SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
AUTOMATIC DATA PROCESSING, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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/ / Fee paid previously with preliminary materials.
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paid previously. Identify the previous filing by registration statement
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[ADP logo]
AUTOMATIC DATA PROCESSING, INC.
One ADP Boulevard o Roseland, New Jersey 07068
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
PLEASE TAKE NOTICE that the 2002 Annual Meeting of Stockholders of
AUTOMATIC DATA PROCESSING, INC. (the "Company") will be held at 10:00 a.m.,
Tuesday, November 12, 2002 at the Company's corporate headquarters, ONE ADP
BOULEVARD, ROSELAND, NEW JERSEY, for the following purposes:
1. To elect a Board of Directors (Proposal 1);
2. To ratify the appointment of Deloitte & Touche LLP to serve as the
Company's independent certified public accountants for the fiscal year
that began on July 1, 2002 (Proposal 2); and
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only the holders of Common Stock of record at the close of business on
September 13, 2002 (the "Record Date") are entitled to vote at the meeting. Each
stockholder is entitled to one vote for each share of Common Stock held on the
Record Date.
As a result of heightened security, to gain admission to the Annual
Meeting, you will need to show that you are a stockholder of the Company. If
your shares are registered in your name and you plan to attend the Annual
Meeting, please retain and bring the top portion of the proxy card as your
admission ticket. If your shares are in the name of your broker or bank or you
received your proxy materials electronically, you will need to bring evidence of
your stock ownership, such as your most recent brokerage account statement. All
stockholders will be required to show valid picture identification. If you do
not have valid picture identification and either an admission ticket or proof
that you own Company stock, you will not be admitted to the Annual Meeting.
Packages and bags will be inspected and they may have to be checked, among other
security measures that may be used for the security of those attending the
Annual Meeting; please arrive early enough to allow yourself adequate time to
clear security.
By order of the Board of Directors
JAMES B. BENSON
Secretary
September 23, 2002
Roseland, New Jersey
The presence in person and/or the representation by proxy of the holders of
a majority of the issued and outstanding shares of stock entitled to vote is
necessary and sufficient to constitute a quorum. Accordingly, if you do not
expect to be present at the meeting, you may vote your shares of stock by phone,
the Internet or by executing the accompanying proxy and returning it promptly in
the enclosed envelope, which requires no postage if mailed in the United States.
[ADP logo]
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
AUTOMATIC DATA PROCESSING, INC.
One ADP Boulevard o Roseland, New Jersey 07068
TO BE HELD ON NOVEMBER 12, 2002
SOLICITATION AND REVOCATION OF PROXY
The accompanying proxy is being solicited by the Board of Directors of the
Company for use at the forthcoming Annual Meeting of Stockholders. Each
stockholder giving such a proxy has the power to revoke the same at any time
before it is voted by so notifying the Secretary of the Company in writing. All
expenses in connection with the solicitation will be borne by the Company. This
Proxy Statement and the accompanying proxy are being mailed to stockholders on
or about September 23, 2002.
The Company has one class of securities outstanding and entitled to vote at
the Annual Meeting of Stockholders, its Common Stock, par value $.10 per share.
At the close of business on September 13, 2002, the record date for determining
stockholders entitled to notice of and to vote at the meeting, the Company had
issued and outstanding 602,746,239 shares of Common Stock (excluding 35,956,430
treasury shares not entitled to vote). Each outstanding share of Common Stock is
entitled to one vote with respect to each matter to be voted on at the meeting.
The representation in person or by proxy of a majority of the shares
entitled to vote shall constitute a quorum at the Annual Meeting of
Stockholders. Directors are elected by a plurality of the affirmative votes
cast. The affirmative vote of the holders of a majority of the outstanding
shares present in person or by proxy and entitled to vote thereon is required to
ratify the appointment of Deloitte & Touche LLP as the Company's independent
certified public accountants. Under the Company's Amended and Restated
Certificate of Incorporation and By-Laws and under Delaware law, abstentions and
"non-votes" are counted as present in determining whether the quorum requirement
is satisfied. With regard to the election of directors, votes may be cast in
favor or withheld. Votes that are withheld will be excluded entirely from the
vote and will have no effect. Abstentions may be specified on any proposal
(other than the election of directors) and will have the effect of a negative
vote. Under applicable Delaware law, a non-vote will have no effect on the
outcome of any of the matters referred to in this Proxy Statement. A non-vote
occurs when a nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the nominee does not
have discretionary voting power and has not received instructions from the
beneficial owner.
The Company's Board of Directors has adopted a policy whereby stockholders'
proxies are received by the Company's independent tabulators and the vote is
certified by independent inspectors of election. Proxies and ballots that
identify the vote of individual stockholders will be kept confidential from the
Company's management and directors, except as necessary to meet legal
requirements, in cases where stockholders request disclosure or in a contested
election.
PROPOSAL 1
ELECTION OF DIRECTORS
Properly executed proxies will be voted as marked, and if not marked, will
be voted in favor of the election of the persons named below (each of whom is
now a director) as directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified. If any
nominee does not remain a candidate at the time of the meeting (a situation
which management does not anticipate), proxies solicited hereunder will be voted
in favor of those nominees who do remain as candidates and may be voted for
substitute nominees designated by the Board of Directors.
