earn a percentage of base salary for eachEach performance metric established under the quantitative portion of the annual incentive program. Each objective, along with the target percentage of base salary that can be earned for that metric, and the actual payout percentage is set forth below, in accordance with calculations per the program.
| Mr. Mucci | Mr. Rivera, Mr. Gibson, and Mr. Gioja | Mr. Bottini | ||||||||||||||||||||||||||||||||||||||||||||||
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| Mr. Mucci | Mr. Rivera, Mr. Gibson, and Mr. Gioja | Mr. Bottini | ||||||||||||||||||||||||||||||||||||||||
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% of Base Salary at Target | % of Base Salary Achieved (1) | % of Base Salary at Target | % of Base Salary Achieved(1) | % of Base Salary at Target | % of Base Salary Achieved (1) | % of Base Salary at Target | % of Base Salary Achieved (1) | % of Base Salary at Target | % of Base Salary Achieved (1) | % of Base Salary at Target | % of Base Salary Achieved (1) | ||||||||||||||||||||||||||||||||||||
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| Service revenue | 35.0% | 41.0% | 25.0% | 29.5% | 20.0% | 23.0% | 35.0 | % | 33.1 | % | 30.0 | % | 28.5 | % | 25.0 | % | 23.9 | % | ||||||||||||||||||||||||||||||
Operating income, net of certain items | 45.0% | 60.0% | 30.0% | 42.0% | 25.0% | 34.0% | 45.0 | % | 45.0 | % | 30.0 | % | 30.0 | % | 30.0 | % | 30.0 | % | ||||||||||||||||||||||||||||||
Annualized new business revenue | 30.0% | 25.1% | 20.0% | 16.9% | 30.0% | 25.1% | 30.0 | % | 35.6 | % | 25.0 | % | 27.2 | % | 30.0 | % | 34.4 | % | ||||||||||||||||||||||||||||||
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Total quantitative annual incentive | 110.0% | 126.1% | 75.0% | 88.4% | 75.0% | 82.1% | 110.0 | % | 113.7 | % | 85.0 | % | 85.7 | % | 85.0 | % | 88.3 | % | ||||||||||||||||||||||||||||||
| Qualitative(2) | 20.0% | 20.0% | 10.0% | 10.0% | 10.0% | 10.0% | 20.0 | % | 20.0 | % | 10.0 | % | 10.0 | % | 10.0 | % | 10.0 | % | ||||||||||||||||||||||||||||||
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| Total | 130.0% | 146.1% | 85.0% | 98.4% | 85.0% | 92.1% | 130.0 | % | 133.7 | % | 95.0 | % | 95.7 | % | 95.0 | % | 98.3 | % | ||||||||||||||||||||||||||||||
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| (1) | If the actual achievement under a given performance metric is between two thresholds (e.g. between threshold and target or between target and maximum), then the percentage of base salary achieved would be calculated based on a straight-line interpolation of the achievement level above threshold or target, as appropriate, for such performance metric. |
| (2) | The NEOs have an opportunity to earn a percentage of base salary based on individual-specific qualitative goals related to the functions unique to the individual. The G&C Committee may determine, at its sole discretion, whether satisfactory achievement has occurred, regardless of achievement against thepre-established individual goals. |
The actual achievement translated to the incentive paymentpayments for our NEOs is as follows:
| Annualized Base Salary(1) | Minimum Potential Payout(2) | Maximum Potential Payout(2) | % of Base Salary Achieved | Actual Incentive Compensation Earned(3) | Annualized Base Salary (1) | Minimum Potential Payout (2) | Maximum Potential Payout(2) | % of Base Salary Achieved | Actual Incentive Compensation Earned(3) | |||||||||||||||||||||||||||||||
Martin Mucci | $ | 845,000 | $ | — | $ | 1,690,000 | 146.1% | $ | 1,234,292 | $ | 900,000 | $ | — | $ | 1,800,000 | 133.7 | % | $ | 1,203,210 | |||||||||||||||||||||
Efrain Rivera | $ | 425,000 | $ | — | $ | 552,500 | 98.4% | $ | 418,285 | $ | 475,000 | $ | — | $ | 665,000 | 95.7 | % | $ | 454,670 | |||||||||||||||||||||
Mark A. Bottini | $ | 425,000 | $ | — | $ | 552,500 | 92.1% | $ | 391,298 | $ | 450,000 | $ | — | $ | 630,000 | 98.3 | % | $ | 442,440 | |||||||||||||||||||||
John B. Gibson | $ | 350,000 | $ | — | $ | 455,000 | 98.4% | $ | 344,470 | $ | 425,000 | $ | — | $ | 595,000 | 95.7 | % | $ | 406,810 | |||||||||||||||||||||
Michael E. Gioja | $ | 400,000 | $ | — | $ | 520,000 | 98.4% | $ | 393,680 | $ | 425,000 | $ | — | $ | 595,000 | 95.7 | % | $ | 406,810 | |||||||||||||||||||||
| (1) | This represents the NEO’s annualized base salary as of May 31, |
| (2) | These columns represents the range of payout that each NEO has the opportunity to earn. The minimum potential payout indicates that no payout is earned if achievement is below threshold. The maximum potential payout is based on the percentage of base salary that each NEO can earn for maximum achievement. |
| (3) | Actual incentive compensation earned is calculated as annualized base salary multiplied by the percentage of base salary achieved, and is provided in the |
Equity-Based Compensation
To align our NEOs’ interests with the long-term interests of our stockholders, the Company grants equity awards under the 2002 Plan. Annual grants of equity awards to the NEOs are approved during the regularly scheduled meeting of the G&C Committee in July. Historically, the July meeting has been scheduled to occur
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approximately two weeks after the release of our fiscal year-end earnings and upcoming fiscal year financial guidance. Our trading black-out period normally lifts on the third business day following such release of information. The G&C Committee anticipates continuing its granting practice. The G&C Committee may also grant equity awards to individuals upon hire or promotion to executive officer positions. These equity awards are not granted during any trading black-out periods. Recipients are notified shortly after G&C Committee approval of their grant, noting the number of stock options, shares of restricted stock, target performance shares and goals, the vesting schedule, and exercise price. Any sales restrictions or other terms of the award are also communicated at that time.
Annually, the G&C Committee reviews the NEO compensation of our peer group to determine the desired pay range for our officers. See the Compensation Decision Process section later in this CD&A for further information on the Committee’s
| Paychex, Inc. 2016 Proxy Statement • 30 |
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process for determining total compensation, including equity awards. This review, along with the officer’s individual performance and potential, determine the total compensation. The quantity of equity awards is based on an estimated total value as determined by the G&C Committee in conjunction with their total compensation review and evaluation.
In July 2013,2015, the G&C Committee made an annual equity grant that was a blend of stock options, time-vested restricted stock, and performance shares. The quantityaward value was split as follows:
This distribution provides for 80% of the awards was based on an estimated total value as determined byto be performance-based, consistent with the G&C Committee, with thatCommittee’s total value split 30% to stock options, 50% to performance shares, and 20% to restricted stock. A larger portion of the value of the equity was in at-risk, performance-based awards in the form of performance shares and stock options.compensation determination. The balance of equity awards in the form of time-vested restricted stock was granted for retention purposes. The quantityvalue delivered may be adjusted by the G&C Committee at its discretion for individual performance and future potential considerations. For our July 2015 grants, the G&C Committee determined the total estimated value to be approximately $3,750,000 for the CEO and $850,000 for SVPs.
The following equity-based compensation was granted in July 20132015 for all NEOs:
NEO | Performance Shares (at Target) | Option Awards | Time-Vested Restricted Stock Awards | Performance Option Award Under LTIP (at Target) | Performance Shares (at Target) | Option Awards (1) | Time-Vested Restricted Stock Awards (2) | ||||||||||||||||||||||||
Martin Mucci | 54,831 | 237,844 | 20,397 | — | 42,187 | 206,801 | 15,694 | ||||||||||||||||||||||||
Efrain Rivera | 12,428 | 53,911 | 4,623 | — | 9,562 | 46,875 | 3,557 | ||||||||||||||||||||||||
Mark A. Bottini | 12,428 | 53,911 | 4,623 | — | 9,562 | 46,875 | 3,557 | ||||||||||||||||||||||||
John B. Gibson | 12,428 | 53,911 | 4,623 | 150,000 | 9,562 | 46,875 | 3,557 | ||||||||||||||||||||||||
Michael E. Gioja | 12,428 | 53,911 | 4,623 | — | 9,562 | 46,875 | 3,557 | ||||||||||||||||||||||||
| (1) | Option awards vest 25% per year over 4 years and have a term of 10 years. |
| (2) | Restricted stock awards vest 1/3 per year over 3 years. |
Performance Shares
Performance shares are designed to provide variable compensation that is focused on longer-term results. Performance shares have a two-year performance period to determine the number of restricted shares to be issued. The NEO must serve for one additional year for the restrictions to lapse. The performance targets as set by the Board are based on service revenue and operating income, net of certain items, as projected in the strategic planning process. The G&C Committee established performance targets intended to be appropriately challenging at all levels, including the threshold level, but attainable with increasing difficulty for each level beyond threshold. The threshold level was expected to be appropriately challenging but achievable under normal circumstances. The target level would be achieved if the Company performed as expected under our strategic plan for the two-year period. The maximum level would be achievable only with exceptional performance.
| Paychex, Inc. 2016 Proxy Statement • 31 |
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The two-year performance period for performance shares granted in July 2014 was completed at the end of fiscal 2016. The shares earned were based on achievement against pre-established goals for the performance period as follows:
| Performance Goal ($ In Millions) | Two-Year Performance Targets Established | Actual Achievement | ||||||||||||||||||
| Threshold | Target | Maximum | ($) | % of Target | ||||||||||||||||
| Service revenue(1) | $ | 5,277 | $ | 5,555 | $ | 5,721 | $ | 5,586 | 101 | % | ||||||||||
| Operating income, net of certain items(2) | $ | 1,989 | $ | 2,093 | $ | 2,156 | $ | 2,107 | 101 | % | ||||||||||
| Percent of plan | 95 | % | 100 | % | 103 | % | ||||||||||||||
| Payout as a percent of target | 75 | % | 100 | % | 150 | % | 110 | % | ||||||||||||
| (1) | Service revenue as calculated under the performance award agreement excludes the impact of acquisitions. Refer to Appendix A for a reconciliation of service revenue as calculated for the performance period to service revenue reported in our consolidated financial statements. |
| (2) | Operating income, net of certain items, is a non-GAAP measure. In addition, this measure as calculated under the performance award agreement excludes the impact of business acquisitions during the performance period. Refer to Appendix A for a description of this non-GAAP measure and a reconciliation of the amount for the performance period to the related GAAP measure. |
Achievement for both service revenue and operating income, net of certain items, was slightly ahead of target. As a result of their performance against these pre-established goals, in July 2016 our NEOs received restricted shares at a quantity of 110% of the target level. The restrictions on these shares will lapse after an additional one-year service period. These performance shares, granted in July 2014, were reflected at grant-date fair value in the NEO compensation for fiscal 2015 in the Summary Compensation Table, contained in the Named Executive Officer Compensation section of this proxy statement.
Long-Term Incentive Plan Non-Qualified Performance Stock Options
In July 2011, the NEOs, with the exception of Mr. Gibson, received an LTIP grant of non-qualified performance stock options. These options would vest dependent on achievement against targets for fiscal 2016, with acceleration of up to one-half of the award if established targets were met for fiscal 2014. In July, the NEOs (except Mr. Gibson) vested in 23.5%, out of a potential 50%, of the award based on achievement against targets. For fiscal 2016, achievement is summarized as follows:
| Performance Goal ($ In Millions) | Fiscal 2016 Performance Goals | Actual Achievement | ||||||||||||||
| Threshold | Target | ($) | % of Target | |||||||||||||
| Service revenue | $ | 2,854 | $ | 3,004 | $ | 2,906 | 97 | % | ||||||||
| Operating income, net of certain items(1) | $ | 1,090 | $ | 1,147 | $ | 1,101 | 96 | % | ||||||||
| Percent of plan | 95 | % | 100 | % | ||||||||||||
| (1) | Operating income, net of certain items, is a non-GAAP measure. Refer to Appendix A for a description of this non-GAAP measure. |
Service revenue and operating income, net of certain items, for fiscal 2016 fell between threshold and target achievement. These targets were established at the time of grant in July 2011 and were based on the Company’s long-range plan set at challenging levels. As a result of fiscal 2016 performance, a total of 63.0% of the options at target were earned. As 23.5% were accelerated and vested in July 2014, the remaining 39.5% of the total award at target vested in July 2016. Mr. Gibson received an LTIP grant upon his hire in 2014. He did not vest in any shares in July 2014 due to his limited time with the Company. As he had no acceleration in fiscal 2014, Mr. Gibson vested 63.0% of his award in July 2016. The NEOs vested in the following number of options under the LTIP:
| Performance Options Vested | July 2016 | July 2014 | Total | |||||||||
| Martin Mucci | 197,500 | 117,500 | 315,000 | |||||||||
| Efrain Rivera | 98,750 | 58,750 | 157,500 | |||||||||
| Mark A. Bottini | 98,750 | 58,750 | 157,500 | |||||||||
| John B. Gibson | 94,500 | — | 94,500 | |||||||||
| Michael E. Gioja | 98,750 | 58,750 | 157,500 | |||||||||
Information regarding the equity-based awards granted to the NEOs in fiscal 2016 and in prior years are detailed in the Named Executive Officer Compensation tables included in this proxy statement.
| Paychex, Inc. 2016 Proxy Statement • 32 |
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The G&C Committee has established stock ownership guidelines, which were raised in July 2015, as follows:
| Position | Requirement | |
| CEO | 5X base salary | |
| SVP | 3X base salary | |
| VPs | 2X base salary |
For any awards granted after July 2011, there are restrictions on sales of such vested awards until the officer has attained the applicable stock ownership level. The ownership guidelines were established to provide long-term alignment with stockholders’ interests. For the purposes of achieving the ownership guideline, unvested restricted stock awarded to the executive officers is included. All officers are compliant with the guidelines.
Prohibition on Hedging or Speculating In Company Stock
NEOs, along with all employees, of the Company must also adhere to strict standards with regards to trading in Paychex stock. Also, the Company prohibits executive officers from hedging Paychex stock. They may not, among other things:
speculatively trade in the Company’s stock;
short sell any securities of the Company; or
buy or sell puts or calls on the Company’s securities.
During fiscal 2016, the Company approved a pledging policy for all Paychex directors, officers, and employees. This policy prohibits pledging Company securities as collateral for a loan or a line of credit without obtaining prior Company approval. Approval may be granted when the individual clearly demonstrates the intent and financial capacity to satisfy the obligations without resort to the pledged securities and where the pledge represents no more than 25% of the pledgor’s beneficial ownership of the Company securities. This policy is effective prospectively. The Company’s pledging policy is posted on the Company’s website athttp://investor.paychex.com/governance.
Recoupment, Non-Compete, and Other Forfeiture Provisions
The Company retains the right to clawback on any incentive payment or award under any policy adopted by the Company implementing Section 10D of the Exchange Act and any regulations promulgated or national securities exchange listing conditions adopted with respect thereto. In the annual incentive program, the Company retains the right to recoup all or a portion of the payouts under the annual incentive program if those payouts were based on financial statements that are subsequently subject to restatement and where fraud or misconduct was involved. The Company will, to the extent permitted by governing law, require reimbursement of a portion of any compensation received where:
the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a substantial restatement;
the participant engaged in fraud or misconduct that caused or partially caused the need for the substantial restatement; and
a lower payment would have been made based upon the restated financial results.
In each such instance, the Company will, to the extent practicable, seek to recover the amount by which the individual participant’s compensation for the relevant period exceeded the lower payment that would have been made based on the restated financial results, plus a reasonable rate of interest.
Our equity-based compensation agreements state that following termination of employment, certain benefits (including equity-based compensation) will be forfeited if the NEO engages in activities adverse to the Company. These activities include:
competition with the Company during a specified period after termination of employment;
solicitation of the Company’s clients or employees during a specified period after termination of employment;
breach of confidentiality either during or after employment; or
engaging in conduct which is detrimental to the Company during the NEO’s employment with the Company.
| Paychex, Inc. 2016 Proxy Statement • 33 |
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Should any of these activities occur, the Company may cancel all or any outstanding portion of the equity awards subject to this provision, and recover the gross value of any vested restricted shares, including all dividends. In the case of non-qualified stock options, the Company may suspend the NEO’s right to exercise the option and/or may declare the option forfeited. In addition, the Company may seek to recover all profits from certain prior exercises as liquidated damages and pursue other available legal remedies.
Our NEOs receive benefits in the form of vacation, health insurance, life insurance, Company matching contributions to the 401(k) Plan when such contributions are in effect, and other benefits, which are generally available to all our employees. We do not provide our NEOs with pension arrangements, post-retirement health coverage, or other similar benefits, with the exception of access to a non-qualified and unfunded deferred compensation plan.
We offer a non-qualified and unfunded deferred compensation plan to our NEOs. The deferred compensation plan is intended to supplement the NEO’s 401(k) Plan account. Due to limitations on the 401(k) Plan accounts placed by the Internal Revenue Service, this plan allows for further savings toward retirement for the NEOs and functions similarly to the 401(k) Plan account. Refer to the Non-Qualified Deferred Compensation discussion included in the Named Executive Officer Compensation section of this proxy statement for more information on how our deferred compensation plan functions.
Executives of the Company are covered by a Change in Control Plan. Upon involuntary termination by the Company without cause or a voluntary termination by the participant for good reason, within 12 months following a Change in Control, the executive becomes entitled to certain severance benefits. Such severance benefits are conditioned upon the execution of a general release in favor of the Company.
Cause means the participant’s dereliction of duty to the Company, conviction for a felony, or willful misconduct that has a substantial adverse effect on the Company. Good reason means a significant change to the duties, authority, or position that were assigned immediately before the change in control including: the reduction in or removal of any material duties, authority or position within the Company; assignment of duties inconsistent with the participant’s position, authorities or responsibilities; material reduction to base salary, annual incentive, or other elements of total compensation; relocation of the participant’s principal workplace to an area outside of a 50-mile-radius, or the failure of a successor company to assume or adopt the Change in Control Plan. Refer to the Potential Payments upon Termination or Change In Control discussion within the Named Executive Office Compensation section of this proxy statement for further information.
Role of the Compensation Consultant
As outlined in its charter, the G&C Committee has the authority to retain consultants and advisers, at the Company’s expense, to assist in the discharge of the committee’s duties. The G&C Committee can retain and dismiss such consultants and advisers at any time. The G&C Committee’s consultants report directly to the committee and have direct access to the committee through the G&C Committee’s chair. The G&C Committee requires that any consultant it retains cannot be utilized by management for other purposes. Although management, particularly the VP of Human Resources and Organizational Development, may work closely with the consultant, the consultant is ultimately accountable to the G&C Committee on matters related to executive compensation.
The G&C Committee retains the services of Steven Hall & Partners (“Steven Hall”) as its independent compensation consultant. Steven Hall has not provided any other services to the Company prior to or subsequent to being retained as compensation consultant to the G&C Committee. The G&C Committee was solely responsible for the decision to retain Steven Hall as its consultant. Steven Hall advises the G&C Committee on matters of NEO compensation, assists with analysis and research, and provides updates on evolving best practices in compensation. While Steven Hall may express an opinion on compensation matters, the G&C Committee is solely responsible for setting the type and amount of compensation for NEOs.
The G&C Committee recognizes that it is essential to receive objective advice from its compensation consultant. The G&C Committee closely examines the procedures and safeguards that Steven Hall takes to ensure that the compensation
| Paychex, Inc. 2016 Proxy Statement • 34 |
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consulting services are objective. The G&C Committee has assessed the independence of Steven Hall pursuant to SEC rules and concluded that Steven Hall’s work for the G&C Committee does not raise any conflict of interest. In making this assessment, the following factors were taken into consideration:
that the compensation consultant reports directly to the G&C Committee, and the G&C Committee has the sole power to terminate or replace its compensation consultant at any time;
the compensation consultant does not provide any other services to the Company;
aggregate fees paid by the Company to the compensation consultant, as a percentage of the total revenue of the compensation consultant;
the compensation consultant’s policies and procedures designed to prevent conflicts of interest;
any business or personal relationships between the compensation consultant, on one hand, and any member of the G&C Committee or executive officer, on the other hand; and
whether the compensation consultant owns any shares of the Company’s stock.
Role of Governance and Compensation Committee and Management
As part of the G&C Committee’s responsibility to evaluate and determine NEO compensation, on an annual basis the G&C Committee:
reviews the companies in our comparative Peer Group, a group of companies with comparable financial information or who are direct competitors of Paychex, for any changes;
reviews base salaries for adjustments, if any;
establishes and approves the performance targets and payouts under incentive-based programs and awards;
grants equity awards under our 2002 Plan; and
considers the impact of section 162(m) of the Code.
The G&C Committee continues to review each of the elements of compensation annually to ensure that compensation is appropriate and competitive to attract and retain a high-performing executive team. The G&C Committee targets to maintain performance-based pay as a percentage of total compensation of over 70% for the CEO and over 60% for the other NEOs. Additionally, the G&C Committee targets the value of long-term compensation to be approximately 60% for the CEO and 50% for the other NEOs.
The G&C Committee, in making its decisions, targets an equitable mix of compensation. It utilizes various sources of information to evaluate our NEO compensation, including, but not limited to:
compensation consultant reports and analysis;
benchmarking information with NEOs at Peer Group companies for all compensation elements; and
internal management reports including a three-year history of total compensation for all officers and a summary for the upcoming fiscal year of total cash compensation and equity awards for all officers.
The G&C Committee strives for our NEOs’ compensation to be in line with our Peer Group. The information provided by the compensation consultant indicates whether our compensation package, if target performance is achieved, is comparable to the median compensation of our Peer Group, given current competitive practices, overall best practices, and other compensation and benefit trends.
Management reports are used to evaluate compensation recommendations and the impact to total compensation for each individual. They are also used to view a complete picture of the trend of compensation to executive officers, both as a team and as individuals. This facilitates discussion that more accurately details individual officer compensation, noting differences that reflect officer tenure, performance, and position in the management structure.
The G&C Committee uses these management updates along with peer information, where available, as tools to evaluate executive compensation. This information is reviewed in a subjective manner. There is no implied direct or formulaic linkage between peer information and the G&C Committee’s compensation decisions.
Our CEO and our VP of Human Resources and Organizational Development provide recommendations to the G&C Committee on design elements for compensation. These individuals, and from time to time invited guests including other officers, will be in attendance at the meetings of the G&C Committee to present and respond to questions on current or
| Paychex, Inc. 2016 Proxy Statement • 35 |
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proposed plan design. Annually, our CEO reviews achievement of the recently completed fiscal year’s plan and also presents recommendations regarding: salary for each of the NEOs (other than himself), the upcoming fiscal year’s annual incentive program structure, and equity awards. Management is excluded from executive sessions of the G&C Committee where final decisions on compensation are made, particularly those on our CEO’s performance and compensation. Executive sessions occur at each meeting of the G&C Committee.
In addition to many other factors that affect compensation determinations, the G&C Committee takes into account the compensation practices of our Peer Group, where available, in formulating our compensation program. The G&C Committee assesses total compensation at the median of the Peer Group, even though Paychex performs above the median of its Peer Group in most financial categories as shown in the chart below. Peer Group comparisons were available for the positions of Mr. Mucci, CEO, Mr. Rivera, CFO, and Mr. Gioja, SVP of Product Development and Information Technology, all of whom have total compensation that falls below the median total compensation of the Peer Group. For the remaining NEOs, compensation was compared to the average NEO compensation, excluding the CEO and CFO positions, for our Peer Group. These results were below the median total compensation of our Peer Group. Peer Group benchmarking is not the sole determining factor in the G&C Committee’s decisions on compensation, and the G&C Committee reserves the discretion to adjust compensation based on other factors as previously discussed. The Peer Group companies are not necessarily limited to the markets in which Paychex does business. The Peer Group is comprised of the following industries or segments: a direct competitor in the payroll industry, financial transaction management companies, and business services and outsourcing companies.
Our current Peer Group consists of the following companies:
| Peer Group | |||
Automatic Data Processing, Inc. | Moody’s Corporation | ||
Broadridge Financial Solutions, Inc. | Robert Half International Inc. | ||
DST Systems, Inc. | TD AMERITRADE Holding Corporation | ||
Fiserv, Inc. | The Brink’s Company | ||
Global Payments Inc. | The Dun & Bradstreet Corporation | ||
H&R Block, Inc. | The Western Union Company | ||
Intuit Inc. | Total System Services, Inc. | ||
Iron Mountain Incorporated | |||
| (1) | Based on most recent completed fiscal year. |
| (2) |
|
The G&C Committee annually reviews and approves the selection of Peer Group companies, adjusting the group from year to year based upon our business and changes in the Peer Group companies’ business or the comparability of their metrics. The
| Paychex, Inc. 2016 Proxy Statement • 36 |
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Peer Group may also be adjusted in the event of mergers, acquisitions, or other significant economic changes. The Peer Group was not adjusted for fiscal 2016. Subsequently, we removed The Brink’s Company and Iron Mountain Incorporated from our Peer Group for the fiscal year ending May 31, 2017 (“fiscal 2017”). These two companies were replaced with Alliance Data Systems and Equifax, Inc., as they are more closely aligned with the Paychex business. For more information regarding how we compare on selected criteria to our Peer Group, refer to Appendix B of this proxy statement.
Options AwardsCEO Compensation
The exercise price
It is the responsibility of the G&C Committee to evaluate Mr. Mucci’s performance annually and determine his total compensation. Mr. Mucci receives compensation based on his leadership role and the overall performance of the Company. Mr. Mucci’s compensation for fiscal 2016 as reflected in the Summary Compensation Table, included in the Named Executive Officer Compensation section of this proxy statement, is as follows:
Base salary of $900,000.
Payout under the annual incentive program of 103% of target.
Annual equity award grants comprised of 42,187 performance shares at target, 206,801 stock options is typically the closing market price, but never less than 100% of fair market value, on the date of the grant. The stock options vest annually in 25% incrementswith vesting pro-rata over four years, and 15,694 shares of time-vested restricted stock with vesting over three years.
Mr. Mucci’s compensation for fiscal 2016 remained below median when compared to that of the CEOs within our Peer Group. The G&C Committee continually assesses his compensation and in July 2016 approved an increase in Mr. Mucci’s base salary of 6% to $950,000 and an increase in total annual equity award value of 14% to $4,290,000 to bring his compensation closer to median.
In July 2016, the G&C Committee approved a new LTIP award to focus the senior leadership team on the strategic plan related to the long-term growth of the Company. This award is in the form of non-qualified performance stock options and performance-based restricted stock. The number of options and restricted shares to be earned will be based on achievement compared to pre-established targets for the fiscal year ending May 31, 2020. Targets are established for financial reporting measures of service revenue, operating income, and diluted earnings per share. The restricted share portion of this award does not earn dividends or have voting rights during the performance period.
All other annual awards granted in July 2016 have similar terms to the July 2015 awards.
Impact of the Internal Revenue Code
Section 162(m) of the Code generally limits the tax deductibility of compensation paid to certain officers to $1 million per year, unless specified requirements are met. The G&C Committee has carefully considered the impact of this provision as one factor among others in structuring NEO compensation. At this time, it is the G&C Committee’s intention to continue to compensate all NEOs based on overall performance. The G&C Committee expects that most compensation paid to NEOs will qualify as a termtax-deductible expense, but makes no representation as to the deductibility of 10 years.any item of NEO compensation.
| Paychex, Inc. 2016 Proxy Statement • 37 |
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THE GOVERNANCE AND COMPENSATION COMMITTEE REPORT
The Governance and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in the Proxy Statement with management. Based on such review and discussion, the G&C Committee recommends to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement and the Company’s Form 10-K for fiscal 2016.
The Governance and Compensation Committee:
Joseph M. Tucci,Chairman
David J. S. Flaschen
Phillip Horsley
Grant M. Inman
Joseph M. Velli
| Paychex, Inc. 2016 Proxy Statement • 38 |
NEO Compensation |
NAMED EXECUTIVE OFFICER COMPENSATION
FISCAL 2016 SUMMARY COMPENSATION TABLE
The table below presents the total compensation paid or earned by each of the NEOs.
| Name and Principal Position (a) | Fiscal Year (b) | Salary (c) | Bonus (d) | Stock Awards (e) | Option Awards (f) | Non-Equity Incentive Plan Compensation (g) | All Other Compensation (h) | Total (i) | ||||||||||||||||||||||||
Martin Mucci President and CEO |
| 2016
|
| $
| 900,000
|
| $
| —
|
| $
| 2,598,024
|
| $
| 1,069,161
|
| $
| 1,203,210
|
| $
| 12,000
|
| $
| 5,782,395
|
| ||||||||
|
| 2015
|
| $
| 893,231
|
| $
| —
|
| $
| 2,632,715
|
| $
| 1,105,472
|
| $
| 1,265,580
|
| $
| 11,750
|
| $
| 5,908,748
|
| |||||||||
|
| 2014
|
| $
| 845,000
|
| $
| —
|
| $
| 2,741,795
|
| $
| 1,174,236
|
| $
| 1,234,292
|
| $
| 11,500
|
| $
| 6,006,823
|
| |||||||||
Efrain Rivera Senior Vice President, CFO, and Treasurer |
| 2016
|
| $
| 475,000
|
| $
| —
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 454,670
|
| $
| 9,105
|
| $
| 1,769,973
|
| ||||||||
|
| 2015
|
| $
| 468,846
|
| $
| —
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 423,178
|
| $
| 9,281
|
| $
| 1,748,626
|
| |||||||||
|
| 2014
|
| $
| 425,000
|
| $
| —
|
| $
| 621,448
|
| $
| 266,159
|
| $
| 418,285
|
| $
| 8,589
|
| $
| 1,739,481
|
| |||||||||
Mark A. Bottini Senior Vice President, Sales |
| 2016
|
| $
| 450,000
|
| $
| 75,000
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 442,440
|
| $
| 11,411
|
| $
| 1,810,049
|
| ||||||||
|
| 2015
|
| $
| 446,923
|
| $
| 75,000
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 422,190
|
| $
| 11,617
|
| $
| 1,803,051
|
| |||||||||
|
| 2014
|
| $
| 425,000
|
| $
| —
|
| $
| 621,448
|
| $
| 266,159
|
| $
| 391,298
|
| $
| 10,604
|
| $
| 1,714,509
|
| |||||||||
John B. Gibson Senior Vice President, Service |
| 2016
|
| $
| 421,923
|
| $
| —
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 406,810
|
| $
| 8,976
|
| $
| 1,668,907
|
| ||||||||
|
| 2015
|
| $
| 393,846
|
| $
| —
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 356,360
|
| $
| 7,029
|
| $
| 1,604,556
|
| |||||||||
|
| 2014
|
| $
| 350,000
|
| $
| 50,000
|
| $
| 621,448
|
| $
| 843,659
|
| $
| 344,470
|
| $
| 142,985
|
| $
| 2,352,562
|
| |||||||||
Michael E. Gioja Senior Vice President, Information Technology, Product Management and Development | 2016 | $ | 425,000 | $ | — | $ | 588,854 | $ | 242,344 | $ | 406,810 | $ | 10,446 | $ | 1,673,454 | |||||||||||||||||
| 2015 | $ | 421,923 | $ | — | $ | 596,747 | $ | 250,574 | $ | 374,383 | $ | 10,823 | $ | 1,654,450 | ||||||||||||||||||
| 2014 | $ | 396,923 | $ | — | $ | 621,448 | $ | 266,159 | $ | 393,680 | $ | 6,692 | $ | 1,684,902 | ||||||||||||||||||
Salary (Column (c))
The amount reported in this column reflects the base salary paid to the NEOs during the fiscal year.
Bonus (Column (d))
The amounts reported in this column reflect a discretionary bonus of $75,000 to Mr. Bottini for strong sales performance in fiscal 2016 and fiscal 2015, and a one-time payment of $50,000 to Mr. Gibson in fiscal 2014.
Stock Awards (Column (e))
The amounts in this column include the grant date fair value of both time-vested restricted stock awards and performance shares granted during the respective fiscal year, and do not reflect whether the recipient has actually realized a financial gain from such awards (such as lapse in the restrictions on a restricted stock award).
Time-Vested Restricted Stock Awards
The time-vested restricted shares lapse on a pro-rata basis over three years.
Performance Shares
Performance shares are designed to provide variable compensation that is focused on longer-term results. Performance shares have a two-year performance period to determine the number of restricted shares to be issued. The NEO must serve for one additional year for the restrictions to lapse. The performance targets as set by the Board are based on service revenue and operating income, net of certain items, as projected in the strategic planning process. The G&C Committee established performance targets intended to be appropriately challenging at all levels, including the threshold level, but attainable with increasing difficulty for each level beyond threshold. The threshold level was expected to be appropriately challenging but achievable under normal circumstances. The target level would be achieved if the Company performed as expected under our strategic plan for the two-year period. The maximum level would be achievable only with exceptional performance.
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The two-year performance period for performance shares granted in July 20122014 was completed at the end of fiscal 2014.2016. The shares earned were based on achievement against pre-established goals for the performance period as follows:
| Two-Year Performance Targets Established | Actual Achievement | |||||||||||||||||||||||||||||||||||||||
Performance Goal $ In Millions | Threshold | Target | Maximum | ($) | % of Target | |||||||||||||||||||||||||||||||||||
| Performance Goal ($ In Millions) | Two-Year Performance Targets Established | Actual Achievement | ||||||||||||||||||||||||||||||||||||||
| Threshold | Target | Maximum | ($) | % of Target | ||||||||||||||||||||||||||||||||||||
| Service revenue(1) | $ 4,507 | $ 4,744 | $ 4,887 | $ 4,704 | 99% | $ | 5,277 | $ | 5,555 | $ | 5,721 | $ | 5,586 | 101 | % | |||||||||||||||||||||||||
Operating income, net of certain | $ 1,688 | $ 1,777 | $ 1,830 | $ 1,808 | 102% | $ | 1,989 | $ | 2,093 | $ | 2,156 | $ | 2,107 | 101 | % | |||||||||||||||||||||||||
| Percent of plan | 95% | 100% | 103% | 95 | % | 100 | % | 103 | % | |||||||||||||||||||||||||||||||
| Payout as a percent of target | 75% | 100% | 150% | 112% | 75 | % | 100 | % | 150 | % | 110 | % | ||||||||||||||||||||||||||||
| (1) | Service revenue as calculated under the performance award agreement excludes the impact of |
| (2) | Operating income, net of certain items, is a non-GAAP measure. In addition, this measure as calculated under the performance award agreement excludes the impact of business acquisitions during the performance period. Refer to Appendix A for a description of this non-GAAP measure and a reconciliation of the amount for the performance period to the related GAAP measure. |
ServiceAchievement for both service revenue was slightly lower than target. Ourand operating income, net of certain items, exceeded target due to managementwas slightly ahead of expenses and productivity in operations over the past two years. These targets were established at the beginning of the two-year performance period and were based on the Company’s strategic plan at that time.target. As a result of their performance against these pre-established goals, in July 20142016 our NEOs received restricted shares at a quantity of 112%110% of the target level. The restrictions on these shares will lapse after an additional one-year service period. These performance shares, granted in July 2012,2014, were reflected at grant-date fair value in the NEO compensation for fiscal 20132015 in the Summary Compensation Table, contained in the Named Executive Officer Compensation section of this Proxy Statement.proxy statement.
Long-Term Incentive Plan Non-Qualified Performance Stock Options
In July 2011, the NEOs, with the exception of Mr. Gibson, received an LTIP grant of non-qualified performance stock options. These options would vest dependent on achievement against targets for fiscal 2016, with acceleration of up to one-half of the award if established targets were met for fiscal 2014. In July, 2014, the NEOs (except Mr. Gibson) vested in 23.5%, out of a potential 50%, of the award based on achievement against targets. For fiscal 2016, achievement is summarized as follows:
| Fiscal 2014 Performance Goals | Actual Achievement | |||||||||||||||||||||||||||||||||
Performance Goal $ In Millions | Threshold | Target |
| ($) | % of Target | |||||||||||||||||||||||||||||
| Performance Goal ($ In Millions) | Fiscal 2016 Performance Goals | Actual Achievement | ||||||||||||||||||||||||||||||||
| Threshold | Target | ($) | % of Target | |||||||||||||||||||||||||||||||
| Service revenue | $ 2,447 | $ 2,576 | $ 2,431 | 94% | $ | 2,854 | $ | 3,004 | $ | 2,906 | 97 | % | ||||||||||||||||||||||
Operating income, net of certain items | $ 901 | $ 948 | $ 942 | 99% | $ | 1,090 | $ | 1,147 | $ | 1,101 | 96 | % | ||||||||||||||||||||||
| Percent of plan | 95% | 100% | 95 | % | 100 | % | ||||||||||||||||||||||||||||
| Payout as a percent of target | 23.5% | |||||||||||||||||||||||||||||||||
| (1) |
|
Operating income, net of certain items, is a non-GAAP measure. Refer to Appendix A for a description of this non-GAAP measure. |
Service revenue was less than the threshold measure, impacted by sales execution in the earlier years. Operatingand operating income, net of certain items, was slighly less thanfor fiscal 2016 fell between threshold and target .achievement. These targets were established at the time
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of grant in July 2011 and were based on the Company’s long-range plan set at challenging levels. Based on these results,As a result of fiscal 2016 performance, a total of 63.0% of the options at target were earned. As 23.5% were accelerated and vested in July 2014, the remaining 39.5% of the total award at target vested in July 2016. Mr. Gibson received an LTIP grant upon his hire in 2014. He did not vest in any shares in July 2014 due to his limited time with the Company. As he had no acceleration in fiscal 2014, Mr. Gibson vested 63.0% of his award in July 2016. The NEOs vested in the following number of options in July 2014: Mr. Mucci — 117,500 shares; Mr. Rivera — 58,750 shares; Mr. Bottini — 58,750 shares; and Mr. Gioja — 58,750 shares. Mr. Gibson received his LTIP grant in July 2013 and, due tounder the short period for him to impact performance, his award did not have an acceleration clause based on results against fiscal 2014 targets.LTIP:
| Performance Options Vested | July 2016 | July 2014 | Total | |||||||||
| Martin Mucci | 197,500 | 117,500 | 315,000 | |||||||||
| Efrain Rivera | 98,750 | 58,750 | 157,500 | |||||||||
| Mark A. Bottini | 98,750 | 58,750 | 157,500 | |||||||||
| John B. Gibson | 94,500 | — | 94,500 | |||||||||
| Michael E. Gioja | 98,750 | 58,750 | 157,500 | |||||||||
Information regarding the equity-based awards granted to the NEOs in fiscal 20142016 and in prior years are detailed in the Named Executive Officer Compensation tables included in this Proxy Statement.proxy statement.
| Paychex, Inc. 2016 Proxy Statement • 32 |
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The G&C Committee has established stock ownership guidelines, which were raised in July 2015, as follows:
Position | Requirement | |
CEO | 5X base salary | |
| SVP | 3X base salary | |
| 2X | |
|
For any awards granted after July 2011, there are restrictions on sales of such vested awards until the officer has attained the applicable stock ownership level. The ownership guidelines were established to provide long-term alignment with stockholders’ interests. For the purposes of achieving the ownership guideline, unvested restricted stock awarded to the executive officers is included. All officers have beenare compliant with the guidelines.
Prohibition on Hedging and Speculatively Trading inor Speculating In Company Stock
NEOs, along with all employees, of the Company must also adhere to strict standards with regards to trading in the Company’sPaychex stock. Also, the Company prohibits executive officers from hedging the Company’sPaychex stock. They may not, among other things:
speculatively trade in the Company’s stock;
short sell any securities of the Company; or
buy or sell puts or calls on the Company’s securities.
During fiscal 2016, the Company approved a pledging policy for all Paychex directors, officers, and employees. This policy prohibits pledging Company securities as collateral for a loan or a line of credit without obtaining prior Company approval. Approval may be granted when the individual clearly demonstrates the intent and financial capacity to satisfy the obligations without resort to the pledged securities and where the pledge represents no more than 25% of the pledgor’s beneficial ownership of the Company securities. This policy is effective prospectively. The Company’s pledging policy is posted on the Company’s website athttp://investor.paychex.com/governance.
Recoupment, Non-Compete, and Other Forfeiture Provisions
The Company retains the right to clawback on any incentive payment or award under any policy adopted by the Company implementing Section 10D of the Exchange Act and any regulations promulgated or national securities exchange listing conditions adopted with respect thereto. In the annual incentive program, there is a clause that allows the Company retains the right to recoup all or a portion of the payouts under the annual incentive program if those payouts were based on financial statements that are subsequently subject to restatement and where fraud or misconduct was involved. The Company will, to the extent permitted by governing law, require reimbursement of a portion of any compensation received where:
the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a substantial restatement;
the participant engaged in fraud or misconduct that caused or partially caused the need for the substantial restatement; and
a lower payment would have been made based upon the restated financial results.