Served as a
Director
Continuously
Name Age Since Principal Occupation
------ ----- ------------- ----------------------------------------------------------------------------
Gregory D. Brenneman 40 2001 President and Chief Executive Officer, PwC Consulting, a consulting firm (1)
Gary C. Butler 55 1996 President and Chief Operating Officer of the Company (2)
Joseph A. Califano, Jr. 71 1982 Chairman of the Board and President, The National Center on Addiction and
Substance Abuse at Columbia University (3)
Leon G. Cooperman 59 1991 Chairman and Chief Executive Officer, Omega Advisors, Inc., an investment
partnership (4)
George H. Heilmeier 66 1995 Chairman Emeritus of Telcordia Technologies (formerly Bellcore), a research
and engineering consortium (5)
Ann Dibble Jordan 67 1993 Consultant (6)
Harvey M. Krueger 73 1967 Vice Chairman of Lehman Brothers, investment bankers (7)
Frederic V. Malek 65 1978 Chairman, Thayer Capital Partners, a merchant banking firm (8)
Henry Taub 75 1961 Honorary Chairman of the Board of the Company (9)
Laurence A. Tisch 76 1972 Co-Chairman of Loews Corporation, a company engaged in the consumer products,
hotel and insurance businesses (10)
Arthur F. Weinbach 59 1989 Chairman of the Board and Chief Executive Officer of the Company (11)
Josh S. Weston 73 1977 Honorary Chairman of the Board of the Company (12)
- ------------------
(1) Mr. Brenneman has been President and Chief Executive Officer of PwC
Consulting since June 2002. Mr. Brenneman was Chairman and Chief
Executive Officer of TurnWorks, Inc. from May 2001 to June 2002.
Mr. Brenneman was the President and Chief Operating Officer of Continental
Airlines, Inc. from May 1995 to May 2001. Mr. Brenneman also serves on the
Board of Directors of The Home Depot, Inc. and J. Crew Group, Inc.
(2) Mr. Butler became President and Chief Operating Officer of the Company in
April 1998, having served as Group President of the Employer Services
Group of the Company since January 1995. He is also a director of
Convergys Corp. and Liberty Mutual Group.
2
(3) Mr. Califano has been Chairman of the Board and President of The National
Center on Addiction and Substance Abuse at Columbia University since 1992.
(4) Mr. Cooperman has been Chairman and Chief Executive Officer of Omega
Advisors, Inc. since 1991.
(5) Dr. Heilmeier has been Chairman Emeritus of Telcordia Technologies
(formerly Bellcore) since November 1997. Dr. Heilmeier served as Chairman
and Chief Executive Officer of Bellcore from January 1997 to November 1997
and President and Chief Executive Officer from April 1991 to January 1997.
Dr. Heilmeier is also a director of The MITRE Corporation, Teletech
Holdings Inc., INET, Inc. and TRW Inc.
(6) Ms. Jordan is the former Director, Social Services Department, Chicago
Lying-In Hospital, University of Chicago Medical Center, a position she
assumed in 1970. She is also a director of Johnson & Johnson Corporation
and Citigroup Inc.
(7) Mr. Krueger is Vice Chairman of Lehman Brothers and has been a senior
officer of Lehman Brothers and its predecessor companies for more than the
past five years. He is also a director of Chaus, Inc., Delta Galil
Industries Ltd. and R.G. Barry Corporation.
(8) Mr. Malek has been Chairman of Thayer Capital Partners since 1992. Mr.
Malek is also a director of Aegis Communications Group, Inc., American
Management Systems, Inc., FPL Group, Inc., Manor Care, Inc., Northwest
Airlines Corporation, Federal National Mortgage Association and various
UBS Brinson mutual funds.
(9) Mr. Taub has been Honorary Chairman of the Company's Board of Directors
since 1986.
(10) Mr. Tisch has been Co-Chairman of the Board of Directors of Loews
Corporation since January 1999. From October 1994 to January 1999, he was
Co-Chairman of the Board and Co-Chief Executive Officer of Loews
Corporation. Mr. Tisch has also been Chief Executive Officer of CNA
Financial Corporation since March 1990. He is also a director of Bulova
Corporation and CNA Financial Corporation.
(11) Mr. Weinbach became Chairman of the Board and Chief Executive Officer of
the Company in April 1998, having served as President and Chief Executive
Officer since August 1996 and President and Chief Operating Officer since
January 1994. He is also a director of First Data Corporation and Schering
Plough Corp.
(12) Mr. Weston became Honorary Chairman of the Company's Board of Directors in
April 1998. He served as Chairman of the Board of the Company from April
1986 to April 1998. He is also a director of Gentiva Health Services,
Inc., J. Crew Group, Inc., Russ Berrie & Company, Inc. and Aegis
Communications, Inc.
Stockholder Approval Required
Directors shall be elected by a plurality of the affirmative votes cast at
the meeting of stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS.
Corporate Governance
During the last fiscal year five meetings of the Board of Directors were
held. All directors attended at least 75%, in the aggregate, of the meetings of
the Board of Directors and the committees of which they were members.
The Board of Directors has adopted categorical standards of director
independence, which are attached as Appendix A to this Proxy Statement.
Directors who meet these standards are considered to be "independent." Messrs.
Brenneman, Califano, Cooperman, Heilmeier, Malek and Tisch and Ms. Jordan meet
these standards and are, therefore, considered to be independent directors.
Messrs. Butler, Krueger, Taub, Weinbach and Weston do not meet these standards
and are, therefore, not considered to be independent directors. Based on the
foregoing categorical standards, all current members of the Audit, Compensation
and Nominating/Corporate Governance Committees are independent.