In each such instance, the Company will, to the extent practicable, seek to recover the amount by which the individual participant’s compensation for the relevant period exceeded the lower payment that would have been made based on the restated financial results, plus a reasonable rate of interest.
|
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Our equity-based compensation agreements state that following termination of employment, certain benefits (including equity-based compensation) will be forfeited if the NEO engages in activities adverse to the Company. These activities include:
competition with the Company during a specified period after termination of employment;
solicitation of the Company’s clients or employees during a specified period after termination of employment;
breach of confidentiality either during or after employment; or
engaging in conduct which is detrimental to the Company during the NEO’s employment with the Company.
| Paychex, Inc. 2016 Proxy Statement • 33 |
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Should any of these activities occur, the Company may cancel all or any outstanding portion of the equity awards subject to this provision, and recover the gross value of any vested restricted shares, including all dividends. In the case of non-qualified stock options, the Company may suspend the NEO’s right to exercise the option and/or may declare the option forfeited. In addition, the Company may seek to recover all profits from certain prior exercises as liquidated damages and pursue other available legal remedies.
Our NEOs receive benefits in the form of vacation, health insurance, life insurance, Company matching contributions to the 401(k) Plan when such contributions are in effect, and other benefits, which are generally available to all our employees. We do not provide our NEOs with pension arrangements, post-retirement health coverage, or other similar benefits, with the exception of access to a non-qualified and unfunded deferred compensation plan.
We offer a non-qualified and unfunded deferred compensation plan to our NEOs. The deferred compensation plan is intended to supplement the NEO’s 401(k) Plan account. Due to limitations on the 401(k) Plan accounts placed by the Internal Revenue Service, this plan allows for further savings toward retirement for the NEOs and functions similarly to the 401(k) Plan account. Refer to the Non-Qualified Deferred Compensation discussion included in the Named Executive Officer Compensation section of this Proxy Statementproxy statement for more information on how our deferred compensation plan functions.
Effective April 6, 2011,Executives of the Board approvedCompany are covered by a Change in Control Plan covering the officers of the Company.Plan. Upon involuntary termination by the Company without cause or a voluntary termination by the participant for good reason, within 12 months following a Change in Control, the officerexecutive becomes entitled to certain severance benefits. Such severance benefits are conditioned upon the execution of a general release in favor of the Company.
Cause means the participant’s dereliction of duty to the Company, conviction for a felony, or willful misconduct that has a substantial adverse effect on the Company. Good reason means a significant change to the duties, authority, or position that were assigned immediately before the change in control including: the reduction in or removal of any material duties, authority or position within the Company; assignment of duties inconsistent with the participant’s position, authorities or responsibilities; material reduction to base salary, annual incentive, or other elements of total compensation; relocation of the participant’s principal workplace to an area outside of a 50 mile radius;50-mile-radius, or the failure of a successor company to assume or adopt this plan.the Change in Control Plan. Refer to the Potential Payments upon Termination or Change In Control discussion within the Named Executive Office Compensation section of this Proxy Statementproxy statement for further information.
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Role of the Compensation Consultant
As outlined in its charter, the G&C Committee has the authority to retain consultants and advisors,advisers, at the Company’s expense, to assist in the discharge of the committee’s duties. The G&C Committee can retain and dismiss such consultants and advisorsadvisers at any time. The G&C Committee’s consultants report directly to the committee and have direct access to the committee through the G&C Committee’s chair. The G&C Committee requires that any consultant it retains cannot be utilized by management for other purposes. Although management, particularly the VP of Human Resources and Organizational Development, may work closely with the consultant, the consultant is ultimately accountable to the G&C Committee on matters related to executive compensation.
The G&C Committee retains the services of Steven Hall & Partners (“Steven Hall”) as its independent compensation consultant. Steven Hall has not provided any other services to the Company prior to or subsequent to being retained as compensation consultant to the G&C Committee. The G&C Committee was solely responsible for the decision to retain Steven Hall as its consultant. Steven Hall advises the G&C Committee on matters of NEO compensation, assists with analysis and research, and provides updates on evolving best practices in compensation. While Steven Hall may express an opinion on compensation matters, the G&C Committee is solely responsible for setting the type and amount of compensation for NEOs.
The G&C Committee recognizes that it is essential to receive objective advice from its compensation consultant. The G&C Committee closely examines the procedures and safeguards that its compensation consultantSteven Hall takes to ensure that the compensation
| Paychex, Inc. 2016 Proxy Statement • 34 |
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consulting services are objective. The G&C Committee has assessed the independence of Steven Hall pursuant to SEC rules and concluded that Steven Hall’s work for the G&C Committee does not raise any conflict of interest. In making this assessment, the following factors were taken into consideration:
that the compensation consultant reports directly to the G&C Committee, and the G&C Committee has the sole power to terminate or replace its compensation consultant at any time;
the compensation consultant does not provide any other services to the Company;
aggregate fees paid by the Company to the compensation consultant, as a percentage of the total revenue of the compensation consultant;
the compensation consultant’s policies and procedures designed to prevent conflicts of interest;
any business or personal relationships between the compensation consultant, on one hand, and any member of the G&C Committee or executive officer, on the other hand; and
whether the compensation consultant owns any shares of the Company’s stock.
Role of Governance and Compensation Committee and Management
As part of the G&C Committee’s responsibility to evaluate and determine NEO compensation, on an annual basis the G&C Committee:
reviews the companies in our comparative Peer Group, a group of companies with comparable financial information or who are direct competitors of Paychex, for any changes;
reviews base salaries for adjustments, if any;
establishes and approves the performance targets and payouts under incentive-based programs and awards;
|
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grants equity awards under our 2002 Plan; and
considers the impact of section 162(m) of the Code.
The G&C Committee continues to review each of the elements of compensation annually to ensure that compensation is appropriate and competitive to attract and retain a high-performing executive team. The G&C Committee targets to maintain performance-based pay as a percentage of total compensation of over 70% for the CEO and over 60% for the other NEOs. Additionally, the G&C Committee targets the value of long-term compensation to be approximately 60% for the CEO and 50% for the other NEOs.
The G&C Committee, in making its decisions, targets an equitable mix of compensation. It utilizes various sources of information to evaluate our NEO compensation, including, but not limited to, to:
compensation consultant reports and analysis;
benchmarking information with NEOs at Peer Group companies;companies for all compensation elements; and
internal management reports. reports including a three-year history of total compensation for all officers and a summary for the upcoming fiscal year of total cash compensation and equity awards for all officers.
The G&C Committee reviews an analysis of NEO pay compared to that of NEOs within our Peer Group to assess all the compensation elements. It strives for our NEOs’ compensation to be competitivein line with our Peer Group. The information provided by the compensation consultant indicates whether our compensation package, if target performance is achieved, is comparable to the median compensation of our Peer Group, given current competitive practices, overall best practices, and other compensation and benefit trends.
Annually, management provides the G&C Committee a summary for the upcoming fiscal year of total cash compensation and equity awards (based on grant-date fair value) for all officer levels, from VP to CEO. The summary isManagement reports are used to evaluate compensation recommendations and the impact to total compensation for each individual.
Management They are also provides the G&C Committee on an annual basisused to view a three-year history of total compensation for all officers, including cash, annual incentive program payout, and equity-based compensation. This history provides a more complete picture of the trend of compensation to executive officers, both as a team and as individuals. This summary facilitates discussion that more accurately details individual officer compensation, noting differences that reflect officer tenure, performance, and position in the management structure.
The G&C Committee uses these management updates along with peer information, where available, as tools to evaluate executive compensation. This information is reviewed in a subjective manner. There is no implied direct or formulaic linkage between peer information and the G&C Committee’s compensation decisions.
Our CEO and our VP of Human Resources and Organizational Development provide recommendations to the G&C Committee on design elements for compensation. These individuals, and from time to time invited guests including other officers, will be in attendance at the meetings of the G&C Committee to present and respond to questions on current or
| Paychex, Inc. 2016 Proxy Statement • 35 |
CD&A |
proposed plan design. Annually, our CEO reviews achievement of the recently completed fiscal year’s plan and also presents recommendations regardingregarding: salary for each of the NEOs (other than himself), the upcoming fiscal year’s annual incentive program structure, and equity awards. Management is excluded from executive sessions of the G&C Committee where final decisions on compensation are made, particularly those on our CEO’s performance and compensation. Executive sessions occur at each meeting of the G&C Committee.
Compensation for our officers is most closely comparedIn addition to many other factors that affect compensation determinations, the G&C Committee takes into account the compensation practices of our Peer Group, for positions where such information is available.available, in formulating our compensation program. The G&C Committee assesses total compensation at the median of the Peer Group, even though Paychex performs above the median of its Peer Group in most financial categories as shown in the table on the next page.chart below. Peer Group comparisons were available for the positions of Mr. Mucci, CEO, and Mr. Rivera, CFO, bothand Mr. Gioja, SVP of Product Development and Information Technology, all of whom have total compensation that falls below the median total compensation of the Peer Group. For the remaining NEOs, compensation was compared to the average NEO compensation, excluding the CEO and CFO positions, for our Peer Group. These results were below the median total compensation of our Peer Group. Peer Group benchmarking is not the sole determining factor in the G&C Committee’s decisions on compensation, and the G&C Committee reserves the discretion to adjust compensation based on other factors as previously discussed. The Peer Group companies are not necessarily limited to the markets in which Paychex does business. The Peer Group is comprised of the following industries or segments: a direct competitor in the payroll industry, financial transaction management companies, and business services and outsourcing companies.
CD&A
Our current Peer Group consists of the following companies:
| ||||
Automatic Data Processing, Inc. | Moody’s Corporation | |||
Broadridge Financial Solutions, Inc. | Robert Half International Inc. | |||
DST Systems, Inc. | TD AMERITRADE Holding Corporation | |||
Fiserv, Inc. | The Brink’s Company | |||
Global Payments Inc. | The Dun & Bradstreet Corporation | |||
H&R Block, Inc. | The Western Union Company | |||
Intuit Inc. | Total System Services, Inc. | |||
Iron Mountain Incorporated | ||||
Comparison with Compensation Peer Group | ||||||||||||||||
$ In Millions | Net Income | Market Capitalization at Fiscal Year-End | Revenue | Net Income as a % of Revenue | ||||||||||||
| Paychex | $ 628 | $ 14,923 | $ 2,519 | 25% | ||||||||||||
| Peer Median | $ 436 | $ 9,233 | $ 2,994 | 13% | ||||||||||||
| Paychex Percentile Rank | 60% | 67% | 13% | 93% | ||||||||||||
| (1) | Based on most recent completed fiscal year. |
| (2) | As of the most recent fiscal year-end date for each company. |
The G&C Committee annually reviews and approves the selection of Peer Group companies, adjusting the group from year to year based upon our business and changes in the Peer Group companies’ business or the comparability of their metrics. The
| Paychex, Inc. 2016 Proxy Statement • 36 |
CD&A |
Peer Group may also be adjusted in the event of mergers, acquisitions, or other significant economic changes. The Peer Group was not adjusted infor fiscal 2014.2016. Subsequently, we removed The Brink’s Company and Iron Mountain Incorporated from our Peer Group for the fiscal year ending May 31, 2017 (“fiscal 2017”). These two companies were replaced with Alliance Data Systems and Equifax, Inc., as they are more closely aligned with the Paychex business. For more information regarding how we compare on selected criteria to our Peer Group, refer to Appendix B of this Proxy Statement.proxy statement.
It is the responsibility of the G&C Committee to evaluate Mr. Mucci’s performance annually and determine his total compensation. Mr. Mucci receives compensation based on his leadership role and the overall performance of the Company. Mr. Mucci’s compensation for fiscal 20142016 as reflected in the Summary Compensation Table, included in the Named Executive Officer Compensation section of this Proxy Statement,proxy statement, is as follows:
Base salary of $845,000.$900,000.
Payout under the annual incentive program of 112%103% of target.
Annual equity award grants comprised of 54,83142,187 performance shares at target, 237,844206,801 stock options with vesting pro-rata over four years, and 20,39715,694 shares of time-vested restricted stock with vesting over three years.
Mr. Mucci’s compensation remainsfor fiscal 2016 remained below median when compared to that of the CEOs within our Peer Group. The G&C Committee will continue to assesscontinually assesses his compensation and make adjustments toin July 2016 approved an increase in Mr. Mucci’s base salary of 6% to $950,000 and an increase in total annual equity award value of 14% to $4,290,000 to bring his compensation closer to move it towardmedian.
In July 2016, the median as his tenure as CEO continues.G&C Committee approved a new LTIP award to focus the senior leadership team on the strategic plan related to the long-term growth of the Company. This award is in the form of non-qualified performance stock options and performance-based restricted stock. The number of options and restricted shares to be earned will be based on achievement compared to pre-established targets for the fiscal year ending May 31, 2020. Targets are established for financial reporting measures of service revenue, operating income, and diluted earnings per share. The restricted share portion of this award does not earn dividends or have voting rights during the performance period.
All other annual awards granted in July 2016 have similar terms to the July 2015 awards.
Impact of the Internal Revenue Code
Section 162(m) of the Code generally limits the tax deductibility of compensation paid to certain officers to $1 million per year, unless specified requirements are met. The G&C Committee has carefully considered the impact of this provision as one factor among others in structuring NEO compensation. At this time, it is the G&C Committee’s intention to continue to compensate all NEOs based on overall performance. The G&C Committee expects that most compensation paid to NEOs will qualify as a tax-deductible expense, but makes no representation as to the deductibility of any item of NEO compensation.
|
CD&A
CD&A |
THE GOVERNANCE AND COMPENSATION COMMITTEE REPORT
The G&CGovernance and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in the Proxy Statement with management. Based on such review and discussion, the G&C Committee recommends to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement and the Company’s Form 10-K for fiscal 2014.2016.
The Governance and Compensation Committee:
Joseph M. Tucci,Chairman |
David J. S. Flaschen |
Phillip Horsley |
Grant M. Inman |
Joseph M. Velli |
NEO Compensation
NEO Compensation |
NAMED EXECUTIVE OFFICER COMPENSATION
FISCAL 20142016 SUMMARY COMPENSATION TABLE
The table below presents the total compensation paid or earned by each of the NEOs.
Name and Principal Position (a) | Fiscal Year (b) | Salary (c) | Bonus (d) | Stock Awards (e) | Option Awards (f) | Non- Equity Incentive Plan Compensation (g) | All Other Compensation (h) | Total (i) | ||||||||||||||||||||||||
Martin Mucci President and CEO | 2014 | $ | 845,000 | $ | — | $ | 2,741,795 | $ | 1,174,236 | $ | 1,234,292 | $ | 11,500 | $ | 6,006,823 | |||||||||||||||||
| 2013 | $ | 870,231 | $ | — | $ | 2,489,381 | $ | 1,033,507 | $ | 856,830 | $ | 10,329 | $ | 5,260,278 | ||||||||||||||||||
| 2012 | $ | 800,000 | $ | — | $ | 2,193,337 | $ | 3,137,592 | $ | 819,280 | $ | 83,936 | $ | 7,034,145 | ||||||||||||||||||
Efrain Rivera Senior Vice President, | 2014 | $ | 425,000 | $ | — | $ | 621,448 | $ | 266,159 | $ | 418,285 | $ | 8,589 | $ | 1,739,481 | |||||||||||||||||
| 2013 | $ | 441,346 | $ | — | $ | 533,428 | $ | 221,468 | $ | 256,955 | $ | 4,612 | $ | 1,457,809 | ||||||||||||||||||
| 2012 | $ | 405,385 | $ | — | $ | 471,581 | $ | 1,302,296 | $ | 267,028 | $ | — | $ | 2,446,290 | ||||||||||||||||||
Mark A. Bottini Senior Vice President, | 2014 | $ | 425,000 | $ | — | $ | 621,448 | $ | 266,159 | $ | 391,298 | $ | 10,604 | $ | 1,714,509 | |||||||||||||||||
| 2013 | $ | 441,346 | $ | — | $ | 533,428 | $ | 221,468 | $ | 247,265 | $ | 5,394 | $ | 1,448,901 | ||||||||||||||||||
| 2012 | $ | 245,192 | $ | 200,000 | $ | 214,996 | $ | 1,233,751 | $ | 267,028 | $ | — | $ | 2,160,967 | ||||||||||||||||||
John B. Gibson Senior Vice President, | 2014 | $ | 350,000 | $ | 50,000 | $ | 621,448 | $ | 843,659 | $ | 344,470 | $ | 142,985 | $ | 2,352,562 | |||||||||||||||||
Michael E. Gioja Senior Vice President, |
| 2014 2013 2012 |
| $ $ $ | 396,923 381,346 318,596 |
| $ $ $ | — — — |
| $ $ $ | 621,448 533,428 471,581 |
| $ $ $ | 266,159 221,468 1,302,296 |
| $ $ $ | 393,680 226,725 204,198 |
| $ $ $ | 6,692 5,481 16,863 |
| $ $ $ | 1,684,902 1,368,448 2,313,534 |
| ||||||||
| Information Technology, | ||||||||||||||||||||||||||||||||
| Product Management and Development | ||||||||||||||||||||||||||||||||
| Name and Principal Position (a) | Fiscal Year (b) | Salary (c) | Bonus (d) | Stock Awards (e) | Option Awards (f) | Non-Equity Incentive Plan Compensation (g) | All Other Compensation (h) | Total (i) | ||||||||||||||||||||||||
Martin Mucci President and CEO |
| 2016
|
| $
| 900,000
|
| $
| —
|
| $
| 2,598,024
|
| $
| 1,069,161
|
| $
| 1,203,210
|
| $
| 12,000
|
| $
| 5,782,395
|
| ||||||||
|
| 2015
|
| $
| 893,231
|
| $
| —
|
| $
| 2,632,715
|
| $
| 1,105,472
|
| $
| 1,265,580
|
| $
| 11,750
|
| $
| 5,908,748
|
| |||||||||
|
| 2014
|
| $
| 845,000
|
| $
| —
|
| $
| 2,741,795
|
| $
| 1,174,236
|
| $
| 1,234,292
|
| $
| 11,500
|
| $
| 6,006,823
|
| |||||||||
Efrain Rivera Senior Vice President, CFO, and Treasurer |
| 2016
|
| $
| 475,000
|
| $
| —
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 454,670
|
| $
| 9,105
|
| $
| 1,769,973
|
| ||||||||
|
| 2015
|
| $
| 468,846
|
| $
| —
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 423,178
|
| $
| 9,281
|
| $
| 1,748,626
|
| |||||||||
|
| 2014
|
| $
| 425,000
|
| $
| —
|
| $
| 621,448
|
| $
| 266,159
|
| $
| 418,285
|
| $
| 8,589
|
| $
| 1,739,481
|
| |||||||||
Mark A. Bottini Senior Vice President, Sales |
| 2016
|
| $
| 450,000
|
| $
| 75,000
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 442,440
|
| $
| 11,411
|
| $
| 1,810,049
|
| ||||||||
|
| 2015
|
| $
| 446,923
|
| $
| 75,000
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 422,190
|
| $
| 11,617
|
| $
| 1,803,051
|
| |||||||||
|
| 2014
|
| $
| 425,000
|
| $
| —
|
| $
| 621,448
|
| $
| 266,159
|
| $
| 391,298
|
| $
| 10,604
|
| $
| 1,714,509
|
| |||||||||
John B. Gibson Senior Vice President, Service |
| 2016
|
| $
| 421,923
|
| $
| —
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 406,810
|
| $
| 8,976
|
| $
| 1,668,907
|
| ||||||||
|
| 2015
|
| $
| 393,846
|
| $
| —
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 356,360
|
| $
| 7,029
|
| $
| 1,604,556
|
| |||||||||
|
| 2014
|
| $
| 350,000
|
| $
| 50,000
|
| $
| 621,448
|
| $
| 843,659
|
| $
| 344,470
|
| $
| 142,985
|
| $
| 2,352,562
|
| |||||||||
Michael E. Gioja Senior Vice President, Information Technology, Product Management and Development | 2016 | $ | 425,000 | $ | — | $ | 588,854 | $ | 242,344 | $ | 406,810 | $ | 10,446 | $ | 1,673,454 | |||||||||||||||||
| 2015 | $ | 421,923 | $ | — | $ | 596,747 | $ | 250,574 | $ | 374,383 | $ | 10,823 | $ | 1,654,450 | ||||||||||||||||||
| 2014 | $ | 396,923 | $ | — | $ | 621,448 | $ | 266,159 | $ | 393,680 | $ | 6,692 | $ | 1,684,902 | ||||||||||||||||||
Salary (Column (c))
The amount reported in the Salarythis column reflects the base salary paid to the NEOs during the fiscal year. For fiscal 2014 and 2012, there were 26 bi-weekly periods paid compared to fiscal 2013 in which there were 27 bi-weekly pay periods paid.
Bonus (Column (d))
The amountamounts reported in the Bonusthis column reflect a discretionary bonus of $75,000 to Mr. Bottini for strong sales performance in fiscal 2014 reflects2016 and fiscal 2015, and a one timeone-time payment of $50,000 to Mr. Gibson. Fiscal 2012 reflects a $200,000 signing bonus Mr. Bottini was awarded upon his accepting the position of SVP of SalesGibson in October 2011.fiscal 2014.
Stock Awards (Column (e))
The amounts in the Stock Awardsthis column include the grant date fair value of both time-vested restricted stock awards and performance shares granted during the respective fiscal year, and do not reflect whether the recipient has actually realized a financial gain from such awards (such as lapse in the restrictions on a restricted stock award).
|
NEO Compensation
Time-Vested Restricted Stock Awards
The fair value of the time-vested restricted stock awards is determined based on the closing price of the underlying common stock on the date of grant. The resulting fair values were $38.48 per share, $31.65 per share, and $31.34 per share for the restricted stock awards granted annually in July of fiscal years 2014, 2013, and 2012, respectively. This applies to all awards reflected in the table except for Mr. Bottini’s grants upon hire. Mr. Bottini received his award on October 17, 2011 at a fair value of $28.06 per share. Refer to the Grants of Plan-Based Awards For Fiscal 2014 table included in this Proxy Statement for further information on restricted stock awards granted in fiscal 2014.
Performance Shares
Performance shares are designed to provide variable compensation that is focused on longer-term results. Performance shares have a two-year performance period to determine the number of restricted shares to be issued. The NEO must serve for one additional year for the restrictions to lapse. The performance targets as set by the Board are based on service revenue and operating income, net of certain items, as projected in the strategic planning process. The G&C Committee established performance targets intended to be appropriately challenging at all levels, including the threshold level, but attainable with increasing difficulty for each level beyond threshold. The threshold level was expected to be appropriately challenging but achievable under normal circumstances. The target level would be achieved if the Company performed as expected under our strategic plan for the two-year period. The maximum level would be achievable only with exceptional performance.
| Paychex, Inc. 2016 Proxy Statement • 31 |
CD&A |
The two-year performance period for performance shares granted in July 2014 was completed at the end of fiscal 2016. The shares earned were based on achievement against pre-established goals for the performance period as follows:
| Performance Goal ($ In Millions) | Two-Year Performance Targets Established | Actual Achievement | ||||||||||||||||||
| Threshold | Target | Maximum | ($) | % of Target | ||||||||||||||||
| Service revenue(1) | $ | 5,277 | $ | 5,555 | $ | 5,721 | $ | 5,586 | 101 | % | ||||||||||
| Operating income, net of certain items(2) | $ | 1,989 | $ | 2,093 | $ | 2,156 | $ | 2,107 | 101 | % | ||||||||||
| Percent of plan | 95 | % | 100 | % | 103 | % | ||||||||||||||
| Payout as a percent of target | 75 | % | 100 | % | 150 | % | 110 | % | ||||||||||||
| (1) | Service revenue as calculated under the performance award agreement excludes the impact of acquisitions. Refer to Appendix A for a reconciliation of service revenue as calculated for the performance period to service revenue reported in our consolidated financial statements. |
| (2) | Operating income, net of certain items, is a non-GAAP measure. In addition, this measure as calculated under the performance award agreement excludes the impact of business acquisitions during the performance period. Refer to Appendix A for a description of this non-GAAP measure and a reconciliation of the amount for the performance period to the related GAAP measure. |
Achievement for both service revenue and operating income, net of certain items, was slightly ahead of target. As a result of their performance against these pre-established goals, in July 2016 our NEOs received restricted shares at a quantity of 110% of the target level. The restrictions on these shares will lapse after an additional one-year service period. These performance shares, granted in July 2014, were reflected at grant-date fair value in the NEO compensation for fiscal 2015 in the Summary Compensation Table, contained in the Named Executive Officer Compensation section of this proxy statement.
Long-Term Incentive Plan Non-Qualified Performance Stock Options
In July 2011, the NEOs, with the exception of Mr. Gibson, received an LTIP grant of non-qualified performance stock options. These options would vest dependent on achievement against targets for fiscal 2016, with acceleration of up to one-half of the award if established targets were met for fiscal 2014. In July, the NEOs (except Mr. Gibson) vested in 23.5%, out of a potential 50%, of the award based on achievement against targets. For fiscal 2016, achievement is summarized as follows:
| Performance Goal ($ In Millions) | Fiscal 2016 Performance Goals | Actual Achievement | ||||||||||||||
| Threshold | Target | ($) | % of Target | |||||||||||||
| Service revenue | $ | 2,854 | $ | 3,004 | $ | 2,906 | 97 | % | ||||||||
| Operating income, net of certain items(1) | $ | 1,090 | $ | 1,147 | $ | 1,101 | 96 | % | ||||||||
| Percent of plan | 95 | % | 100 | % | ||||||||||||
| (1) | Operating income, net of certain items, is a non-GAAP measure. Refer to Appendix A for a description of this non-GAAP measure. |
Service revenue and operating income, net of certain items, for fiscal 2016 fell between threshold and target achievement. These targets were established at the time of grant in July 2011 and were based on the Company’s long-range plan set at challenging levels. As a result of fiscal 2016 performance, a total of 63.0% of the options at target were earned. As 23.5% were accelerated and vested in July 2014, the remaining 39.5% of the total award at target vested in July 2016. Mr. Gibson received an LTIP grant upon his hire in 2014. He did not vest in any shares in July 2014 due to his limited time with the Company. As he had no acceleration in fiscal 2014, Mr. Gibson vested 63.0% of his award in July 2016. The NEOs vested in the following number of options under the LTIP:
| Performance Options Vested | July 2016 | July 2014 | Total | |||||||||
| Martin Mucci | 197,500 | 117,500 | 315,000 | |||||||||
| Efrain Rivera | 98,750 | 58,750 | 157,500 | |||||||||
| Mark A. Bottini | 98,750 | 58,750 | 157,500 | |||||||||
| John B. Gibson | 94,500 | — | 94,500 | |||||||||
| Michael E. Gioja | 98,750 | 58,750 | 157,500 | |||||||||
Information regarding the equity-based awards granted to the NEOs in fiscal 2016 and in prior years are detailed in the Named Executive Officer Compensation tables included in this proxy statement.
| Paychex, Inc. 2016 Proxy Statement • 32 |
CD&A |
The G&C Committee has established stock ownership guidelines, which were raised in July 2015, as follows:
| Position | Requirement | |
| CEO | 5X base salary | |
| SVP | 3X base salary | |
| VPs | 2X base salary |
For any awards granted after July 2011, there are restrictions on sales of such vested awards until the officer has attained the applicable stock ownership level. The ownership guidelines were established to provide long-term alignment with stockholders’ interests. For the purposes of achieving the ownership guideline, unvested restricted stock awarded to the executive officers is included. All officers are compliant with the guidelines.
Prohibition on Hedging or Speculating In Company Stock
NEOs, along with all employees, of the Company must also adhere to strict standards with regards to trading in Paychex stock. Also, the Company prohibits executive officers from hedging Paychex stock. They may not, among other things:
speculatively trade in the Company’s stock;
short sell any securities of the Company; or
buy or sell puts or calls on the Company’s securities.
During fiscal 2016, the Company approved a pledging policy for all Paychex directors, officers, and employees. This policy prohibits pledging Company securities as collateral for a loan or a line of credit without obtaining prior Company approval. Approval may be granted when the individual clearly demonstrates the intent and financial capacity to satisfy the obligations without resort to the pledged securities and where the pledge represents no more than 25% of the pledgor’s beneficial ownership of the Company securities. This policy is effective prospectively. The Company’s pledging policy is posted on the Company’s website athttp://investor.paychex.com/governance.
Recoupment, Non-Compete, and Other Forfeiture Provisions
The Company retains the right to clawback on any incentive payment or award under any policy adopted by the Company implementing Section 10D of the Exchange Act and any regulations promulgated or national securities exchange listing conditions adopted with respect thereto. In the annual incentive program, the Company retains the right to recoup all or a portion of the payouts under the annual incentive program if those payouts were based on financial statements that are subsequently subject to restatement and where fraud or misconduct was involved. The Company will, to the extent permitted by governing law, require reimbursement of a portion of any compensation received where:
the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a substantial restatement;
the participant engaged in fraud or misconduct that caused or partially caused the need for the substantial restatement; and
a lower payment would have been made based upon the restated financial results.
In each such instance, the Company will, to the extent practicable, seek to recover the amount by which the individual participant’s compensation for the relevant period exceeded the lower payment that would have been made based on the restated financial results, plus a reasonable rate of interest.
Our equity-based compensation agreements state that following termination of employment, certain benefits (including equity-based compensation) will be forfeited if the NEO engages in activities adverse to the Company. These activities include:
competition with the Company during a specified period after termination of employment;
solicitation of the Company’s clients or employees during a specified period after termination of employment;
breach of confidentiality either during or after employment; or
engaging in conduct which is detrimental to the Company during the NEO’s employment with the Company.
| Paychex, Inc. 2016 Proxy Statement • 33 |
CD&A |
Should any of these activities occur, the Company may cancel all or any outstanding portion of the equity awards subject to this provision, and recover the gross value of any vested restricted shares, including all dividends. In the case of non-qualified stock options, the Company may suspend the NEO’s right to exercise the option and/or may declare the option forfeited. In addition, the Company may seek to recover all profits from certain prior exercises as liquidated damages and pursue other available legal remedies.
Our NEOs receive benefits in the form of vacation, health insurance, life insurance, Company matching contributions to the 401(k) Plan when such contributions are in effect, and other benefits, which are generally available to all our employees. We do not provide our NEOs with pension arrangements, post-retirement health coverage, or other similar benefits, with the exception of access to a non-qualified and unfunded deferred compensation plan.
We offer a non-qualified and unfunded deferred compensation plan to our NEOs. The deferred compensation plan is intended to supplement the NEO’s 401(k) Plan account. Due to limitations on the 401(k) Plan accounts placed by the Internal Revenue Service, this plan allows for further savings toward retirement for the NEOs and functions similarly to the 401(k) Plan account. Refer to the Non-Qualified Deferred Compensation discussion included in the Named Executive Officer Compensation section of this proxy statement for more information on how our deferred compensation plan functions.
Executives of the Company are covered by a Change in Control Plan. Upon involuntary termination by the Company without cause or a voluntary termination by the participant for good reason, within 12 months following a Change in Control, the executive becomes entitled to certain severance benefits. Such severance benefits are conditioned upon the execution of a general release in favor of the Company.
Cause means the participant’s dereliction of duty to the Company, conviction for a felony, or willful misconduct that has a substantial adverse effect on the Company. Good reason means a significant change to the duties, authority, or position that were assigned immediately before the change in control including: the reduction in or removal of any material duties, authority or position within the Company; assignment of duties inconsistent with the participant’s position, authorities or responsibilities; material reduction to base salary, annual incentive, or other elements of total compensation; relocation of the participant’s principal workplace to an area outside of a 50-mile-radius, or the failure of a successor company to assume or adopt the Change in Control Plan. Refer to the Potential Payments upon Termination or Change In Control discussion within the Named Executive Office Compensation section of this proxy statement for further information.
Role of the Compensation Consultant
As outlined in its charter, the G&C Committee has the authority to retain consultants and advisers, at the Company’s expense, to assist in the discharge of the committee’s duties. The G&C Committee can retain and dismiss such consultants and advisers at any time. The G&C Committee’s consultants report directly to the committee and have direct access to the committee through the G&C Committee’s chair. The G&C Committee requires that any consultant it retains cannot be utilized by management for other purposes. Although management, particularly the VP of Human Resources and Organizational Development, may work closely with the consultant, the consultant is ultimately accountable to the G&C Committee on matters related to executive compensation.
The G&C Committee retains the services of Steven Hall & Partners (“Steven Hall”) as its independent compensation consultant. Steven Hall has not provided any other services to the Company prior to or subsequent to being retained as compensation consultant to the G&C Committee. The G&C Committee was solely responsible for the decision to retain Steven Hall as its consultant. Steven Hall advises the G&C Committee on matters of NEO compensation, assists with analysis and research, and provides updates on evolving best practices in compensation. While Steven Hall may express an opinion on compensation matters, the G&C Committee is solely responsible for setting the type and amount of compensation for NEOs.
The G&C Committee recognizes that it is essential to receive objective advice from its compensation consultant. The G&C Committee closely examines the procedures and safeguards that Steven Hall takes to ensure that the compensation
| Paychex, Inc. 2016 Proxy Statement • 34 |
CD&A |
consulting services are objective. The G&C Committee has assessed the independence of Steven Hall pursuant to SEC rules and concluded that Steven Hall’s work for the G&C Committee does not raise any conflict of interest. In making this assessment, the following factors were taken into consideration:
that the compensation consultant reports directly to the G&C Committee, and the G&C Committee has the sole power to terminate or replace its compensation consultant at any time;
the compensation consultant does not provide any other services to the Company;
aggregate fees paid by the Company to the compensation consultant, as a percentage of the total revenue of the compensation consultant;
the compensation consultant’s policies and procedures designed to prevent conflicts of interest;
any business or personal relationships between the compensation consultant, on one hand, and any member of the G&C Committee or executive officer, on the other hand; and
whether the compensation consultant owns any shares of the Company’s stock.
Role of Governance and Compensation Committee and Management
As part of the G&C Committee’s responsibility to evaluate and determine NEO compensation, on an annual basis the G&C Committee:
reviews the companies in our comparative Peer Group, a group of companies with comparable financial information or who are direct competitors of Paychex, for any changes;
reviews base salaries for adjustments, if any;
establishes and approves the performance targets and payouts under incentive-based programs and awards;
grants equity awards under our 2002 Plan; and
considers the impact of section 162(m) of the Code.
The G&C Committee continues to review each of the elements of compensation annually to ensure that compensation is appropriate and competitive to attract and retain a high-performing executive team. The G&C Committee targets to maintain performance-based pay as a percentage of total compensation of over 70% for the CEO and over 60% for the other NEOs. Additionally, the G&C Committee targets the value of long-term compensation to be approximately 60% for the CEO and 50% for the other NEOs.
The G&C Committee, in making its decisions, targets an equitable mix of compensation. It utilizes various sources of information to evaluate our NEO compensation, including, but not limited to:
compensation consultant reports and analysis;
benchmarking information with NEOs at Peer Group companies for all compensation elements; and
internal management reports including a three-year history of total compensation for all officers and a summary for the upcoming fiscal year of total cash compensation and equity awards for all officers.
The G&C Committee strives for our NEOs’ compensation to be in line with our Peer Group. The information provided by the compensation consultant indicates whether our compensation package, if target performance is achieved, is comparable to the median compensation of our Peer Group, given current competitive practices, overall best practices, and other compensation and benefit trends.
Management reports are used to evaluate compensation recommendations and the impact to total compensation for each individual. They are also used to view a complete picture of the trend of compensation to executive officers, both as a team and as individuals. This facilitates discussion that more accurately details individual officer compensation, noting differences that reflect officer tenure, performance, and position in the management structure.
The G&C Committee uses these management updates along with peer information, where available, as tools to evaluate executive compensation. This information is reviewed in a subjective manner. There is no implied direct or formulaic linkage between peer information and the G&C Committee’s compensation decisions.
Our CEO and our VP of Human Resources and Organizational Development provide recommendations to the G&C Committee on design elements for compensation. These individuals, and from time to time invited guests including other officers, will be in attendance at the meetings of the G&C Committee to present and respond to questions on current or
| Paychex, Inc. 2016 Proxy Statement • 35 |
CD&A |
proposed plan design. Annually, our CEO reviews achievement of the recently completed fiscal year’s plan and also presents recommendations regarding: salary for each of the NEOs (other than himself), the upcoming fiscal year’s annual incentive program structure, and equity awards. Management is excluded from executive sessions of the G&C Committee where final decisions on compensation are made, particularly those on our CEO’s performance and compensation. Executive sessions occur at each meeting of the G&C Committee.
In addition to many other factors that affect compensation determinations, the G&C Committee takes into account the compensation practices of our Peer Group, where available, in formulating our compensation program. The G&C Committee assesses total compensation at the median of the Peer Group, even though Paychex performs above the median of its Peer Group in most financial categories as shown in the chart below. Peer Group comparisons were available for the positions of Mr. Mucci, CEO, Mr. Rivera, CFO, and Mr. Gioja, SVP of Product Development and Information Technology, all of whom have total compensation that falls below the median total compensation of the Peer Group. For the remaining NEOs, compensation was compared to the average NEO compensation, excluding the CEO and CFO positions, for our Peer Group. These results were below the median total compensation of our Peer Group. Peer Group benchmarking is not the sole determining factor in the G&C Committee’s decisions on compensation, and the G&C Committee reserves the discretion to adjust compensation based on other factors as previously discussed. The Peer Group companies are not necessarily limited to the markets in which Paychex does business. The Peer Group is comprised of the following industries or segments: a direct competitor in the payroll industry, financial transaction management companies, and business services and outsourcing companies.
Our current Peer Group consists of the following companies:
| Peer Group | |||
Automatic Data Processing, Inc. | Moody’s Corporation | ||
Broadridge Financial Solutions, Inc. | Robert Half International Inc. | ||
DST Systems, Inc. | TD AMERITRADE Holding Corporation | ||
Fiserv, Inc. | The Brink’s Company | ||
Global Payments Inc. | The Dun & Bradstreet Corporation | ||
H&R Block, Inc. | The Western Union Company | ||
Intuit Inc. | Total System Services, Inc. | ||
Iron Mountain Incorporated | |||
| (1) | Based on most recent completed fiscal year. |
| (2) | As of the most recent fiscal year-end date for each company. |
The G&C Committee annually reviews and approves the selection of Peer Group companies, adjusting the group from year to year based upon our business and changes in the Peer Group companies’ business or the comparability of their metrics. The
| Paychex, Inc. 2016 Proxy Statement • 36 |
CD&A |
Peer Group may also be adjusted in the event of mergers, acquisitions, or other significant economic changes. The Peer Group was not adjusted for fiscal 2016. Subsequently, we removed The Brink’s Company and Iron Mountain Incorporated from our Peer Group for the fiscal year ending May 31, 2017 (“fiscal 2017”). These two companies were replaced with Alliance Data Systems and Equifax, Inc., as they are more closely aligned with the Paychex business. For more information regarding how we compare on selected criteria to our Peer Group, refer to Appendix B of this proxy statement.
It is the responsibility of the G&C Committee to evaluate Mr. Mucci’s performance annually and determine his total compensation. Mr. Mucci receives compensation based on his leadership role and the overall performance of the Company. Mr. Mucci’s compensation for fiscal 2016 as reflected in the Summary Compensation Table, included in the Named Executive Officer Compensation section of this proxy statement, is as follows:
Base salary of $900,000.
Payout under the annual incentive program of 103% of target.
Annual equity award grants comprised of 42,187 performance shares at target, 206,801 stock options with vesting pro-rata over four years, and 15,694 shares of time-vested restricted stock with vesting over three years.
Mr. Mucci’s compensation for fiscal 2016 remained below median when compared to that of the CEOs within our Peer Group. The G&C Committee continually assesses his compensation and in July 2016 approved an increase in Mr. Mucci’s base salary of 6% to $950,000 and an increase in total annual equity award value of 14% to $4,290,000 to bring his compensation closer to median.
In July 2016, the G&C Committee approved a new LTIP award to focus the senior leadership team on the strategic plan related to the long-term growth of the Company. This award is in the form of non-qualified performance stock options and performance-based restricted stock. The number of options and restricted shares to be earned will be based on achievement compared to pre-established targets for the fiscal year ending May 31, 2020. Targets are established for financial reporting measures of service revenue, operating income, and diluted earnings per share. The restricted share portion of this award does not earn dividends or have voting rights during the performance period.
All other annual awards granted in July 2016 have similar terms to the July 2015 awards.
Impact of the Internal Revenue Code
Section 162(m) of the Code generally limits the tax deductibility of compensation paid to certain officers to $1 million per year, unless specified requirements are met. The G&C Committee has carefully considered the impact of this provision as one factor among others in structuring NEO compensation. At this time, it is the G&C Committee’s intention to continue to compensate all NEOs based on overall performance. The G&C Committee expects that most compensation paid to NEOs will qualify as a tax-deductible expense, but makes no representation as to the deductibility of any item of NEO compensation.
| Paychex, Inc. 2016 Proxy Statement • 37 |
CD&A |
THE GOVERNANCE AND COMPENSATION COMMITTEE REPORT
The Governance and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in the Proxy Statement with management. Based on such review and discussion, the G&C Committee recommends to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement and the Company’s Form 10-K for fiscal 2016.