3
The Company has a standing Audit Committee composed of Messrs. Califano and
Cooperman, and Ms. Jordan. Mr. Cooperman is the Chairman. The Audit Committee
acts under a written charter adopted by the Board of Directors (the "Audit
Committee Charter"), which is required to be provided to stockholders every
three fiscal years, unless amended earlier. The members of the Audit Committee
satisfy the independence requirements of the New York Stock Exchange (NYSE)
Rules currently in effect. The Audit Committee Charter, which was amended in
August 2002, is attached as Appendix B to this Proxy Statement and may also be
viewed online on the Company's website at www.adp.com. The principal functions
of the Audit Committee are to:
(i) assist the Board of Directors in fulfilling its oversight
responsibilities with respect to (a) the Company's systems of
internal controls regarding finance, accounting, legal compliance and
ethical behavior, (b) the Company's auditing, accounting and
financial reporting processes generally, (c) the Company's financial
statements and other financial information provided by the Company to
its stockholders, the public and others, (d) the Company's compliance
with legal and regulatory requirements, and (e) the performance of
the Company's corporate audit department and independent auditors;
(ii) appoint, compensate and oversee the work of the independent auditors
(including resolution of disagreements between management and the
independent auditors regarding financial reporting) for the purpose
of preparing its audit report or related work;
(iii) review in advance, and grant any appropriate pre-approvals of, (a)
all auditing services to be provided by the independent auditors and
(b) all non-audit services to be provided by the independent auditors
as permitted by applicable rules and regulations, and in connection
therewith to approve all fees and other terms of engagement;
(iv) review and approve disclosures required to be included in the
Securities and Exchange Commission (the "SEC") periodic reports filed
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with respect to non-audit services; and
(v) review the performance of the internal auditors and the independent
auditors on at least an annual basis.
The Audit Committee met four times during fiscal 2002.
The Company has a Compensation Committee composed of Messrs. Brenneman,
Heilmeier, Malek and Tisch. Mr. Malek is the Chairman. The Compensation
Committee acts under a written charter adopted by the Board of Directors, which
may be viewed online on the Company's website at www.adp.com. The principal
function of the Compensation Committee is to assist the Board of Directors in
discharging its responsibilities in respect of compensation of the Company's
executive officers by:
(i) evaluating the Chief Executive Officer's performance and setting the
Chief Executive Officer's compensation based on such evaluation;
(ii) developing guidelines and reviewing the compensation and performance
of officers of the Company and other Company associates; and
(iii) reviewing and approving criteria for granting bonuses and options to
officers of the Company.
The Compensation Committee, which also develops plans for managerial succession,
met three times during fiscal 2002.
The Company has a Nominating/Corporate Governance Committee composed of
Messrs. Cooperman, Heilmeier and Malek. Dr. Heilmeier is the Chairman. The
Nominating/Corporate Governance Committee acts under a written charter adopted
by the Board of Directors, which may be viewed online on the Company's website
at www.adp.com. The principal functions of the Nominating/Corporate Governance
Committee are to:
(i) develop policies on the size and composition of the Board of
Directors;
(ii) identify individuals qualified to become members of the Board of
Directors and review candidates for Board membership;
4
(iii) recommend a slate of nominees to the Board of Directors annually;
(iv) ensure that the Audit, Compensation and Nominating/Corporate
Governance Committees of the Board of Directors have the benefit of
qualified and experienced independent directors;
(v) review and reassess the adequacy of the Board of Directors' corporate
governance principles (which principles may be viewed online on the
Company's website at www.adp.com) and recommend changes to such
principles annually; and
(vi) advise the full Board of Directors on corporate governance matters.
The Nominating/Corporate Governance Committee will consider recommendations for
nominees for directorships submitted by stockholders. Stockholders who wish the
Nominating/Corporate Governance Committee to consider their recommendations for
nominees for the position of director should submit their recommendations in
writing to the Nominating/Corporate Governance Committee in care of the
Secretary of the Company at the Company's principal executive offices. The
Nominating/Corporate Governance Committee met three times during fiscal 2002.
The Company has an Executive Committee composed of Messrs. Cooperman,
Heilmeier, Krueger, Malek, Taub, Weinbach and Weston. Mr. Krueger is the
Chairman. The function of the Executive Committee is to act in the absence of
the Board of Directors. The Executive Committee met two times during fiscal
2002.
Non-employee directors are paid an annual retainer of $35,000, plus $1,500
for each Board of Directors meeting attended. In addition, non-employee
directors are paid $1,000 for each committee meeting attended, if such committee
meeting is held on the same day a Board of Directors meeting is held; otherwise,
non-employee directors are paid $1,500 for each committee meeting attended.
Further, each non-employee director acting as chairperson of a committee is paid
an additional annual retainer of $5,000. Non-employee directors may elect to
defer receipt of the above amounts. There are no fees paid to employee directors
or other fee arrangements provided by the Company.
The non-employee directors of the Company are entitled to participate in
the 1989 Non-Employee Director Stock Option Plan (the "Directors' Plan")
pursuant to which options to purchase 12,500 shares of Common Stock will
automatically be granted to persons who become non-employee directors. In
addition, each non-employee director will be granted an additional option to
purchase 12,500 shares on the first business day after each fifth anniversary of
the date of the initial grant to each such non-employee director, provided that
he or she is then still serving in such capacity. The Directors' Plan was
adopted on November 2, 1989 and will remain in effect until terminated by action
of the Board of Directors. All options have been and will be granted at the fair
market value of the Common Stock, determined on the basis of the closing price
of the Common Stock in consolidated trading on the date of grant, as reported in
The Wall Street Journal. Twenty percent of the options granted under the
Directors' Plan become exercisable on the first anniversary of the date such
options are granted, and twenty percent become exercisable on each successive
anniversary date thereafter until all such options are exercisable, provided
that options become exercisable only if the director is then still serving in
such capacity, unless certain specified events occur such as the death,
disability or retirement of a director, in which case the options shall
immediately vest and become fully exercisable. All options granted under the
Directors' Plan have a term of ten years. Options to purchase 12,500 shares of
Common Stock at an exercise price of $48.35 per share were granted to Mr.
Brenneman under the Directors' Plan in fiscal 2002.
Any person who first becomes a non-employee director after August 13, 1997
is not eligible to receive a pension from the Company. A non-employee director
(who was a director on August 13, 1997) who retires after 20 years of service in
such capacity and having attained the age of 70 will receive a pension of
$25,000 per year for the remainder of his or her life. If such non-employee
director retires after having attained the age of 65 with 15 years of service,
he or she will receive a pension of $12,500 per year.
The mandatory retirement age for directors is 72, except as noted below.
The Board of Directors may, upon the recommendation of the Nominating/Corporate
Governance Committee made annually, waive the mandatory retirement age
requirement for any director, except persons who first become directors after
May 14, 2002. The
5
Board of Directors waived the mandatory retirement age requirement for Messrs.
Krueger, Taub, Tisch and Weston based on their respective contributions to and
involvement in the Board of Directors so that they may be nominated at the 2002
Annual Meeting to serve as directors for the upcoming year. Notwithstanding the
foregoing annual waiver procedure, the oldest member of the Board of Directors
shall automatically retire at the Company's 2003 annual meeting of stockholders.
The next oldest member of the Board of Directors shall automatically retire at
the Company's 2004 annual meeting of stockholders. This "then oldest director"
automatic retirement process shall continue until there are no directors over
the age of 72. Thereafter, all directors will automatically retire from the
Board of Directors at the Company's annual meeting of stockholders following the
date he or she turns 72. This "then oldest director" automatic retirement
procedure portion of the Board of Directors' retirement policy does not apply to
Henry Taub, the Company's founder. Management directors who are no longer
officers of the Company are required to resign from the Board of Directors.
However, the Company's Chief Executive Officer may, provided the Board of
Directors approves, continue to serve as a director for a transition period of
up to one year after the date he or she ceases to be the Company's Chief
Executive Officer.
The Company has adopted a procedure by which the presiding director at
executive sessions of the Board of Directors shall change each meeting and shall
revolve, consecutively, among the chairpersons of the Audit, Compensation and
Nominating/Corporate Governance Committees.
Security Ownership of Certain Beneficial Owners and Managers
The following table contains information as of August 31, 2002 with respect
to the beneficial ownership of Common Stock by (i) each director and nominee for
director of the Company, (ii) each of the executive officers of the Company
named in the Summary Compensation Table, and (iii) all directors and executive
officers of the Company as a group (including the named individuals). Unless
otherwise noted in the footnotes following the table, the persons as to whom the
information is given had sole voting and investment power over the shares of
Common Stock shown as beneficially owned. To the knowledge of the management of
the Company, no person beneficially owned as of August 31, 2002 more than 5% of
the outstanding shares of the Company's Common Stock.
Shares of Common Stock
Name Beneficially Owned (1) Percent
- ------ ---------------------- -------
Gregory D. Brenneman.............................................. 2,500 *
Gary C. Butler.................................................... 713,649 *
Joseph A. Califano, Jr. (2)....................................... 26,600 *
Leon G. Cooperman (3)............................................. 65,483 *
Richard J. Daly................................................... 376,335 *
Russell P. Fradin................................................. 425,150 *
Eugene A. Hall.................................................... 207,457 *
George H. Heilmeier............................................... 23,400 *
John Hogan........................................................ 319,138 *
Ann Dibble Jordan................................................. 32,400 *
Harvey M. Krueger (4)............................................. 100,258 *
Frederic V. Malek (5)............................................. 31,000 *
S. Michael Martone ............................................... 121,993 *
Henry Taub (6).................................................... 6,355,147 1.05%
Laurence A. Tisch................................................. 2,500 *
Arthur F. Weinbach (7)............................................ 1,352,401 *
Josh S. Weston.................................................... 636,441 *
Directors and Executive Officers as a group (26 persons,
including those Directors and Officers named above) (8)...... 11,436,320 1.89%
- -----------------------
* Indicates less than one percent.
6
(1) Includes shares that may be acquired upon the exercise of options granted
by the Company that are exercisable on or prior to October 30, 2002. The
shares beneficially owned include (i) the following shares subject to such
options granted to the Directors and Executive Officers indicated: 2,500
(Mr. Brenneman), 356,000 (Mr. Butler), 23,000 (Mr. Califano), 10,000 (Mr.
Cooperman), 288,125 (Mr. Daly), 276,500 (Mr. Fradin), 165,825 (Mr. Hall),
23,000 (Dr. Heilmeier), 277,325 (Mr. Hogan), 32,000 (Ms. Jordan), 23,000
(Mr. Krueger), 23,000 (Mr. Malek), 59,375 (Mr. Martone) and 812,125
(Mr. Weinbach) and (ii) 2,842,083 shares subject to such options granted
to the Directors and Executive Officers as a group.
(2) Excludes an aggregate of 2,800 shares of Common Stock of the Company that
are owned outright by members of Mr. Califano's immediate family or by
charitable trusts of which members of Mr. Califano's immediate family were
potential beneficiaries. Mr. Califano disclaims beneficial ownership of
such shares.
(3) Includes 30,483 shares, representing the gain resulting from the exercise
of an option to purchase 40,000 shares of Common Stock on October 15,
2001. Mr. Cooperman has elected to defer receipt of the shares
representing such gain.
(4) Includes 35,258 shares, representing the gain resulting from the exercise
of an option to purchase 40,000 shares of Common Stock on November 1,
1999. Mr. Krueger has elected to defer receipt of the shares representing
such gain.
(5) Excludes an aggregate of 3,200 shares of Common Stock of the Company that
are owned outright by members of Mr. Malek's immediate family or by
charitable trusts of which members of Mr. Malek's immediate family were
potential beneficiaries. Mr. Malek disclaims beneficial ownership of such
shares.
(6) Excludes an aggregate of 299,358 shares of Common Stock of the Company
that are owned outright by members of Mr. Taub's immediate family or by
charitable trusts of which members of Mr. Taub's immediate family were
potential beneficiaries. Mr. Taub disclaims beneficial ownership of such
shares.