The Governance and Compensation Committee:
Joseph M. Tucci,Chairman
David J. S. Flaschen
Phillip Horsley
Grant M. Inman
Joseph M. Velli
| Paychex, Inc. 2016 Proxy Statement • 38 |
NEO Compensation |
NAMED EXECUTIVE OFFICER COMPENSATION
FISCAL 2016 SUMMARY COMPENSATION TABLE
The table below presents the total compensation paid or earned by each of the NEOs.
| Name and Principal Position (a) | Fiscal Year (b) | Salary (c) | Bonus (d) | Stock Awards (e) | Option Awards (f) | Non-Equity Incentive Plan Compensation (g) | All Other Compensation (h) | Total (i) | ||||||||||||||||||||||||
Martin Mucci President and CEO |
| 2016
|
| $
| 900,000
|
| $
| —
|
| $
| 2,598,024
|
| $
| 1,069,161
|
| $
| 1,203,210
|
| $
| 12,000
|
| $
| 5,782,395
|
| ||||||||
|
| 2015
|
| $
| 893,231
|
| $
| —
|
| $
| 2,632,715
|
| $
| 1,105,472
|
| $
| 1,265,580
|
| $
| 11,750
|
| $
| 5,908,748
|
| |||||||||
|
| 2014
|
| $
| 845,000
|
| $
| —
|
| $
| 2,741,795
|
| $
| 1,174,236
|
| $
| 1,234,292
|
| $
| 11,500
|
| $
| 6,006,823
|
| |||||||||
Efrain Rivera Senior Vice President, CFO, and Treasurer |
| 2016
|
| $
| 475,000
|
| $
| —
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 454,670
|
| $
| 9,105
|
| $
| 1,769,973
|
| ||||||||
|
| 2015
|
| $
| 468,846
|
| $
| —
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 423,178
|
| $
| 9,281
|
| $
| 1,748,626
|
| |||||||||
|
| 2014
|
| $
| 425,000
|
| $
| —
|
| $
| 621,448
|
| $
| 266,159
|
| $
| 418,285
|
| $
| 8,589
|
| $
| 1,739,481
|
| |||||||||
Mark A. Bottini Senior Vice President, Sales |
| 2016
|
| $
| 450,000
|
| $
| 75,000
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 442,440
|
| $
| 11,411
|
| $
| 1,810,049
|
| ||||||||
|
| 2015
|
| $
| 446,923
|
| $
| 75,000
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 422,190
|
| $
| 11,617
|
| $
| 1,803,051
|
| |||||||||
|
| 2014
|
| $
| 425,000
|
| $
| —
|
| $
| 621,448
|
| $
| 266,159
|
| $
| 391,298
|
| $
| 10,604
|
| $
| 1,714,509
|
| |||||||||
John B. Gibson Senior Vice President, Service |
| 2016
|
| $
| 421,923
|
| $
| —
|
| $
| 588,854
|
| $
| 242,344
|
| $
| 406,810
|
| $
| 8,976
|
| $
| 1,668,907
|
| ||||||||
|
| 2015
|
| $
| 393,846
|
| $
| —
|
| $
| 596,747
|
| $
| 250,574
|
| $
| 356,360
|
| $
| 7,029
|
| $
| 1,604,556
|
| |||||||||
|
| 2014
|
| $
| 350,000
|
| $
| 50,000
|
| $
| 621,448
|
| $
| 843,659
|
| $
| 344,470
|
| $
| 142,985
|
| $
| 2,352,562
|
| |||||||||
Michael E. Gioja Senior Vice President, Information Technology, Product Management and Development | 2016 | $ | 425,000 | $ | — | $ | 588,854 | $ | 242,344 | $ | 406,810 | $ | 10,446 | $ | 1,673,454 | |||||||||||||||||
| 2015 | $ | 421,923 | $ | — | $ | 596,747 | $ | 250,574 | $ | 374,383 | $ | 10,823 | $ | 1,654,450 | ||||||||||||||||||
| 2014 | $ | 396,923 | $ | — | $ | 621,448 | $ | 266,159 | $ | 393,680 | $ | 6,692 | $ | 1,684,902 | ||||||||||||||||||
Salary (Column (c))
The amount reported in this column reflects the base salary paid to the NEOs during the fiscal year.
Bonus (Column (d))
The amounts reported in this column reflect a discretionary bonus of $75,000 to Mr. Bottini for strong sales performance in fiscal 2016 and fiscal 2015, and a one-time payment of $50,000 to Mr. Gibson in fiscal 2014.
Stock Awards (Column (e))
The amounts in this column include the grant date fair value of both time-vested restricted stock awards and performance shares granted during the respective fiscal year, and do not reflect whether the recipient has actually realized a financial gain from such awards (such as lapse in the restrictions on a restricted stock award).
Time-Vested Restricted Stock Awards
The fair value of the time-vested restricted stock awards is determined based on the closing price of the underlying common stock on the date of grant. The resulting fair values were $47.32 per share, $41.70 per share, and $38.48 per share for the restricted stock awards granted annually in July of fiscal years 2016, 2015, and 2014, respectively. Refer to the Grants of Plan-Based Awards For Fiscal 2016 table included in this proxy statement for further information on restricted stock awards granted in fiscal 2016.
| Paychex, Inc. 2016 Proxy Statement • 39 |
NEO Compensation |
Performance Shares
Performance share awards are reflected in the table assuming target achievement. The grant-dategrant date fair value of these awards at target achievement, as reflected in the table, and also at maximum achievement is as follows:
| Fiscal 2014 | Fiscal 2013 | Fiscal 2012 | Fiscal 2016 | Fiscal 2015 | Fiscal 2014 | |||||||||||||||||||||||||||||||||||||||||||
| Target | Maximum | Target | Maximum | Target | Maximum | Target | Maximum | Target | Maximum | Target | Maximum | |||||||||||||||||||||||||||||||||||||
Martin Mucci | $ | 1,956,918 | $ | 2,935,395 | $ | 1,783,364 | $ | 2,675,047 | $ | 1,572,116 | $ | 2,358,159 | $ | 1,855,384 | $ | 2,783,098 | $ | 1,879,113 | $ | 2,818,689 | $ | 1,956,918 | $ | 2,935,395 | ||||||||||||||||||||||||
Efrain Rivera | $ | 443,555 | $ | 665,333 | $ | 382,141 | $ | 573,212 | $ | 338,010 | $ | 507,015 | $ | 420,537 | $ | 630,849 | $ | 425,944 | $ | 638,916 | $ | 443,555 | $ | 665,333 | ||||||||||||||||||||||||
Mark A. Bottini | $ | 443,555 | $ | 665,333 | $ | 382,141 | $ | 573,212 | $ | — | $ | — | $ | 420,537 | $ | 630,849 | $ | 425,944 | $ | 638,916 | $ | 443,555 | $ | 665,333 | ||||||||||||||||||||||||
John B. Gibson | $ | 443,555 | $ | 665,333 | $ | — | $ | — | $ | — | $ | — | $ | 420,537 | $ | 630,849 | $ | 425,944 | $ | 638,916 | $ | 443,555 | $ | 665,333 | ||||||||||||||||||||||||
Michael E. Gioja | $ | 443,555 | $ | 665,333 | $ | 382,141 | $ | 573,212 | $ | 338,010 | $ | 507,015 | $ | 420,537 | $ | 630,849 | $ | 425,944 | $ | 638,916 | $ | 443,555 | $ | 665,333 | ||||||||||||||||||||||||
These awards have a two-year performance period, followed by an additional year of service required. The fair value of these awards is determined based on the closing price of the underlying common stock on the date of grant, adjusted for the present value of expected dividends over the performance period. The resulting fair value was $35.69$43.98 per share, $29.10$38.68 per share, and $28.87$35.69 per share for performance shares awarded in fiscal years 2016, 2015, and 2014, 2013, and 2012, respectively. Mr. Bottini was not granted performance shares upon his hire in October 2011.
Option Awards (Column (f))
The amounts in the Option Awardsthis column reflect the grant date fair value for stock options granted and LTIP awards in the form of non-qualified performance stock options awarded during the respective fiscal years and do not reflect whether the recipient has actually realized a financial gain from such awards (such as by exercising stock options). The following table details the componentsFor Mr. Gibson, his option award value of the options awarded during$843,659 for fiscal 2014 and fiscal 2012. For fiscal 2013, the amounts in this column reflect only time-vested stock options. The grant-date fair value related to the LTIP and theincludes his annual stock option grant which together make upwith a value of $266,159 and also a LTIP grant in the total option awards, are as follows:
| Fiscal 2014 | Fiscal 2012 | |||||||||||||||||||||||
Grant-Date Fair Value | LTIP Grant | Annual Option Grant | Total Option Grants | LTIP Grant | Annual Option Grant | Total Option Grants | ||||||||||||||||||
Martin Mucci | $ | — | $ | 1,174,236 | $ | 1,174,236 | $ | 2,202,500 | $ | 935,092 | $ | 3,137,592 | ||||||||||||
Efrain Rivera | $ | — | $ | 266,159 | $ | 266,159 | $ | 1,101,250 | $ | 201,046 | $ | 1,302,296 | ||||||||||||
Mark A. Bottini | $ | — | $ | 266,159 | $ | 266,159 | $ | 1,018,750 | $ | 215,001 | $ | 1,233,751 | ||||||||||||
John B. Gibson | $ | 577,500 | $ | 266,159 | $ | 843,659 | $ | — | $ | — | $ | — | ||||||||||||
Michael E. Gioja | $ | — | $ | 266,159 | $ | 266,159 | $ | 1,101,250 | $ | 201,046 | $ | 1,302,296 | ||||||||||||
NEO Compensation
Annual Option Grantform of non-qualified performance stock options with a value of $577,500.
The fair values for the annual grants of time-vested stock options reflected in the table above were determined using a Black-Scholes option pricing model. The assumptions and resulting per share fair value for option grants included in the amounts disclosed are as follows:
| July 2013 | July 2012 | October 2011 | July 2011 | |||||||||||||
Risk-Free Interest Rate | 2.0% | 1.0% | 1.7% | 2.4% | ||||||||||||
Dividend Yield | 4.1% | 4.3% | 4.3% | 4.2% | ||||||||||||
Volatility Factor | 0.22 | 0.23 | 0.26 | 0.23 | ||||||||||||
Expected Option Term Life in Years | 6.5 | 6.5 | 6.5 | 6.5 | ||||||||||||
Fair Value | $ | 4.94 | $ | 3.76 | $ | 4.19 | $ | 4.53 | ||||||||
LTIP Grant
July 2015 | July 2014 | July 2013 | ||||||||||
| Risk-Free Interest Rate | 1.9 | % | 2.1 | % | 2.0 | % | ||||||
| Dividend Yield | 3.6 | % | 3.7 | % | 4.1 | % | ||||||
| Volatility Factor | 0.18 | 0.21 | 0.22 | |||||||||
| Expected Option Term Life in Years | 6.0 | 6.0 | 6.5 | |||||||||
| Fair Value | $ | 5.17 | $ | 5.66 | $ | 4.94 | ||||||
A LTIP grant was originally made in July 2011 in the form of non-qualified performance stock options in order to encourage the executives in achieving longer-term strategic goals. Subsequent to July 2011, grants were made under this LTIP only for newly hired executive officers. These options may vest based on performance against targets for fiscal 2016, with potential acceleration of vesting of up to one-half of the options if targets for fiscal 2014 were achieved. Mr. Gibson’s LTIP award was granted in July 2013 does not have the potential to accelerate vesting based on fiscal 2014 achievement.
The grant-date fair value of the LTIP awards are reflected in the table above assuming target achievement (target is also the maximum achievement).upon his hire. The fair value was determined using a Black-Scholes option pricing model for eachthe July 2016 potential vesting tranche. The assumptions and resulting fair value for eachthe potential vesting tranche included in the amounts disclosed are as follows:are: a risk-free interest rate of 1.5%; dividend yield of 3.9%; volatility factor of 0.20; expected option term life of 4.5 years; and a fair value of $3.85 per share.
| July 2013 (Mr. Gibson) | October 2011 (Mr. Bottini) | July 2011 (all other NEOs) | ||||||||||||||||||
| Fiscal 2016 Vesting Tranche | Fiscal 2014 Vesting Tranche | Fiscal 2016 Vesting Tranche | Fiscal 2014 Vesting Tranche | Fiscal 2016 Vesting Tranche | ||||||||||||||||
Risk-Free Interest Rate | 1.5% | 1.2% | 1.7% | 1.8% | 2.4% | |||||||||||||||
Dividend Yield | 3.9% | 4.3% | 4.3% | 4.2% | 4.2% | |||||||||||||||
Volatility Factor | 0.20 | 0.26 | 0.26 | 0.24 | 0.23 | |||||||||||||||
Expected Option Term Life in Years | 4.5 | 5.0 | 6.5 | 5.0 | 6.5 | |||||||||||||||
Fair Value | $ | 3.85 | $ 3.96 | $ 4.19 | $ 4.21 | $ 4.60 | ||||||||||||||
Non-Equity Incentive Plan Compensation (Column (g))
The amounts in this column are the amounts earned under the annual incentive program. These amounts were paid in July following the applicable fiscal year end. Refer to the discussion in the CD&A section “Elements of Compensation”, subsection “Annual Officer Performance Incentive Program” for information on performance targets and achievement against those targets to determine the amount earned under this program for fiscal 2014.2016.
All Other Compensation (Column (h))
The amounts reported in the All Other Compensationthis column include the Company matching contributions under the 401(k) Plan. For fiscal 2014, this column also reflects amounts incurred on behalf of Mr. Gibson of $142,985 for relocation expenses including a tax gross-up of $12,986. For fiscal 2012, this column also reflects a payment of $75,200 for Mr. Mucci resulting from a change in the vacation policy for executive officers, and amounts incurred on behalf of Mr. Gioja of $10,617 in relocation expenses including a minimal tax gross-up of $62.
| Paychex, Inc. 2016 Proxy Statement •40 |
NEO Compensation
NEO Compensation |
GRANTS OF PLAN-BASED AWARDS FOR FISCAL 20142016
The table below presents estimated possible payouts under the Company’s annual incentive program for fiscal 20142016 based on achievement of performance objectives at various levels for the Company and individual NEOs. It also summarizes equity awards granted during fiscal 20142016 to each of the NEOs. This information does not set forth the actual payout awarded to the NEOs for fiscal 2014.2016.
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant- Date Fair Value of Stock and Option Awards | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant- Date Fair Value of Stock and Option Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name (a) | Grant Type | Grant Date (c) | Threshold ($) (d) | Target ($) (e) | Maximum ($) (f) | Threshold (#) (g) | Target (#) (h) | Maximum (#) (i) | (#) (j) | (#) (k) | ($/Sh) (l) | ($) (m) | Grant Type (b) | Grant Date (c) | Threshold ($) | Target ($) (e) | Maximum ($) (f) | Threshold (#) | Target (#) (h) | Maximum (#) (i) | (#) (j) | (#) (k) | ($/Sh) (l) | ($) (m) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Martin Mucci | Annual Incentive Program | 7/10/2013 | $ | 422,500 | $ | 1,098,500 | $ | 1,690,000 | Annual Incentive Program | 7/8/2015 | $ | 450,000 | $ | 1,170,000 | $ | 1,800,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock | 7/10/2013 | 20,397 | $ | 784,877 | Restricted Stock | 7/8/2015 | 15,694 | $ | 742,640 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | 7/10/2013 | 41,123 | 54,831 | 82,247 | $ | 1,956,918 | Performance Shares | 7/8/2015 | 25,312 | 42,187 | 63,281 | $ | 1,855,384 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option | 7/10/2013 | 237,844 | $ | 38.48 | $ | 1,174,236 | Stock Options | 7/8/2015 | 206,801 | $ | 47.32 | $ | 1,069,161 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Efrain Rivera |
Annual Incentive Program |
|
7/10/2013 |
|
$ |
148,750 |
|
$ |
361,250 |
|
$ |
552,500 |
| Annual Incentive Program | 7/8/2015 | $ | 190,000 | $ | 451,250 | $ | 665,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock | 7/10/2013 | 4,623 | $ | 177,893 | Restricted Stock | 7/8/2015 | 3,557 | $ | 168,317 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | 7/10/2013 | 9,321 | 12,428 | 18,642 | $ | 443,555 | Performance Shares | 7/8/2015 | 5,737 | 9,562 | 14,344 | $ | 420,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option | 7/10/2013 | 53,911 | $ | 38.48 | $ | 266,159 | Stock Options | 7/8/2015 | 46,875 | $ | 47.32 | $ | 242,344 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mark A. Bottini |
Annual Incentive Program |
|
7/10/2013 |
|
$ |
148,750 |
|
$ |
361,250 |
|
$ |
552,500 |
| Annual Incentive Program | 7/8/2015 | $ | 180,000 | $ | 427,500 | $ | 630,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock |
|
7/10/2013 |
| 4,623 | $ | 177,893 | Restricted Stock | 7/8/2015 | 3,557 | $ | 168,317 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | 7/10/2013 | 9,321 | 12,428 | 18,642 | $ | 443,555 | Performance Shares | 7/8/2015 | 5,737 | 9,562 | 14,344 | $ | 420,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option | 7/10/2013 | 53,911 | $ | 38.48 | $ | 266,159 | Stock Options | 7/8/2015 | 46,875 | $ | 47.32 | $ | 242,344 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John B. Gibson |
Annual Incentive Program |
|
7/10/2013 |
|
$ |
122,500 |
|
$ |
297,500 |
|
$ |
455,000 |
| Annual Incentive Program | 7/8/2015 | $ | 170,000 | $ | 403,750 | $ | 595,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock | 7/10/2013 | 4,623 | $ | 177,893 | Restricted Stock | 7/8/2015 | 3,557 | $ | 168,317 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | 7/10/2013 | 9,321 | 12,428 | 18,642 | $ | 443,535 | Performance Shares | 7/8/2015 | 5,737 | 9,562 | 14,344 | $ | 420,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option | 7/10/2013 | 53,911 | $ | 38.48 | $ | 266,159 | Stock Options | 7/8/2015 | 46,875 | $ | 47.32 | $ | 242,344 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LTIP | 7/1/2013 | 75,000 | 150,000 | 150,000 | $ | 36.66 | $ | 577,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael E. Gioja |
Annual Incentive Program |
|
7/10/2013 |
|
$ |
140,000 |
|
$ |
340,000 |
|
$ |
520,000 |
| Annual Incentive Program | 7/8/2015 | $ | 170,000 | $ | 403,750 | $ | 595,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock | 7/10/2013 | 4,623 | $ | 177,893 | Restricted Stock | 7/8/2015 | 3,557 | $ | 168,317 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Shares | 7/10/2013 | 9,321 | 12,428 | 18,642 | $ | 443,555 | Performance Shares | 7/8/2015 | 5,737 | 9,562 | 14,344 | $ | 420,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option | 7/10/2013 | 53,911 | $ | 38.48 | $ | 266,159 | Stock Options | 7/8/2015 | 46,875 | $ | 47.32 | $ | 242,344 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
(Columns (d), (e), and (f))
The amounts in these columns consist of possible annual incentive payouts under our annual incentive program for fiscal 2014.2016. The amounts actually earned by each NEO for fiscal 20142016 are reported as Non-Equity Incentive Plan Compensation in the Fiscal 20142016 Summary Compensation Table.
NEO Compensation
Estimated Future Payouts Under Equity Incentive Plan Awards
(Columns (g), (h), and (i))
The amounts in these columns consist of performance shares granted during fiscal 20142016 under the 2002 Plan. The performance share targets are over a two-year performance period. At the end of the performance period, actual shares earned will be determined and will be restricted with an additional one-year service requirement. Once the performance period is completed, the NEOs will have voting rights and earn dividends on the underlying restricted shares earned. Dividends are paid at the time of vesting. Upon death or disability, a pro-rata portion of actual performance shares earned for the performance period will be received based on number of days from the beginning of the performance period until the date of death or disability out of the total number of days in the performance period.
For Mr. Gibson, these columns also show the potential payouts for his LTIP award in the form of performance stock options granted in July 2013. The performance stock options will vest if targets for fiscal 2016 are met. For these option awards, there is a threshold and target, but target is the maximum shares that will vest.
| Paychex, Inc. 2016 Proxy Statement • 41 |
NEO Compensation |
All Other Stock Awards: Number of Shares of Stock or Units (Column (j))
The amounts in this column consist of restricted stock granted in fiscal 20142016 under the 2002 Plan. All shares underlying these awards are restricted in that they are not transferable until they vest. One-third of these shares vest annually over a three-year period from the date of grant, provided the NEO is an employee of the Company on the vest date. Upon death or disability, these shares fully vest. The NEOs have voting rights and earn dividends on the underlying shares. Dividends are paid at the time of vesting.
All Other Option Awards: Number of Securities Underlying Options (Column (k))
The amounts in this column consist of stock options granted in fiscal 20142016 under the 2002 Plan. These stock options have an exercise price equal to the closing stock price on the date of grant, have a term of ten years, and vest 25% per annum over a four-year period.period from the date of grant, provided the NEO is an employee of the Company on the vesting date. Upon death or disability, all unvested options fully vest.