(7) Includes 78,616 shares, representing (i) a gain of 42,877 shares resulting
from the exercise of an option to purchase 50,000 shares of Common Stock
on August 19, 1999 and (ii) a gain of 35,739 shares resulting from the
exercise of an option to purchase 40,000 shares of Common Stock on October
6, 2000. In each case, Mr. Weinbach has elected to defer receipt of the
shares representing such gain.
(8) Excludes an aggregate of 3,388 shares of Common Stock of the Company owned
by members of the immediate families of non-director officers of the
Company. The non-director officers of the Company disclaim beneficial
ownership of such shares.
7
COMPENSATION OF EXECUTIVE OFFICERS
The following sections of this Proxy Statement cover the components of the
total compensation of the Company's Chief Executive Officer and the six other
most highly compensated executive officers of the Company. These sections
include: (i) a series of tables covering annual and long-term compensation; (ii)
a pension plan table summarizing the annual benefits payable under the Company's
defined benefit retirement plans; and (iii) a report by the Compensation
Committee of the Board of Directors describing the Company's compensation
policies for fiscal 2002 for its executive officers and the rationale upon which
its Chief Executive Officer's compensation for fiscal 2002 was based. Also
included is a performance graph comparing the Company's total stockholder return
to the S&P 500 and a Peer Group Index over a five year period.
Summary Compensation Table
The following table summarizes the compensation of the Company's Chief
Executive Officer and the six other most highly compensated executive officers
for services in all capacities to the Company for the three years ended June 30,
2002.
Annual
Compensation (1) Long-Term Compensation
-------------------------- ----------------------------
Number of
Securities
Year Restricted Underlying
Name and Ended Stock Options All other
Principal Position June 30, Salary Bonus Awards Granted Compensation
- ------------------ -------- ------ ------ ------ -------- ------------
(2) (3) (4)
Arthur F. Weinbach 2002 $735,000 $173,500 $1,452,776 182,125 $6,833
Chairman and Chief 2001 $721,250 $450,000 $ -- 170,000 $7,089
Executive Officer 2000 $687,500 $560,000 $2,002,020 160,000 $5,840
Gary C. Butler 2002 $620,000 $108,500 $ -- 108,000 $6,289
President and Chief 2001 $607,500 $299,000 $2,424,105 100,000 $6,443
Operating Officer 2000 $578,750 $400,000 $ -- 160,000 $5,793
Russell P. Fradin 2002 $493,750 $112,600 $ -- 46,500 $5,149
Group President 2001 $483,750 $214,500 $2,353,500 40,000 $5,242
2000 $458,750 $284,500 $ -- 40,000 $4,504
Eugene A. Hall 2002 $363,600 $118,271 $ -- 29,325 $5,019
Senior Vice President 2001 $355,000 $240,021 $ -- 50,000 $5,066
2000 $336,250 $210,000 $ -- 50,000 $3,441
S. Michael Martone 2002 $362,308 $117,058 $ -- 29,375 $6,073
Group President 2001 $354,615 $153,000 $1,063,620 25,000 $ --
2000 $338,958 $151,500 $ -- 25,000 $ --
Richard J. Daly 2002 $392,308 $72,023 $1,286,064 29,125 $6,148
Group President 2001 $383,269 $147,700 $ -- 25,000 $6,240
2000 $359,615 $211,800 $1,120,560 31,000 $5,302
John Hogan 2002 $392,308 $64,750 $1,286,064 29,125 $6,105
Group President 2001 $383,269 $148,500 $ -- 25,000 $6,165
2000 $359,615 $209,100 $1,120,560 31,000 $13,640
- ---------------------
(1) None of the named executive officers received any perquisites or other
personal benefits of an amount, or any other annual compensation of a
type, required to be reported by the SEC pursuant to applicable rules and
regulations.
(2) The dollar values shown in the Restricted Stock Awards column are based on
the closing market price of the Common Stock on the date the restricted
shares were granted. Restricted shares may not be transferred or pledged,
but such Company-imposed restrictions lapse with the passage of time
(generally over periods of up to five years) and continued employment with
the Company.
8
As of June 30, 2002, the aggregate number of shares of restricted stock
held by a named executive officer and the aggregate fair market value of
such shares (calculated by multiplying the aggregate number of shares held
by such named executive officer by the difference between $43.55, the
closing price of the Common Stock on June 30, 2002, and $.10, the
consideration paid per share of restricted stock) was: Mr. Weinbach,
48,800 shares ($2,120,360); Mr. Butler, 41,200 shares ($1,790,140); Mr.
Fradin, 40,000 shares ($1,738,000); Mr. Hall, 30,000 shares ($1,303,500);
Mr. Martone, 18,000 shares ($782,100); Mr. Daly, 32,400 shares
($1,407,780); and Mr. Hogan, 32,400 shares ($1,407,780).
The restricted stock awards to the named executive officers reported in
the table that vest, in whole or in part, in under four years from the
date of grant, together with their vesting schedule, are as follows:
(i) Mr. Weinbach received a grant of 24,400 shares of restricted stock
in fiscal 2002, 24,400 of which will vest in fiscal 2004. In
addition, Mr. Weinbach received a grant of 48,800 shares of
restricted stock in fiscal 2000, 24,400 of which vested in fiscal
2002 and 24,400 of which will vest in fiscal 2003.
(ii) Mr. Butler received a grant of 41,200 shares of restricted stock in
fiscal 2001, 20,600 of which will vest in each of fiscal 2003 and
2004.
(iii) Mr. Fradin received a grant of 40,000 shares of restricted stock in
fiscal 2001, 20,000 of which will vest in each of fiscal 2003 and
2004.
(iv) Mr. Hall received a grant of 60,000 shares of restricted stock in
fiscal 1999, 10,000 of which vested in each of fiscal 2000, 2001
and 2002, and 10,000 of which will vest in each of fiscal 2003,
2004 and 2005.