Grant-Date Fair Value of Stock and Option Awards (Column (m))
The amounts in this column represent the aggregate grant date fair value of restricted stock, performance shares, stock options, and performance stock options granted in fiscal 20142016 under the 2002 Plan as follows:
The fair valuesvalue of the restricted stock awards was $38.48$47.32 per share, and was equal to the closing price of the underlying common stock on the date of grant.
The fair value of the performance shares was based on achievement at target and was $35.69$43.98 per share. This was equal to the closing price of the underlying common stock on the date of grant less the present value of expected dividends over the performance period.
The fair value of the annual stock option grant was $4.94$5.17 per share. The fair value of Mr. Gibson’s LTIP awardshare, and was $3.85 per share. Fair values for stock options and performance stock options were determined using a Black-Scholes option pricing model.
| Paychex, Inc. 2016 Proxy Statement •42 |
NEO Compensation
NEO Compensation |
OPTION EXERCISES AND STOCK VESTED IN FISCAL 20142016
The following table provides information about the value realized by the NEOs upon the exercise of options and the lapsing of the restrictions on restricted stock awards during fiscal 2014.2016. Certain columns in this table and the presentation of information on an award-by-award basis are not required by the rules relating to executive compensation disclosures and are not a substitute for the information required by Item 402 of SEC Regulation S-K, but rather are intended to provide additional information that stockholders may find useful.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||
Name | Date of Grant (b) | Number of Shares Acquired on Exercise (#) (c) | Value Realized on Exercise ($) (d) | Date of Grant (e) | Number of Shares Acquired on Lapsing (#) (f) | Value Realized on Lapse ($) (g) | Date of Grant (b) | Number of Shares Acquired on Exercise (#) (c) | Value Realized (d) | Date of Grant (e) | Number of Shares Acquired on Lapsing (#) (f) | Value Realized on Lapse ($) (g) | ||||||||||||||||||||||||||||||||||||
Martin Mucci | 7/9/2009 | 50,000 | $ | 801,160 | 7/10/2008 | 10,000 | $ | 384,800 | 7/13/2006 | 30,000 | $ | 453,916 | 7/11/2012 | 76,074 | $ | 3,634,816 | ||||||||||||||||||||||||||||||||
| 7/8/2004 | 30,000 | $ | 322,769 |
|
7/7/2010 |
| 16,672 | $ | 646,256 | |||||||||||||||||||||||||||||||||||||||
|
10/12/2010 |
| 28,816 | $ | 1,125,945 | |||||||||||||||||||||||||||||||||||||||||||
|
7/6/2011 |
| 6,607 | $ | 248,489 | |||||||||||||||||||||||||||||||||||||||||||
|
7/11/2012 |
| 7,436 | $ | 289,186 | |||||||||||||||||||||||||||||||||||||||||||
| Martin Mucci | 10/12/2010 | 84,591 | $ | 1,914,070 | 7/10/2013 | 6,799 | $ | 324,856 | ||||||||||||||||||||||||||||||||||||||||
| 7/9/2014 | 6,024 | $ | 285,718 | |||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | 7/6/2011 | 1,420 | $ | 53,406 | — | — | — | 7/11/2012 | 16,301 | $ | 778,862 | |||||||||||||||||||||||||||||||||||
| 7/11/2012 | 1,594 | $ | 61,991 | |||||||||||||||||||||||||||||||||||||||||||||
| Efrain Rivera | 7/10/2013 | 1,541 | $ | 73,629 | ||||||||||||||||||||||||||||||||||||||||||||
| 7/9/2014 | 1,366 | $ | 64,789 | |||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | 10/17/2011 | 2,554 | $ | 105,736 | — | — | — | 7/11/2012 | 16,301 | $ | 778,862 | |||||||||||||||||||||||||||||||||||
| 7/11/2012 | 1,594 | $ | 61,991 | |||||||||||||||||||||||||||||||||||||||||||||
| Mark A. Bottini | 7/10/2013 | 1,541 | $ | 73,629 | ||||||||||||||||||||||||||||||||||||||||||||
| 7/9/2014 | 1,366 | $ | 64,789 | |||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | 7/10/2013 | 1,541 | $ | 73,629 | ||||||||||||||||||||||||||||||||||||||||||
| John B. Gibson | 7/9/2014 | 1,366 | $ | 64,789 | ||||||||||||||||||||||||||||||||||||||||||||
| 7/9/2009 | 3,920 | $ | 71,188 | 11/10/2008 | 2,500 | $ | 105,525 | 07/11/2012 | 19,450 | 425,306 | 7/11/2012 | 16,301 | $ | 778,862 | ||||||||||||||||||||||||||||||||||
| 7/6/2011 | 11,095 | $ | 122,381 |
|
7/7/2010 |
| 10,004 | $ | 387,785 | |||||||||||||||||||||||||||||||||||||||
| 7/11/2012 | 14,725 | $ | 156,112 |
|
7/6/2011 |
| 1,420 | $ | 53,406 | |||||||||||||||||||||||||||||||||||||||
|
7/11/2012 |
| 1,594 | $ | 61,991 | |||||||||||||||||||||||||||||||||||||||||||
| Michael E. Gioja | 7/10/2013 | 1,541 | $ | 73,629 | ||||||||||||||||||||||||||||||||||||||||||||
| 7/9/2014 | 1,366 | $ | 64,789 | |||||||||||||||||||||||||||||||||||||||||||||
Value Realized on Exercise (Column (d))
The amounts in this column represent the difference between the market price of a share of the Company’s common stock as of the date of exercise and the exercise price of the option for all options exercised.
Value Realized on Lapse (Column (g))
The amounts in this column are based on the closing stock price of the Company’s common stock on the date of lapse.
| Paychex, Inc. 2016 Proxy Statement •43 |
NEO Compensation
NEO Compensation |
OUTSTANDING EQUITY AWARDS AS OF MAY 31, 20142016
The following table presents the equity awards made to NEOs which arewere outstanding as of May 31, 2014.2016.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Option Grant Date (b) | Number of Securities Underlying Unexercised Options (Exercisable) (#) (c) | Number of Securities Underlying Unexercised Options (Unexercisable) (#) (d) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (e) | Option Exercise Price ($) (f) | Option Expiration Date (g) | Total Potential Current Value of Outstanding Options($) (h) | Number of Shares or Units of Stock That Have Not Vested (#) (i) | Market Value of Shares or Units of Stock That Have Not Vested ($) (j) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (k) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (l) | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name (a) | Option Grant Date (b) | Number of Securities Underlying Unexercised Options (Exercisable) (#) (c) | Number of Securities Underlying Unexercised Options (Unexercisable) (d) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (e) | Option Exercise Price ($) (f) | Option Expiration Date (g) | Total Potential Current Value of Outstanding Options($) (h) | Number of Shares or Units of Stock Have Not Vested (#) (i) | Market Value of Shares or Units of Stock That Vested ($) (j) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other That Have Not Vested (#) (k) | Equity Incentive Plan Awards: of Unearned or Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/10/2013 |
| — | 237,844 | — | $ | 38.48 | 7/9/2023 | 7/8/2015 | — | 206,801 | — | $ | 47.32 | 7/8/2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/11/2012 |
| 68,717 | 206,152 | — | $ | 31.65 | 7/10/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/7/2011 |
| — | 117,500 | 132,500 | $ | 31.63 | 7/6/2021 | 7/9/2014 | 48,828 | 146,485 | — | $ | 41.70 | 7/9/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/6/2011 |
| 103,211 | 103,211 | — | $ | 31.34 | 7/5/2021 | 7/10/2013 | 118,922 | 118,922 | — | $ | 38.48 | 7/9/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
10/12/2010 |
| 115,943 | 38,648 | — | $ | 27.28 | 10/10/2020 | 7/11/2012 | 206,151 | 68,718 | — | $ | 31.65 | 7/10/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/7/2010 |
| 22,339 | 7,447 | — | $ | 26.02 | 7/6/2020 | 7/7/2011 | 117,500 | 197,500 | — | $ | 31.63 | 7/6/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/9/2009 |
| 632 | 12,658 | — | $ | 24.21 | 7/8/2019 | 7/6/2011 | 206,422 | — | — | $ | 31.34 | 7/5/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/9/2009 |
| 12,675 | — | — | $ | 31.95 | 7/9/2018 | 7/7/2010 | 29,786 | — | — | $ | 26.02 | 7/6/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/10/2008 |
| 40,000 | — | — | $ | 31.95 | 7/9/2018 | 7/9/2009 | 13,290 | — | — | $ | 24.21 | 7/8/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/17/2007 |
| 30,000 | — | — | $ | 43.91 | 7/17/2017 | 7/9/2009 | 12,675 | — | — | $ | 31.95 | 7/9/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/13/2006 |
| 30,000 | — | — | $ | 36.87 | 7/13/2016 | 7/10/2008 | 40,000 | — | — | $ | 31.95 | 7/9/2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/7/2005 |
| 50,000 | — | — | $ | 33.68 | 7/7/2015 | $ | 11,405,802 | 7/17/2007 | 30,000 | — | — | $ | 43.91 | 7/17/2017 | $ | 28,379,659 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 165,924 | $ | 6,821,136 | 41,123 | $ | 1,690,567 | 152,132 | $ | 8,248,597 | 25,312 | $ | 1,372,417 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Efrain Rivera |
|
7/10/2013 |
| — | 53,911 | — | $ | 38.48 | 7/9/2023 | 7/8/2015 | — | 46,875 | — | $ | 47.32 | 7/8/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/11/2012 |
| 14,725 | 44,176 | — | $ | 31.65 | 7/10/2022 | 7/9/2014 | 11,067 | 33,204 | — | $ | 41.70 | 7/9/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/7/2011 |
| — | 58,750 | 66,250 | $ | 31.63 | 7/6/2021 | 7/10/2013 | 26,955 | 26,956 | — | $ | 38.48 | 7/9/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/6/2011 |
| 22,190 | 22,191 | — | $ | 31.34 | 7/5/2021 | $ | 2,317,592 | 7/11/2012 | 44,175 | 14,726 | — | $ | 31.65 | 7/10/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 34,475 | $ | 1,417,267 | 9,321 | $ | 383,186 | 7/7/2011 | 58,750 | 98,750 | — | $ | 31.63 | 7/6/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/6/2011 | 44,381 | — | — | $ | 31.34 | 7/5/2021 | $ | 7,629,027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 34,482 | $ | 1,869,614 | 5,737 | $ | 311,060 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mark A. Bottini |
|
7/10/2013 |
| — | 53,911 | — | $ | 38.48 | 7/9/2023 | 7/8/2015 | — | 46,875 | — | $ | 47.32 | 7/8/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/11/2012 |
| 14,725 | 44,176 | — | $ | 31.65 | 7/10/2022 | 7/9/2014 | 11,067 | 33,204 | — | $ | 41.70 | 7/9/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
10/17/2011 |
| — | 58,750 | 66,250 | $ | 28.06 | 10/16/2021 | 7/10/2013 | 26,955 | 26,956 | — | $ | 38.48 | 7/9/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
10/17/2011 |
| 25,656 | 25,657 | — | $ | 28.06 | 10/16/2021 | $ | 2,999,874 | 7/11/2012 | 44,175 | 14,726 | — | $ | 31.65 | 7/10/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 25,071 | $ | 1,030,669 | 9,321 | $ | 383,186 | 10/17/2011 | 35,063 | 98,750 | — | $ | 28.06 | 10/16/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 6,556,213 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 34,482 | $ | 1,869,614 | 5,737 | $ | 311,060 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John B. Gibson |
|
7/10/2013 |
| — | 53,911 | — | $ | 38.48 | 7/9/2023 | 7/8/2015 | — | 46,875 | — | $ | 47.32 | 7/8/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/9/2014 | 11,067 | 33,204 | — | $ | 41.70 | 7/9/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7/10/2013 | 26,955 | 26,956 | — | $ | 38.48 | 7/9/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/1/2013 |
| — | — | 75,000 | $ | 36.66 | 6/30/2023 | $ | 475,536 | 7/1/2013 | — | 94,500 | — | $ | 36.66 | 6/30/2023 | $ | 3,385,690 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4,623 | $ | 190,052 | 9,321 | $ | 383,186 | 34,482 | $ | 1,869,614 | 5,737 | $ | 311,060 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael E. Gioja |
|
7/10/2013 |
| — | 53,911 | — | $ | 38.48 | 7/9/2023 | 7/8/2015 | — | 46,875 | — | $ | 47.32 | 7/8/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/11/2012 |
| — | 44,176 | — | $ | 31.65 | 7/10/2022 | 7/9/2014 | 11,067 | 33,204 | — | $ | 41.70 | 7/9/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/7/2011 |
| — | 58,750 | 66,250 | $ | 31.63 | 7/6/2021 | 7/10/2013 | 26,955 | 26,956 | — | $ | 38.48 | 7/9/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/6/2011 |
| 11,095 | 22,191 | — | $ | 31.34 | 7/5/2021 | 7/11/2012 | 10,000 | 14,726 | — | $ | 31.65 | 7/10/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/7/2010 |
| 4,468 | 4,468 | — | $ | 26.02 | 7/6/2020 | 7/7/2011 | 58,750 | 98,750 | — | $ | 31.63 | 7/6/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
7/9/2009 |
| 3,920 | 7,840 | — | $ | 24.21 | 7/8/2019 | 7/6/2011 | 22,191 | — | — | $ | 31.34 | 7/5/2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
11/10/2008 |
| 2,400 | — | — | $ | 26.77 | 11/9/2018 | $ | 2,437,899 | 7/7/2010 | 4,468 | — | — | $ | 26.02 | 7/6/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 38,441 | $ | 1,580,310 | 9,321 | $ | 383,186 | 7/9/2009 | 7,840 | — | — | $ | 24.21 | 7/8/2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11/10/2008 | 2,400 | — | — | $ | 26.77 | 11/9/2018 | $ | 6,777,146 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 34,482 | $ | 1,869,614 | 5,737 | $ | 311,060 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Paychex, Inc. 2016 Proxy Statement •44 |
NEO Compensation
NEO Compensation |
Number of Securities Underlying Unexercised Options (Column (d))
The options displayed in this column issued prior to July 2010 vest 20% per annum over a five-year period from the date of grant. Awards issued during and subsequent to July 2010 vest 25% per annum over a four-year period from the date of grant. The following table provides information with respect to the future vesting of each NEO’s outstanding options.
| Number of Securities Vesting (#) | ||||||||||||||||||||||||
| July 2014 (1) | October 2014 | July 2015 | October 2015 | July 2016 | July 2017 | |||||||||||||||||||
Martin Mucci | 317,388 | 38,648 | 179,784 | — | 128,179 | 59,461 | ||||||||||||||||||
Efrain Rivera | 98,047 | — | 39,299 | — | 28,204 | 13,478 | ||||||||||||||||||
Mark A. Bottini | 86,952 | 12,828 | 28,203 | 12,829 | 28,204 | 13,478 | ||||||||||||||||||
John B. Gibson | 13,477 | — | 13,478 | — | 13,478 | 13,478 | ||||||||||||||||||
Michael E. Gioja | 110,355 | — | 39,299 | — | 28,204 | 13,478 | ||||||||||||||||||
|
| Number of Securities Vesting (#) | ||||||||||||||||||||
July 2016 | July 2017 | July 2018 | July 2019 | |||||||||||||||||
Martin Mucci | 426,207 | 159,989 | 100,529 | 51,701 | ||||||||||||||||
Efrain Rivera | 149,740 | 36,265 | 22,787 | 11,719 | ||||||||||||||||
Mark A. Bottini | 149,740 | 36,265 | 22,787 | 11,719 | ||||||||||||||||
John B. Gibson | 130,764 | 36,265 | 22,787 | 11,719 | ||||||||||||||||
Michael E. Gioja | 149,740 | 36,265 | 22,787 | 11,719 | ||||||||||||||||
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (Column (e))
TheThere are no amounts in this column representas the final performance period for the LTIP performance stock options which could vest in amounts subject tohas been completed. The options earned based on pre-established performance goals for fiscal 2016. In fiscal 2014, 23.5% of2016 are included in the award was earned and vested in July 2014. The awards are presented at threshold performancecolumn for the remaining unearned amount of the award.securities underlying unexercised options.
Total Potential Current Value of Outstanding Options (Column (h))
The total potential current value of options outstanding is based on the difference between $41.11,$54.22, the closing price of the Company’s common stock on May 30, 2014,31, 2016, and the optionexercise price, multiplied by all outstanding options, whether exercisable or unexercisable. This includes the performance stock option shares (discussed above) at threshold. In those instances when the outstanding options are out of the money (the option exercise price is greater than the closing price), no value is provided. This column is not required by the rules relating to executive compensation disclosures and is not a substitute for information required by Item 402 of SEC Regulation S-K, but rather is intended to provide additional information that stockholders may find useful.
Number of Shares or Units and Market Value of Shares or Units That Have Not Vested (Column(Columns (i) and (j))
Total dividends and interest accrued on the restricted stock awards that have not vested as of May 31, 2014 were as follows: Mr. Mucci — $205,344; Mr. Rivera — $35,539; Mr. Bottini — $24,503; Mr. Gibson — $6,475; and Mr. Gioja — $61,222.
NEO Compensation
The stock awards in this column include awards on July 6, 2011, October 17, 2011,10, 2013, July 11, 2012,9, 2014, and July 10, 2013,8, 2015 that are subject to time-based vesting pro rata over three years. In addition, these columns include grants on July 9, 2009, which cliff vest in July 2014 for any remaining shares which did not vest in earlier periods based on attainment of performance goals. The performance shares granted on July 6, 201110, 2013 and July 11, 20129, 2014 are also included in these columns,this column, since their performance and service conditions have been satisfied. These performance shares are now restricted with a one-year service requirement before the restrictions lapse in July 20142016 and July 2015, respectively. 2017.
The following table provides information with respect to the future vesting of each NEO’s outstanding restricted stock awards:
| Number of Securities Vesting (#) | Number of Securities Vesting (#) | ||||||||||||||||||||||||||||||
| July 2014 | October 2014 | July 2015 | July 2016 | July 2016 | July 2017 | July 2018 | |||||||||||||||||||||||||
Martin Mucci | 76,252 | — | 82,873 | 6,799 | 82,207 | 64,694 | 5,231 | ||||||||||||||||||||||||
Efrain Rivera | 15,092 | — | 17,842 | 1,541 | 18,633 | 14,663 | 1,186 | ||||||||||||||||||||||||
Mark A. Bottini | 3,134 | 2,554 | 17,842 | 1,541 | 18,633 | 14,663 | 1,186 | ||||||||||||||||||||||||
John B. Gibson | 1,541 | — | 1,541 | 1,541 | 18,633 | 14,663 | 1,186 | ||||||||||||||||||||||||
Michael E. Gioja | 19,058 | — | 17,842 | 1,541 | 18,633 | 14,663 | 1,186 | ||||||||||||||||||||||||
| Paychex, Inc. 2016 Proxy Statement • 45 |
NEO Compensation |
The market value displayed is based on the number of shares that have not vested multiplied by $41.11,$54.22, the closing price of the Company’s common stock as of May 30, 2014.31, 2016.
Total dividends and interest accrued on the restricted stock awards that have not vested as of May 31, 2016 were as follows: Mr. Mucci — $204,217; and Mr. Rivera, Mr. Bottini, Mr. Gibson, and Mr. Gioja — $46,285 each.
Equity Incentive Plan Awards: Unearned Shares, Units or Other Rights That Have Not Vested (Columns (k) and (l))
The stock awards in these columns represent performance shares granted on July 10, 2013.8, 2015. These awards have pre-established performance goals that can be achieved over a two-year period. Shares earned will be determined at the end of the performance period, and then will be restricted with a one-year service requirement before the restrictions lapse. These awards are presented at threshold performance as of May 31, 2014.2016. The market value displayed is based on the number of shares at threshold multiplied by $41.11,$54.22, the closing price of the Company’s common stock as of May 30, 2014.
|
NEO Compensation
31, 2016.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
FISCAL 20142016
Change In Control Plan
The Company has a Change in Control Plan covering the officers of the Company. Upon involuntary termination by the Company without cause or a voluntary termination by the participant for good reason, within 12 months following a Change in Control, as defined in the Change in Control Plan, the officer becomes entitled to certain severance benefits. Cause“Cause” means the participant’s dereliction of duty to the Company, conviction for a felony, or willful misconduct that has a substantial adverse effect on the Company. Good reason“Good reason” means a significant change to the duties, authority, or position that were assigned immediately before the change in control including: the reduction in or removal of any material duties, authority, or position within the Company; assignment of duties inconsistent with the participant’s position, authorities, or responsibilities; material reduction to base salary, annual incentive, or other elements of total compensation; relocation of the participant’s principal workplace to an area outside of a 50 mile50-mile radius; or the failure of a successor company to assume or adopt this plan.
The severance benefits, which are conditioned upon the execution of a general release in favor of the Company, are as follows:
Cash compensation in the form of a lump-sum payment equal to a multiple of Annual Cash Compensation (Base Salary and Bonus at target) as determined by position within the Company (CEO –— 2.0; SVP –— 1.5);
Lump-sum cash payment for proratedpro-rated portion of current year annual cash performance incentive award at target;
Immediate vesting of all outstanding time-based equity awards. Performance-based equity awards will vest at target performance levels on a pro-rated basis; and
Lump-sum payment for the cost to continue basic life insurance, medical, dental, vision, and hospitalization benefits for the applicable Continuation Period, which is determined as the number of years equal to the participant’s multipliesmultiplier (CEO -— 2.0; SVP -— 1.5).
The plan does not provide for tax gross-ups. The summary of the terms of the foregoing plan is qualified in its entirety by reference to the text of the plan document. For more information, refer to the Paychex, Inc. Change In Control Plan, incorporated by reference from Exhibit 10.24 to the Company’s Form 10-K filed with the SEC on July 15, 2011.
Other Separation Benefits
With the exception of the Change in Control Plan, NEOs are not entitled to severance benefits. However, for all NEOs, upon death or disability all unvested stock options and restricted stock awards become fully vested according to the terms of the award agreements under the 2002 Plan. Upon death or disability a NEO shall be entitled to a pro-rataprorated portion of actual shares earned under a performance share award, based on the number of days in the performance period until the date of death or disability as a percentage of the total number of days in the performance period. The LTIP award agreement does not have a provision allowing vesting of a portion of the award at death, disability, or retirement.
Upon death, disability, or retirement, NEOs may be eligible to receive a pro-rated portion of thean annual incentive program payout based on actual fiscal year results forand calculated using the base pay received by the participant during the performance period.
NEO Compensation
NEO Compensation |
Potential Benefits Upon Separation from Company
The following table presents, as of May 31, 2014,2016, the compensation and benefits to the NEOs upon separation from employment with the Company for the various reasons specified.
| Potential Payments Upon Separation | ||||||||||||||||||||
| Annual Compensation per the Summary Compensation Table(1) | Voluntary Resignation/ Termination | Death or Disability | Retirement | Termination Other Than For Cause/ Resignation For Good Reason within One Year of Change of Control | ||||||||||||||||
Martin Mucci | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 1,690,000 | ||||||||||||
Annual Incentive(3) | — | 1,234,292 | 1,234,292 | 2,197,000 | ||||||||||||||||
Options Awards(4) | — | 5,558,796 | — | 5,558,796 | ||||||||||||||||
Restricted Stock Awards (5) | — | 6,821,136 | — | 6,821,136 | ||||||||||||||||
Performance Share Awards(6) | — | 1,127,051 | — | 1,127,051 | ||||||||||||||||
LTIP(7) | — | — | — | 2,175,660 | ||||||||||||||||
Benefits(8) | — | — | — | 22,526 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 6,006,823 | $ | — | $ | 14,741,275 | $ | 1,234,292 | $ | 19,592,169 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Efrain Rivera | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 637,500 | ||||||||||||
Annual Incentive(3) | — | 418,285 | 418,285 | 541,875 | ||||||||||||||||
Options Awards(4) | — | 1,333,447 | — | 1,333,447 | ||||||||||||||||
Restricted Stock Awards (5) | — | 1,417,267 | — | 1,417,267 | ||||||||||||||||
Performance Share Awards (6) | — | 255,458 | — | 255,458 | ||||||||||||||||
LTIP(7) | — | — | — | 1,087,830 | ||||||||||||||||
Benefits(8) | — | — | — | 22,924 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,739,481 | $ | — | $ | 3,424,457 | $ | 418,285 | $ | 5,296,301 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Mark A. Bottini | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 637,500 | ||||||||||||
Annual Incentive(3) | — | 391,298 | 391,298 | 541,875 | ||||||||||||||||
Options Awards(4) | — | 1,661,202 | — | 1,661,202 | ||||||||||||||||
Restricted Stock Awards (5) | — | 1,030,669 | — | 1,030,669 | ||||||||||||||||
Performance Share Awards (6) | — | 255,458 | — | 255,458 | ||||||||||||||||
LTIP(7) | — | — | — | 1,497,488 | ||||||||||||||||
Benefits(8) | — | — | — | 33,982 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,714,509 | $ | — | $ | 3,338,627 | $ | 391,298 | $ | 5,658,174 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
John B. Gibson | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 525,000 | ||||||||||||
Annual Incentive(3) | — | 344,470 | 344,470 | 446,250 | ||||||||||||||||
Options Awards(4) | — | 141,786 | — | 141,786 | ||||||||||||||||
Restricted Stock Awards (5) | — | 190,052 | — | 190,052 | ||||||||||||||||
Performance Share Awards (6) | — | 255,458 | — | 255,458 | ||||||||||||||||
LTIP(7) | — | — | — | 222,500 | ||||||||||||||||
Benefits(8) | — | — | — | 23,441 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 2,352,562 | $ | — | $ | 931,766 | $ | 344,470 | $ | 1,804,487 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Michael E. Gioja | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 600,000 | ||||||||||||
Annual Incentive(3) | — | 393,680 | 393,680 | 510,000 | ||||||||||||||||
Options Awards(4) | — | 1,533,365 | — | 1,533,365 | ||||||||||||||||
Restricted Stock Awards (5) | — | 1,580,310 | — | 1,580,310 | ||||||||||||||||
Performance Share Awards (6) | — | 255,458 | — | 255,458 | ||||||||||||||||
LTIP(7) | — | — | — | 1,087,830 | ||||||||||||||||
Benefits(8) | — | — | — | 8,042 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,684,902 | $ | — | $ | 3,762,813 | $ | 393,680 | $ | 5,575,005 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total for all NEOs | $ | 13,498,277 | $ | — | $ | 26,198,938 | $ | 2,782,025 | $ | 37,926,136 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| Potential Payments Upon Separation | ||||||||||||||||||||
| Annual Compensation per the Summary Compensation Table(1) | Voluntary Resignation/ Termination | Death or Disability | Retirement | Termination Other within Change | ||||||||||||||||
Martin Mucci | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 1,800,000 | ||||||||||||
Annual Incentive(3) | — | 1,203,210 | 1,203,210 | 2,340,000 | ||||||||||||||||
Stock Option Awards(4) | — | 11,145,242 | — | 11,145,242 | ||||||||||||||||
Restricted Stock Awards(5) | — | 8,248,597 | — | 8,248,597 | ||||||||||||||||
Performance Share Awards(6) | — | 1,143,690 | — | 1,143,690 | ||||||||||||||||
Benefits(7) | — | — | — | 27,967 | ||||||||||||||||
Total | $ | 5,782,395 | $ | — | $ | 21,740,739 | $ | 1,203,210 | $ | 24,705,496 | ||||||||||
Efrain Rivera | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 712,500 | ||||||||||||
Annual Incentive(3) | — | 454,670 | 454,670 | 676,875 | ||||||||||||||||
Stock Option Awards(4) | — | 3,726,567 | — | 3,726,567 | ||||||||||||||||
Restricted Stock Awards(5) | — | 1,869,614 | — | 1,869,614 | ||||||||||||||||
Performance Share Awards(6) | — | 259,226 | — | 259,226 | ||||||||||||||||
Benefits(7) | — | — | — | 25,901 | ||||||||||||||||
Total | $ | 1,769,973 | $ | — | $ | 6,310,077 | $ | 454,670 | $ | 7,270,683 | ||||||||||
Mark A. Bottini | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 675,000 | ||||||||||||
Annual Incentive(3) | — | 442,440 | 442,440 | 641,250 | ||||||||||||||||
Stock Option Awards(4) | — | 4,079,105 | — | 4,079,105 | ||||||||||||||||
Restricted Stock Awards(5) | — | 1,869,614 | — | 1,869,614 | ||||||||||||||||
Performance Share Awards(6) | — | 259,226 | — | 259,226 | ||||||||||||||||
Benefits(7) | — | — | — | 37,760 | ||||||||||||||||
Total | $ | 1,810,049 | $ | — | $ | 6,650,385 | $ | 442,440 | $ | 7,561,955 | ||||||||||
John B. Gibson | ||||||||||||||||||||
Base Salary(2) | — | — | — | 637,500 | ||||||||||||||||
Annual Incentive(3) | — | 406,810 | 406,810 | 605,625 | ||||||||||||||||
Stock Option Awards(4) | — | 2,822,859 | — | 2,822,859 | ||||||||||||||||
Restricted Stock Awards(5) | — | 1,869,614 | — | 1,869,614 | ||||||||||||||||
Performance Share Awards(6) | — | 259,226 | — | 259,226 | ||||||||||||||||
Benefits(7) | — | — | — | 26,680 | ||||||||||||||||
Total | $ | 1,668,907 | $ | — | $ | 5,358,509 | $ | 406,810 | $ | 6,221,504 | ||||||||||
Michael E. Gioja | ||||||||||||||||||||
Base Salary(2) | $ | — | $ | — | $ | — | $ | 637,500 | ||||||||||||
Annual Incentive(3) | — | 406,810 | 406,810 | 605,625 | ||||||||||||||||
Stock Option Awards(4) | — | 3,726,567 | — | 3,726,567 | ||||||||||||||||
Restricted Stock Awards(5) | — | 1,869,614 | — | 1,869,614 | ||||||||||||||||
Performance Share Awards(6) | — | 259,226 | — | 259,226 | ||||||||||||||||
Benefits(7) | — | — | — | 21,184 | ||||||||||||||||
Total | $ | 1,673,454 | $ | — | $ | 6,262,217 | $ | 406,810 | $ | 7,119,716 | ||||||||||
Total for all NEOs | $ | 12,704,778 | — | $ | 46,321,927 | $ | 2,913,940 | $ | 52,879,354 | |||||||||||
|
NEO Compensation
NEO Compensation |
| (1) | The amounts in this column are the total reported compensation for fiscal |
| (2) | Base salary is the annual salary at a multiple as outlined in the Change in Control Plan; 2.0 for CEO and 1.5 for SVPs. |
| (3) | For death or disability and retirement, the value for the annual incentive is the amount earned as of May 31, |
| (4) | The value of the unvested |
| (5) | The value of unvested restricted stock awards is based upon the closing price of the Company’s common stock of |
| (6) | The value of the performance |
| (7) |
|
The value of the cost to continue basic life insurance, medical, dental, vision, and hospitalization benefits for the applicable Continuation Period, which is equal to the number of years as outlined in the Change in Control Plan: 2.0 for |
NEO Compensation
NON-QUALIFIED DEFERRED COMPENSATION
FISCAL 20142016
We offer a non-qualified and unfunded deferred compensation plan to our NEOs. Eligible employees are able to defer up to 50% of their base salary and annual incentive program award.The Company does not contribute to this plan.plan. Gains and losses are credited based on the participant’s selection of a variety of designated investment choices. The NEO has sole control as to which of the designated funds to invest in, and earns the resulting return on such investment. We do not match any participant deferral or guarantee a certain rate of return. Distributions are paid at one of the following dates selected by the participant: the participant’s termination date; the date the participant retires from any active employment; or a designated specific date. Payments can be made either in a lump sum or in annual installments over a period not to exceed ten years.
The following table summarizes theirthe NEO benefits under the plan:
| Fiscal 2014 | Fiscal 2016 | Aggregate Balance as of ($) (e) | ||||||||||||||||||||||||||||||
Name (a) | Executive Contributions ($) (b) | Aggregate Earnings, Net ($) (c) | Aggregate Withdrawals/ Distributions ($) (d) | Aggregate Balance as of May 31, 2014 ($) (e) | Executive Contributions ($) (b) | Aggregate Earnings/ ($) (c) | Aggregate Withdrawals/ Distributions ($) (d) | |||||||||||||||||||||||||
Martin Mucci | $ | 195,535 | $ | 85,209 | $ | — | $ | 1,294,756 | $ | 219,582 | $ | 12,746 | $ | — | $ | 1,843,536 | ||||||||||||||||
Efrain Rivera | $ | 339,012 | $ | 23,343 | $ | — | $ | 832,071 | $ | 455,552 | $ | 49,856 | $ | — | $ | 1,807,585 | ||||||||||||||||
| John B. Gibson | $ | 53,454 | $ | (1,728 | ) | $ | — | $ | 143,073 | |||||||||||||||||||||||
Other NEO’s are currently not participating in this plan.
Executive Contributions (Column (b))
The amounts in this column reflect the aggregate of the salary and bonus amounts deferred by the NEO during fiscal 2014.2016. These are included in amounts reported in the Fiscal 20142016 Summary Compensation Table.
Aggregate Earnings,Earnings/(Losses), Net (Column (c))
The amounts in this column reflect both net realized gains/losses and net unrealized gains/losses. They are not included in the Fiscal 20142016 Summary Compensation Table as the earnings on these investments are not considered to be “above-market” earnings.
Aggregate Withdrawals/Distributions (Column (d))
The amounts in this column reflectwould represent amounts withdrawn from the plan. These wereplan, and would have been included in the “Salary” and “Non-Equity Incentive Plan Compensation” amounts reported in the Summary Compensation Tables for current and previous years in the Fiscal 2014 Summary Compensation Table.years.
|
NEO Compensation
NEO Compensation |
Aggregate Balance as of May 31, 20142016 (Column (e))
The amounts in this column reflect the accumulated balances in the plan and include the “Salary” and “Non-Equity Incentive Plan Compensation” amounts reported in current and previous years in the Fiscal 20142016 Summary Compensation Table.
The investment funds managed at Wilmington Trust Company available to NEOs, and the respective one-year rates of return as of May 31, 2014,2016, are as follows:
Name of Fund | Rate of Return | Name of Fund | Rate of Return | Rate of Return | Name of Fund | Rate of Return | ||||||||||||||
| American Funds Europacific Growth Fund | (9.37 | )% | T. Rowe Price Equity Income Fund | (1.78 | )% | |||||||||||||||
BlackRock Global Allocation Fund Class A | 10.04% | T. Rowe Price Equity Income Fund | 16.65% | (5.64 | )% | T. Rowe Price Growth Stock Fund | (1.50 | )% | ||||||||||||
Columbia Acorn Fund Class Z | 14.35% | T. Rowe Price Growth Stock Fund | 24.16% | |||||||||||||||||
Europacific Growth | 17.42% | T. Rowe Price New Income Fund | 2.43% | |||||||||||||||||
Fidelity Spartan Extended Market Index Fund | 20.10% | T. Rowe Price Small-Cap Value Fund | 15.75% | (6.14 | )% | T. Rowe Price New Income Fund | 2.50 | % | ||||||||||||
| Fidelity Spartan 500 Index Advantage Fund | 1.63 | % | T. Rowe Price Small-Cap Value Fund | 1.63 | % | |||||||||||||||
| MFS Mid Cap Value Fund R5 | (0.18 | )% | Vanguard Prime Money Market Fund | 0.21 | % | |||||||||||||||
Oppenheimer Developing Markets Fund Class A | 10.04% | Vanguard Prime Money Market Fund | —% | (13.17 | )% | Vanguard Total International Stock Index Fund | (10.80 | )% | ||||||||||||
Spartan 500 Index Advantage Fund | 20.39% | Vanguard Total International Stock Index Fund | 15.82% | |||||||||||||||||
Independent Accountants
Independent Accountants |
PROPOSAL 3·3: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Proposal Snapshot
| • | What am I voting on? |
Stockholders are being asked to ratify the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered accounting firm for fiscal 2017.
| • | Voting Recommendation |
The Board of Directors recommends a voteFOR the ratification of PwC as the Company’s independent public accounting firm for fiscal 2017.
The Audit Committee has appointed the firm of PricewaterhouseCoopers LLP (“PwC”)PwC as the Company’s independent registered public accounting firm (the “independent accountants”) for fiscal 2015.2017. In connection with the decision to appoint PwC, the Audit Committee evaluates: their reputation, qualifications, and experiences; quality of communications and interactions during the past year; and their independence and objectivity. Although action by stockholders in this matter is not required, the Audit Committee believes that it is appropriate to seek stockholder ratification of this appointment and to seriously consider stockholder opinion on this issue. If the stockholders do not ratify the appointment, the Audit Committee will review its future selection of the independent accountants, but may still retain them.
Representatives from PwC, the Company’s independent accountants, will be present at the Annual Meeting, will be afforded the opportunity to make any statements they wish, and will be available to respond to appropriate questions from stockholders.
To ratify the appointment of PwC, a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting must be voted for the proposal.
Change in Auditor
The Audit Committee completed a competitive process to determine what audit firm would serve as the Company’s independent accountants for fiscal 2014. On August 20, 2013, the Audit Committee approved the engagement of PwC as auditors for the Company, effective immediately, and thereby dismissed Ernst &Young LLP (“EY”) from that role.
EY served as our independent accountants beginning when we became a publicly traded company in 1983 and for each of our audits conducted prior to 2013. The audit reports of EY on the consolidated financial statements of the Company and subsidiaries as of and for the years ended May 31, 2013 and 2012 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal years ended May 31, 2013 and 2012, and through August 20, 2013, there were no: (i) disagreements with EY on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to EY’s satisfaction, would have caused EY to make reference to the subject matter thereof in its reports for such years; or (ii) reportable events, as described under Item 304(a)(1)(v) of Regulation S-K.
During the years ended May 31, 2013 and 2012, and subsequent interim period through August 20, 2013, the Company did not consult with PwC regarding: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and no written report or oral advice was provided to the Company that PwC concluded was an important factor to be considered by the Company in reaching a decision as to an accounting, auditing, or financial reporting issue; or (ii) any matter that was either the subject of a “disagreement” or a “reportable event”, as such terms are defined in Item 304(a)(1) of Regulation S-K.
On August 23, 2013, we filed with the SEC a Current Report on Form 8-K disclosing the appointment of PwC as our new independent accountants and the related dismissal of EY from that role.
The Board of Directors recommends a voteFOR the proposal to ratify the appointment of PricewaterhouseCoopers LLPPwC as the Company’s independent registered public accounting firm for fiscal 2015.2017.
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Independent Accountants
Fees For Professional Services
For fiscal 2014, PwC served as the Company’s independent accountants. For fiscal 2013, Ernst and Young LLP served as the Company’s independent accountants. The following table shows the aggregate fees for professional services rendered for the Company by both of the audit firms:PwC:
| Year Ended May 31, | Year Ended May 31, | |||||||||||||||||
| 2014 | 2013 | 2016 | 2015 | |||||||||||||||
Audit fees | $ | 1,087,000 | $ | 1,150,000 | $ | 1,292,000 | $ | 1,069,000 | ||||||||||
Audit-related fees | — | 34,000 | ||||||||||||||||
Tax-related fees | 193,700 | — | 496,000 | 120,000 | ||||||||||||||
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| |||||||||||||||||
| Other fees | — | 59,000 | ||||||||||||||||
Total fees | $ | 1,280,700 | $ | 1,184,000 | $ | 1,788,000 | $ | 1,248,000 | ||||||||||
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Audit fees
This category includes fees for fiscal 20142016 and fiscal 20132015 that were for professional services rendered for the audits of the Company’s annual consolidated financial statements, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, audits of the effectiveness of internal control over financial reporting, and for statutory and regulatory filings.
Audit-related fees
This category consists of fees for fiscal 2013 that were for the audits of employee benefit plans. In fiscal 2014, we did not utilize our primary independent accountants for the audits of employee benefit plans.
TaxTax-related fees
This category includes fees for fiscal 20142016 and fiscal 2015 services related to tax planningcompliance and strategy. There were no tax relatedplanning.
Other fees
This category includes fees for fiscal 2013.2015 related to a special project related to marketing strategies.
| Paychex, Inc. 2016 Proxy Statement • 50 |
Independent Accountants |
Audit Committee Policy on Pre-Approval of Services of Independent Accountants
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent accountants. The Audit Committee pre-approved all such audit and audit-related services provided by the independent accountants during fiscal 20142016 and fiscal 2013.
Independent Accountants
2015.
The Audit Committee of the Board of Directors oversees the Company’s financial reporting process on behalf of the Board and is composed entirely of independent directors. The Audit Committee is governed by a written Charter and its primary responsibilities are highlighted in the Corporate Governance section of this Proxy Statement.
Paychex management is responsible for the preparation of the consolidated financial statements, the financial reporting process, and for the Company’s internal controls over financial reporting. PricewaterhouseCoopers LLP, the Company’s independent accountants, is responsible for performing independent audits of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board. The independent accountants are also responsible for expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. The Audit Committee monitors and oversees these processes. Also, the Audit Committee discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Auditing Standard No. 16 as adopted by the Public Company Accounting Oversight Board relating to communications with audit committees.