(v) Mr. Martone received a grant of 18,000 shares of restricted stock
in fiscal 2001, 9,000 of which will vest in each of fiscal 2003 and
2004.
(vi) Mr. Daly received a grant of 21,600 shares of restricted stock in
fiscal 2002, 10,800 of which will vest in each of fiscal 2004 and
2005. In addition, Mr. Daly received a grant of 22,400 shares of
restricted stock in fiscal 2000, of which 800 vested in fiscal
2001, 10,800 vested in fiscal 2002 and 10,800 will vest in 2003.
(vii) Mr. Hogan received a grant of 21,600 shares of restricted stock in
fiscal 2002, 10,800 of which will vest in each of fiscal 2004 and
2005. In addition, Mr. Hogan received a grant of 22,400 shares of
restricted stock in fiscal 2000, of which 800 vested in fiscal
2001, 10,800 vested in fiscal 2002 and 10,800 will vest in 2003.
Dividends are paid on restricted stock at the same rate as other
outstanding shares of the Company's Common Stock. In the event of a
termination of their employment following a change in control of the
Company, the unvested portion of the restricted stock of Messrs. Weinbach
and Butler will be subject to accelerated vesting as further described in
this Proxy Statement under the heading "Employment Agreements." In the
event of a termination of their employment following a change in control
of the Company, the unvested portion of the restricted stock of Messrs.
Fradin, Hall, Martone, Daly and Hogan will be subject to accelerated
vesting as further described in this Proxy Statement under the heading
"Change in Control Severance Plan for Corporate Officers."
(3) The Company does not award Stock Appreciation Rights (SARs).
(4) For the year ended June 30, 2002, all other compensation consists of the
sum of: (i) Company matching contributions to the Company's Retirement and
Savings Plan (401(k)) in the following amounts: Mr. Weinbach, $5,916,
Mr. Butler, $5,916, Mr. Fradin, $4,896, Mr. Hall, $4,896, Mr. Martone,
$5,916, Mr. Daly, $5,916, and Mr. Hogan, $5,916; and (ii) compensatory
split-dollar insurance premiums (with a statistically calculated economic
benefit to the executive determined by Phoenix Home Life Insurance Company
for W-2 income purposes) in the following amounts: Mr. Weinbach, $917, Mr.
Butler, $373, Mr. Fradin, $253, Mr. Hall, $123, Mr. Martone, $157, Mr.
Daly, $232, and Mr. Hogan, $189.
9
Stock Option Plans
The Company has in effect a 1990 Key Employees' Stock Option Plan (the
"1990 Plan") and a 2000 Key Employees' Stock Option Plan (the "2000 Plan"). The
1990 Plan and the 2000 Plan collectively are referred to as the "Option Plans."
Officers and key employees are eligible to participate in the Option Plans,
which permit the issuance, in addition to non-qualified options, of "incentive
stock options" ("ISOs") within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Company has ceased granting
options under the 1990 Plan, but outstanding options under the 1990 Plan remain
valid. In the event of a termination of their employment following a change in
control of the Company, the unvested portion of the stock options of Messrs.
Weinbach and Butler will be subject to accelerated vesting as further described
in this Proxy Statement under the heading "Employment Agreements." In the event
of a termination of their employment following a change in control of the
Company, the unvested portion of the stock options of Messrs. Fradin, Hall,
Martone, Daly and Hogan will be subject to accelerated vesting as further
described in this Proxy Statement under the heading "Change in Control Severance
Plan for Corporate Officers."
The Option Plans are administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has the authority to determine
the employees to whom options will be granted and, subject to the Option Plans,
the terms and amount of options granted.
ISOs and non-qualified options expire no more than ten years from their
date of grant, with an exercise price no less than 100% of the fair market value
on the date of grant. The Board of Directors has resolved that once granted no
ISO or non-qualified option may be repriced.
An optionee has no rights as a stockholder with respect to any shares
covered by his or her options until the date of issuance of a stock certificate
to him or her for such shares. During the life of the optionee, the option is
exercisable only by him or her. No option is exercisable more than 60 days after
termination of employment, or (if termination is due to the death of an
optionee) more than six months after the appointment and qualification of an
executor or administrator of the deceased optionee's estate or 12 months after
the death of the optionee, whichever occurs earlier.
The following table sets forth certain information concerning stock option
grants to the named executive officers during the fiscal year ended June 30,
2002.
Option Grants in Last Fiscal Year
---------------------------------------------------------------
Number of Percent of Total
Securities Options
Underlying Granted
Options to Employees Exercise Grant Date
Granted in Fiscal Year Price Expiration Value
Name (#) (1) (%) ($/Share) Date ($) (2)
- ----------- ----------- --------------- --------- ---------- ----------
Arthur F. Weinbach............................ 170,000 1.57% $48.3600 08/13/11 $2,441,626
12,125 0.11% $43.5000 09/21/11 $168,065
Gary C. Butler................................ 100,000 0.92% $48.3600 08/13/11 $1,489,128
8,000 0.07% $43.5000 09/21/11 $110,888
Russell P. Fradin............................. 40,000 0.37% $49.3400 10/22/11 $562,029
6,500 0.06% $43.5000 09/21/11 $90,097
Eugene A. Hall................................ 25,000 0.23% $49.3400 10/22/11 $350,713
4,325 0.04% $43.5000 09/21/11 $59,949
S. Michael Martone............................ 25,000 0.23% $53.0800 05/14/12 $420,267
4,375 0.04% $43.5000 09/21/11 $60,642
Richard J. Daly............................... 25,000 0.23% $49.3400 10/22/11 $342,220
4,125 0.04% $43.5000 09/21/11 $57,177
John Hogan.................................... 25,000 0.23% $49.3400 10/22/11 $342,220
4,125 0.04% $43.5000 09/21/11 $57,177
- -----------------------
(1) 453,575 options were granted pursuant to the 2000 Plan. The options were
granted at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. The options were granted for
terms of ten years, and vest during periods of up to six years subsequent
to the date of grant.
10
(2) The grant date values were calculated on the basis of the Black-Scholes
option pricing model. Options were assumed to be exercised 6.3 years after
the date of grant, based on historical experience. A risk-free interest
rate of 4.86%, stock price volatility of 26.70% and a dividend yield of
0.73% was used in the calculation of the option grants to Messrs. Weinbach
and Butler expiring on August 13, 2011. A risk-free interest rate of
4.29%, stock price volatility of 26.34% and a dividend yield of 0.72% was
used in the calculation for the option grants to Messrs. Fradin, Hall,
Daly and Hogan expiring on October 22, 2011. A risk-free interest rate of
5.16%, stock price volatility of 27.87% and a dividend yield of 0.74% was
used in the calculation for the option grant to Mr. Martone expiring on
May 14, 2012. A risk-free interest rate of 4.41%, stock price volatility
of 25.93% and a dividend yield of 0.72% was used in the calculation of the
option grants to Messrs. Weinbach, Butler, Fradin, Hall, Martone, Daly and
Hogan expiring on September 21, 2011. A discount factor of 3% was applied
to the calculated value to reflect the risk of forfeiture during the
option term. The actual value of the options will depend on the market
value of the Company's Common Stock on the dates the options are
exercised. No realization of value from the options is possible without an
increase in the price of the Company's Common Stock, which would benefit
all stockholders commensurately.
Aggregated Option Exercises
For Fiscal Year Ended June 30, 2002
And Option Values As Of June 30, 2002
The following table sets forth certain information concerning option
exercises during the last fiscal year by the named executive officers and
unexercised options held by such officers at the end of the last fiscal year.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Options at 6/30/02 at 6/30/02
On Exercise Value Realized (#) ($)
(#) ($) ------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------
--------------- -------------- ----------- ------------- ----------- -------------
Arthur F. Weinbach............ 40,000 $1,769,077 640,000 812,125 $16,644,000 $4,910,000
Gary C. Butler................ 0 $0 288,000 348,000 $4,551,400 $146,800
Russell P. Fradin............. 0 $0 270,000 186,500 $5,284,500 $1,126,500
Eugene A. Hall................ 0 $0 114,900 194,425 $864,000 $863,750
S. Michael Martone............ 140,000 $5,186,071 55,000 122,375 $460,000 $407,778
Richard J. Daly............... 30,000 $1,294,650 264,000 171,125 $6,055,200 $896,100
John Hogan.................... 67,000 $2,867,190 253,200 171,125 $6,102,500 $779,100
Defined Benefit Plans
The following table shows the estimated annual retirement benefits payable
under the Company's retirement program, consisting of the Retirement Capital
Accumulation Plan (the "Pension Plan") and the Supplemental Officers' Retirement
Plan (the "Supplemental Retirement Plan"), to persons in specified average
compensation and credited service classifications, assuming retirement at age
65.
Final
5-Year Average Years of Credited Service at Retirement
----------------------------------------------------------------------
Compensation 10 15 20 25 30
--------------- ----------- ------------ ------------ ----------- -----------
$ 400,000 $ 69,000 $108,000 $132,000 $152,000 $181,000
500,000 84,000 131,000 157,000 177,000 206,000
600,000 99,000 153,000 182,000 202,000 231,000
700,000 114,000 176,000 207,000 227,000 256,000
800,000 129,000 198,000 230,000 252,000 281,000
900,000 144,000 221,000 257,000 277,000 306,000
1,000,000 159,000 243,000 282,000 302,000 331,000
Compensation covered by the Pension Plan is limited to January 1 base
salary up to the current compensation limit in effect for the plan year.
Compensation covered under the Supplemental Retirement Plan includes cash
compensation (paid or deferred) and compensation from restricted stock vesting
during the year.
11
Benefits under the Supplemental Retirement Plan are subject to reduction for
social security, Pension Plan and 401(k) benefits.
Messrs. Weinbach, Butler, Fradin, Hall, Martone, Daly and Hogan have 21,
26, 4, 2, 14, 12 and 8 years of credited service, respectively, under the
Pension Plan and 13, 13, 5, 3, 7, 8 and 7 years of credited service,
respectively, under the Supplemental Retirement Plan. In addition, unless his
employment is terminated for cause, Mr. Weinbach will receive the maximum
benefits available under the Supplemental Retirement Plan, and his benefit will
not be reduced for commencement prior to age 65 as long as the Compensation
Committee deems his retirement prior to age 65 is in the Company's best
interest. The figures shown on the table above are for a straight-life annuity
commencing at age 65. Reduced benefits are available at earlier ages and in
other forms of benefits.
Change in Control Severance Plan for Corporate Officers
To aid the Company in retaining its officers, the Company has in effect the
Automatic Data Processing, Inc. Change in Control Severance Plan for Corporate
Officers (the "CIC Plan"), which provides for the payment of specified benefits
to officers selected by the Board if their employment terminates after a "change
in control" (as defined below) of the Company. All corporate officers of the
Company ("Participants") participate in the CIC Plan. As of August 31, 2002,
there were 28 Participants in the CIC Plan.
The CIC Plan provides that Participants who are terminated by the Company
without "cause" (as defined in the CIC Plan) or by the Participant for "good
reason" (as defined in the CIC Plan) (a "Qualifying Termination") during the
two-year period following the occurrence of a change in control will receive a
payment equal to 150% of such Participant's "current total annual compensation."