As part of the oversight processes, the Audit Committee regularly meets with management, the Company’s internal auditors, and the independent accountants. The Audit Committee meets with the internal auditors and independent accountants, with and without management present, to discuss the overall scope and plans for various audits, results of their examinations, their evaluations of the Company’s internal controls, and the overall quality and effectiveness of the Company’s financial reporting process and legal and ethical compliance programs, including the Company’s Code of Business Ethics and Conduct. The Audit Committee held nineseven meetings during fiscal 20142016 and had full access to each of the aforementioned parties.
In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed with management and the independent accountants the consolidated financial statements for fiscal 2014,2016, including a discussion on the quality and acceptability of the Company’s accounting policies, the reasonableness of significant judgments and estimates, and the clarity of disclosures in the consolidated financial statements. The Audit Committee also monitored the progress and results of testing of internal controls over financial reporting, reviewed reports from management and internal audit regarding design, operation, and effectiveness of internal controls over financial reporting, and reviewed the report from the independent accountants regarding the effectiveness of the Company’s internal control over financial reporting.
The Audit Committee has discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU 380) and SEC Rule 207. The independent accountants have provided the Audit Committee with written disclosures and the letter required by the Public Company Accounting Oversight Board regarding independent accountants’ communications with the audit committee concerning independence, and the Audit Committee has discussed with the independent accountants and management the accountants’ independence. The Audit Committee approved non-audit services provided by PricewaterhouseCoopers LLP’sLLP during fiscal 2014.2016. The Audit Committee considered whether PricewaterhouseCoopers LLP’s provision of non-audit services to the Company and its affiliates and the fees and costs billed for those services, is permissible with PricewaterhouseCoopers LLP’s independence. The Audit Committee has a clear policy on non-audit services that may be provided by the independent accountants, which prohibits certain categories of work and requires pre-authorization for all non-audit related services.
|
Independent Accountants
Based upon the reviews and discussions referred to above, the Audit Committee recommended and the Board approved that the audited consolidated financial statements be included in the Company’s Form 10-K for the fiscal 20142016 for filing with the SEC. The Audit Committee has recommended for approval by the Board the selection of the Company’s independent accountants.
The Audit Committee:
David J. S. Flaschen,Chairman
Grant M. Inman
Pamela A. Joseph
Joseph G. Doody
Other Information
FAQ |
OTHER MATTERS AND INFORMATIONFREQUENTLY ASKED QUESTIONS
Stockholder Proposals for Next Year’s Annual MeetingWhat is a Proxy Statement and What Is a Proxy?
Stockholder proposals, whichWe are intendedfurnishing this proxy statement to stockholders on behalf of our Board, who is soliciting your proxy to vote at the Annual Meeting. A proxy statement is a document that SEC regulations require us to give you when we ask you to sign a proxy designating individuals to vote on your behalf. This proxy statement summarizes information concerning the matters to be presented at the 2015Annual Meeting and related information to help stockholders make an informed vote.
A proxy is your legal designation of another person to vote the stock that you own. That other person is called a proxy. The proxy card is your written document that designates someone to be your proxy. We have designated two of our officers as proxies for the Annual Meeting — Martin Mucci, President and CEO and Efrain Rivera, SVP, CFO and Treasurer.
Distribution of this proxy statement and a form of proxy to stockholders is scheduled to begin on or about September 9, 2016.
When and Where Is the Annual Meeting?
The Annual Meeting will be held on Wednesday, October 12, 2016 at 10:00 a.m. Eastern Time at The Strong, One Manhattan Square, Rochester, NY 14607.
What Am I Voting On? How Do You Recommend I Vote?
The table below shows the proposals subject to vote at the Annual Meeting, along with information on what vote is required to approve each of the proposals, assuming the presence of a quorum at the Annual Meeting, and the Board’s recommendations for each proposal. With respect to Proposals 1, 2, and 3, you may vote “FOR,” “AGAINST,” or “ABSTAIN.”
| Proposal | Vote Required | Board Recommendation | ||
Proposal 1: Election of nine nominees to the Board of Directors for a one-year term | Majority of the votes duly cast | FOR all director nominees | ||
Proposal 2: Advisory vote to approve the Company’s named executive officer compensation | Majority of the shares present in person or by proxy and entitled to vote | FOR | ||
Proposal 3: Ratification of the selection of Independent Registered Public Accounting Firm | Majority of the shares present in person or by proxy and entitled to vote | FOR |
Who is Entitled to Vote At the Annual Meeting?
Stockholders of record of our common stock as of the close of business on August 15, 2016 (the “Record Date”) will be eligible to vote at the Annual Meeting. Each share outstanding as of the Record Date will be entitled to one vote.
How Many Shares Must Be Present to Hold the Annual Meeting?
In order for us to conduct our Annual Meeting, the holders of a majority of the shares entitled to vote must be present at the Annual Meeting in person or by proxy. This is called a quorum. A quorum is necessary to hold a valid meeting. As of August 15, 2016, 361,820,284 shares of common stock were issued and outstanding. A total of 180,910,143 shares will constitute a quorum.
What is The Difference Between a Registered Shareholder and a Beneficial Shareholder?
If your shares are registered directly in your name with the Company’s transfer agent, American Stock Transfer & Trust Company, LLC, you are considered a stockholder of record, or aregistered shareholder, with respect to those shares. If
| Paychex, Inc. 2016 Proxy Statement • 52 |
FAQ |
your shares are held in a brokerage account in the name of your bank, broker, or other nominee (this is called “street name”), you are not a registered stockholder, but rather are considered a “beneficial owner” of those shares. Your bank, broker, or other nominee will send you instructions on how to vote your shares.
What Shares are Included on the Proxy Card?
You may receive more than one proxy card if you have multiple accounts with our transfer agent, or with banks, brokers, or other nominees.
If you are aregistered stockholder, you will receive a proxy card for shares of common stock you hold in certificate form or in book-entry form.
If you are a participant in the Paychex Employee Stock Ownership Plan Stock Fund (“ESOP”) of the Company’s 401(k) Plan, you will receive a proxy card that reflects those shares. You can vote those shares using the methods described below. This will serve as a voting instruction for Fidelity Management Trust Company (the “Trustee”), who is the holder of record for the shares in the ESOP. As a participant in the ESOP, you have the right to direct the Trustee on how to vote the shares of common stock credited to your account at the Annual Meeting. The participants’ voting instructions will be tabulated confidentially. Only the Trustee and/or the tabulator will have access to each participant’s individual voting direction. If you do not submit voting instructions for your shares of common stock in the ESOP, those shares will be voted by the Trustee in the same proportions as the shares for which voting instructions were received from other participants. To allow sufficient time for voting by the Trustee, voting instructions by ESOP participants must be received by 11:59 p.m. Eastern Time on Friday, October 7, 2016. The Trustee will then vote all shares of common stock held in the ESOP by the established deadline.
If you are abeneficial owner, you will receive voting instruction information from the bank, broker, or other nominee through which you own your shares of common stock.
How Do I Vote In Advance of the Annual Meeting?
Registered shareholders or participants in the ESOPcan vote in one of the following ways:
| • | Via the Internet — Go to the website noted on your proxy card in order to vote via the Internet. Internet voting is available 24 hours a day. We encourage you to vote via the Internet, as it is the most cost-effective way to vote. |
| • | By telephone — Call the toll-free telephone number indicated on your proxy card and follow the voice prompt instructions to vote by telephone. Telephone voting is available 24 hours a day. |
| • | By mail — Mark your proxy card, sign and date it, and return it in the enclosed postage-paid envelope. If you elected to electronically access the proxy statement and Annual Report, you will not receive a proxy card and must vote via the Internet. |
• By mobile device — Scan this QR code |  |
Proxies submitted by Internet or telephone must be received by 11:59 p.m. Eastern Time on Tuesday, October 11, 2016. If you vote by telephone or the Internet, you do not need to return your proxy card.
May I Vote In Person at the Annual Meeting?
If you are aregistered stockholder, you may vote your shares at the Annual meeting if you attend in person, even if you previously submitted a proxy card or voted by Internet or telephone. Whether or not you plan to attend the meeting, however, we strongly encourage you to vote your shares by proxy before the meeting.
If you are a beneficial owner, and want to vote your shares in person at the Annual Meeting, you will need to ask your bank, broker, or other nominee to furnish you with a legal proxy. You must hand this legal proxy in with your completed ballot. Without this legal proxy you will be unable to vote at the meeting.
| Paychex, Inc. 2016 Proxy Statement • 53 |
FAQ |
May I Change My Mind After I Vote?
Registered stockholders may change a properly executed proxy at any time prior to it being voted at the Annual Meeting by:
providing written notice of revocation to the Corporate Secretary;
submitting a later-dated proxy via the Internet, telephone, or mail; or
voting in person at the Annual Meeting.
Beneficial owners should contact their broker, bank, or other nominee for instructions on how to change their vote.
If you are a participant in the ESOP, you may change a properly executed proxy at any time prior to 11:59 p.m. Eastern Time on October 7, 2016, by submitting a proxy that has a more recent date than the original proxy by internet, telephone, or mail. You may not, however, change your voting instructions in person at the Annual Meeting because the Trustee will not be present.
In What Manner Are Proxies Voted? What if I Returned My Proxy Card Without Specifying a Vote?
All votes properly cast and not revoked will be voted at the Annual Meeting in accordance with the stockholder’s directions. You should specify your choice for each matter on your proxy card. However, if you do not specify your choices on your returned proxy card, then your shares will be voted in accordance with the Board’s recommendations. Should any matter not described above be properly presented at the Annual Meeting, the persons named on the proxy form will vote in accordance with their judgment as permitted.
If you are abeneficial owner, in order to ensure your shares are voted the way you would like, you must provide voting instructions to your bank, broker, or other nominee. If you do not provide your voting instructions to that party, whether your shares can be voted depends on the type of item being considered for vote. New York Stock Exchange (“NYSE”) rules allow your bank, broker, or other nominee to use its own discretion and vote your shares on routine matters. A bank, broker, or other nominee does not have discretion to vote your shares on non-routine matters (known as “broker non-votes”). Proposals 1 and 2 are not considered to be routine matters under the current NYSE rules, and so your bank, broker, or other nominee will not have the discretionary authority to vote your shares on those items. Proposal 3 is considered a routine matter under NYSE rules, so your bank, broker, or other nominee will have discretionary authority to vote your shares on that item.
How Are Broker Non-Votes and Abstentions Counted?
Broker non-votes are not considered votes for or against a proposal and therefore will have no direct impact on any proposal since they are not deemed to be duly cast nor entitled to vote, but they will be counted for the purpose of determining the presence or absence of a quorum.Therefore, we urge you to give voting instructions to your bank or broker on all voting items.
Abstentions are also counted for the purposes of establishing a quorum, but will have the same effect as a vote against a proposal, except in regards to the election of directors. For this item, abstentions will have no direct impact.
How Can I Find The Results of the Voting?
We will announce the preliminary voting results at the Annual Meeting. The Company will report the final results in a Current Report on Form 8-K filed with the SEC within four business days following the Annual Meeting.
Can I Access Proxy Materials On the Internet?
The Notice of Annual Meeting of Stockholders, for inclusionProxy Statement, and Annual Report are available on the Company’s website athttp://investor.paychex.com/annual-report.aspx. You can also access these documents via the Company’s 2016 Annual Meeting page athttp://investor.paychex.com/annual-meeting.aspx.
| Paychex, Inc. 2016 Proxy Statement • 54 |
FAQ |
As an alternative to receiving paper copies of the proxy statement and Annual Report in the Company’s Proxy Statement pursuantmail, stockholders can elect to SEC Rule 14a-8, must bereceive an e-mail message, which will provide a link to these documents on the Internet. Opting to receive your proxy materials online saves the Company the cost of producing and mailing bulky documents and reduces the volume of duplicate information received by you.
Forregistered shareholders, to give your consent to receive future documents via electronic delivery, vote your proxy via the Company at its executive offices on or before May 12, 2015. Any such proposals, including stockholder proposals for candidates for nomination for election to the Board, must be submitted in accordance with applicable SEC rules and regulations,Internet and follow the Company’s procedures under “Communications withinstructions to enroll in the Boardelectronic delivery service. Forbeneficial owners, please check the information in the proxy materials provided by your bank, broker, or other nominee regarding the availability of Directors.”electronic delivery service.
Stockholder proposals that are intendedAre There Any Other Actions to be presented at the 2015 Annual Meeting of Stockholders but not included in the Company’s Proxy Statement must be received by the Company’s Corporate Secretary at our executive offices on or before July 26, 2015. We will not permit stockholder proposals that do not comply with the foregoing notice requirement to be brought before the 2015 Annual Meeting of Stockholders.
Other ActionsPresented at the Annual MeetingMeeting?
As of the date of this Proxy Statement,proxy statement, management does not intend to present, and has not been informed that any other person intends to present, any matter for action at the Annual Meeting other than those described in this Proxy Statement.proxy statement. If any other matters properly come before the Annual Meeting, the persons named in the enclosed proxy will vote on such matters in accordance with their judgment.
Who Pays for the Cost of Solicitation of ProxiesProxies?
Solicitation of proxies is made on behalf of the Company and the Company will pay the cost of solicitation of proxies. The Company will reimburse any banks, brokers and other custodians, nominees, and fiduciaries for their expenses in forwarding proxies and proxy solicitation material to the beneficial owners of the shares held by them. In addition to solicitation by use of the mail or via the Internet, directors, officers, and regular employees of the Company, without extra compensation, may solicit proxies personally or by telephone or other communication means.
Electronic Access toHow Are Proxy Materials and Annual Report
The Notice of Annual Meeting of Stockholders, Proxy Statement, andthe Company’s Annual Report are also available on the Company’s website athttp://investor.paychex.com/annual-report.aspx. As an alternative to receiving paper copies of the Proxy Statement and Annual Report in the mail, stockholders can elect to receive an e-mail message, which will provide a link to these documents on the Internet. Opting to receive your proxy materials online saves the Company the cost of producing and mailing bulky documents and reduces the volume of duplicate information received by you. To give your consent to receive future documents via electronic delivery, vote your proxy via the Internet and follow the instructions to register for electronic delivery.
Delivery of Proxy Materials and Annual ReportBeing Delivered?
The Notice of Annual Meeting of Stockholders, Proxy Statement, Proxy Card, and Annual Report are being mailed to stockholders on or about September 9, 2014.2016. You may also obtain a copy of our Form 10-K filed with the SEC, without charge, upon written request submitted to Paychex, Inc., 911 Panorama Trail South, Rochester, New York 14625-2396, Attention: Investor Relations.
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Other InformationWhat is Householding?
In accordance with notices previously sent to stockholders,the Exchange Act, the Company delivers materials to stockholders under a program known as “householding.” Under the householding program, the Company is delivering one copy of its Annual Report and Proxy Statement in a single envelope addressed to all stockholders who share a single address, unless such stockholders previously notified the Company that they wish to revoke their consent to the householding. Householding is intended to reduce the Company’s printing and postage costs.
You may revoke your consent at any time by calling toll-free (800) 542-1061 or by writing to Broadridge Investor Communications Services, Attention: Broadridge Householding Department, 51 Mercedes Way, Edgewood, New York 11717. If you revoke your consent, you will be removed from the householding program within 30 days of receipt of your revocation, and each stockholder at your address will receive individual copies of the Company’s disclosure documents.
Stockholders of record residing at the same address and currently receiving multiple copies of the Annual Report and Proxy Statement and who wish to receive a single copy may also contact Broadridge Investor Communications Services at the phone number and address noted above. Beneficial owners will need to contact their broker, bank, or other holder of record to request that only a single copy of each document be mailed to all stockholders at the shared address in the future.
The Company hereby undertakes to deliver upon oral or written request a separate copy of its Proxy Statement and Annual Report to a security holder at a shared address to which a single copy was delivered. If such stockholder wishes to receive a separate copy of such documents, please contact Terri Allen, Investor Relations, either by calling toll-free (800) 828-4411 or by writing to Paychex, Inc., 911 Panorama Trail South, Rochester, New York 14625-2396, Attention: Investor Relations.
If you own Paychex stock beneficially through a bank, broker, or other holder of record,nominee, you may already be subject to householding if you meet the criteria. If you wish to receive a separate Proxy Statement and Annual Report in future mailings, you should contact your bank, broker, or other holder of record.nominee.
FAQ |
How Do I Submit a Proposal for Next Year’s Annual Meeting?
Stockholder proposals, which are intended to be presented at the 2017 Annual Meeting of Stockholders, for inclusion in the Company’s proxy statement pursuant to SEC Rule 14a-8, must be received by the Company at its executive offices on or before May 13, 2017. Any such proposals, including stockholder proposals for candidates for nomination for election to the Board, must be submitted in accordance with applicable SEC rules and regulations, and follow the Company’s procedures under “Communications with the Board of Directors.”
Stockholder proposals that are intended to be presented at the 2017 Annual Meeting of Stockholders but not included in the Company’s proxy statement must be received by the Company’s Corporate Secretary at our executive offices on or before July 27, 2017. We will not permit stockholder proposals that do not comply with the foregoing notice requirement to be brought before the 2017 Annual Meeting of Stockholders.
| Paychex, Inc. 2016 Proxy Statement • 56 |
Appendix A |
PAYCHEX, INC. RECONCILIATION OF PERFORMANCE MEASURES TO THOSE REPORTED IN THE COMPANY’S CONSOLIDATED FINANCIAL STATEMENTS
Under the Company’s incentive compensation programs, performance targets are often based on measures of service revenue and operating income, net of certain items (see Footnote 2 to the tableNote 1 below regarding this non-GAAP measure). In evaluating achievement, the programs allow for certain adjustments to be made to the results reported in the consolidated financial statements. For fiscal 2016 and fiscal 2015, adjustments were related to businesses acquired.
The following table reconciles the results reported in our consolidated financial statements to those representing achievement under the award agreement for the July 20122014 performance shares.
| Year ended May 31, | ||||||||||||||||||||||||
Year ended May 31, | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2-Year Performance Period | 2016 | 2015 | 2-Year Performance Period | ||||||||||||||||||
Service revenue | $ | 2,478 | $ | 2,285 | $ | 4,763 | $ | 2,906 | $ | 2,698 | $ | 5,604 | ||||||||||||
Adjustments: | ||||||||||||||||||||||||
PEO direct cost adjustment(1) | (47) | — | (47) | |||||||||||||||||||||
Service revenue associated with acquired | (10) | (2) | (12) | (18 | ) | — | (18 | ) | ||||||||||||||||
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Service revenue, as calculated under the award | $ | 2,421 | $ | 2,283 | $ | 4,704 | $ | 2,888 | $ | 2,698 | $ | 5,586 | ||||||||||||
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Operating income (GAAP measure) | $ | 983 | $ | 905 | $ | 1,888 | $ | 1,147 | $ | 1,054 | $ | 2,201 | ||||||||||||
Less: Interest on funds held for clients | (41) | (41) | (82) | (46 | ) | (42 | ) | (88 | ) | |||||||||||||||
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Operating income, net of certain items(2) | 942 | 864 | 1,806 | |||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||
Operating loss, net of certain items, associated with acquired businesses | 1 | 1 | 2 | |||||||||||||||||||||
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| Operating income, net of certain items (see Note 1) | 1,101 | 1,012 | 2,113 | |||||||||||||||||||||
| Adjustments allowed under the award: | ||||||||||||||||||||||||
Operating income, net of certain items, associated with acquired businesses | (6 | ) | — | (6 | ) | |||||||||||||||||||
Operating income, net of certain items, as calculated under the award | $ | 943 | $ | 865 | $ | 1,808 | $ | 1,095 | $ | 1,012 | $ | 2,107 | ||||||||||||
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Note 1: Operating income, net of certain items, as reported in our consolidated financial statements is a non-GAAP measure that is provided in addition to operating income, a U.S. GAAP measure. We believe operating income, net of certain items, is an appropriate measure, as it is an indicator of our core business operations performance period over period. It is also the basis of the measure used internally for establishing the following year’s targets and measuring management’s performance in connection with certain performance-based compensation payments and awards. Operating income, net of certain items, excludes interest on funds held for clients. Interest on funds held for clients is an adjustment to operating income due to the volatility of interest rates, which are not within the control of management. Operating income, net of certain items, is not calculated through the application of GAAP and is not the required form of disclosure by the SEC. As such, it should not be considered as a substitute for the GAAP measure of operating income and, therefore, should not be used in isolation, but in conjunction with the GAAP measure. The use of any non-GAAP measure may produce results that vary from the GAAP measure, and may not be comparable to a similarly defined non-GAAP measure used by other companies.
PAYCHEX, INC. PEER GROUP
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ABOUT PAYCHEX Paychex, Inc. (NASDAQ:PAYX) is a leading provider of
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