Participants who have a Qualifying Termination during the third year following
the occurrence of a change in control will receive a payment equal to 100% of
such Participant's current total annual compensation. A Participant's "current
total annual compensation" equals his or her highest rate of annual salary
during the calendar year in which his or her employment terminates or the year
immediately prior to the year of such termination plus his or her average annual
bonus compensation earned in respect of the two most recent calendar years
immediately preceding the calendar year in which his or her employment
terminates.
In addition to the payments described in the preceding paragraph, options
to purchase Company stock held by Participants who have a Qualifying Termination
during the two-year period following the occurrence of a change in control will
become fully vested and exercisable. Options to purchase Company stock held by
Participants who have a Qualifying Termination during the third year following
the occurrence of a change in control will become fully vested and exercisable
to the extent that such options would have otherwise vested within one year
after the Qualifying Termination.
Likewise, restricted shares of Company stock ("Restricted Shares") held by
Participants who have a Qualifying Termination during the two-year period
following the occurrence of a change in control will become fully vested as to
those Restricted Shares for which vesting restrictions would otherwise have
lapsed within two years after the Qualifying Termination. Restricted Shares held
by Participants who have a Qualifying Termination during the third year
following the occurrence of a change in control will become fully vested to the
extent that vesting restrictions would have lapsed within one year after the
Qualifying Termination.
Generally, the CIC Plan supersedes any other change in control severance
plans, policies and practices of the Company with respect to the Participants.
Messrs. Weinbach and Butler are entitled to receive the greater of the benefits
and payments and more favorable conditions provided under their employment
agreements and the CIC Plan on an item-by-item basis.
A "change in control" as defined in the CIC Plan will have occurred if (i)
any "Person" (as defined in Section 3(a)(9) of the Exchange Act), excluding the
Company, any subsidiary of the Company, or any employee benefit plan sponsored
or maintained by the Company (including any trustee of any such plan acting in
its capacity as trustee), becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 35% or
more of the total combined voting power of the Company's then
12
outstanding securities; (ii) there occurs a merger, consolidation or other
business combination of the Company (a "Transaction"), other than a Transaction
immediately following which the stockholders of the Company immediately prior to
the Transaction continue to be the beneficial owners of securities of the
resulting entity representing more than 65% of the voting power in the resulting
entity, in substantially the same proportions as their ownership of Company
voting securities immediately prior to the Transaction; or (iii) there occurs
the sale of all or substantially all of the Company's assets, other than a sale
immediately following which the stockholders of the Company immediately prior to
the sale are the beneficial owners of securities of the purchasing entity
representing more than 65% of the voting power in the purchasing entity, in
substantially the same proportions as their ownership of Company voting
securities immediately prior to the Transaction. If instructed by a Participant,
the Company will reduce payments under the CIC Plan to avoid the application of
excise taxes pursuant to section 4999 of the Code.
Employment Agreements
Arthur F. Weinbach entered into an employment agreement with the Company as
of August 13, 2001. The agreement provides for successive one-year terms unless
terminated by the Company or Mr. Weinbach at least six months prior to the end
of the applicable one-year term. Mr. Weinbach's annual base salary is to be no
less than $750,000, and his annual target bonus is to be no less than $485,000.
The actual bonus paid to Mr. Weinbach is based upon his accomplishment of
pre-established performance goals that include business growth and increased
profitability. The agreement provides that Mr. Weinbach is to be granted
performance-based restricted stock awards for a number of shares so that
restrictions may lapse in each fiscal year of the Company on shares with a
market value on the date of the award of at least $1,000,000. The agreement also
provides that Mr. Weinbach will at all times own sufficient shares of restricted
stock such that restrictions may lapse during each of the following two fiscal
years on a number of shares having a market value on the date of their award of
at least $1,000,000. The agreement further provides that Mr. Weinbach is to be
granted, on an annual basis, a minimum of 170,000 options to purchase shares of
Common Stock and that all options to purchase Common Stock not yet vested at the
time of Mr. Weinbach's retirement would fully vest upon his retirement. If the
Company terminates Mr. Weinbach's employment without cause, then he is entitled
to receive his base salary for 18 months and continue to vest in his restricted
stock awards and stock options. If Mr. Weinbach's employment is terminated
following a "change in control" (as defined below) of the Company, he will
receive a termination payment equal to a percentage, ranging from 300% if such
termination occurs within two years after such change in control to 100% if it
occurs after the third year, of his annual base salary and his "current total
annual compensation" (as defined below). In addition, all of his stock options
will become fully vested and all of his restricted stock having restrictions
lapsing within three years after such termination shall have such restrictions
automatically removed.
The definition of a "change in control" in Mr. Weinbach's employment
agreement is the same as the definition of a "change in control" under the CIC
Plan except for the percentage in clause (i) of such CIC Plan definition which
is 25% under Mr. Weinbach's employment agreement.
Mr. Weinbach's "current total annual compensation" equals his highest rate
of annual salary during the calendar year in which his employment terminates or
the year immediately prior to the year of such termination plus his average
annual bonus compensation earned in respect of the two most recent calendar
years immediately preceding the calendar year in which his employment
terminates. Mr. Weinbach's employment agreement provides that in the event any
payment from the Company to him results in the imposition of an excise tax under
section 4999 of the Code, he will receive an additional payment such that after
the payment of all such excise taxes and any taxes on the additional payments he
will be in the same after-tax position as if no excise tax had been imposed.
Mr. Butler entered into an agreement with the Company that provides that if
his employment is terminated following a "change in control" (as defined below)
of the Company, he will receive a termination payment equal to a percentage,
ranging from 200% if such termination occurs within two years of such change in
control to 100% if it occurs after the third year, of his annual base salary and
his average annual bonus for the prior two years. In addition, all of his stock
options will become fully vested and all of his restricted stock having
restrictions lapsing within three years after such termination shall have such
restrictions automatically removed.
13
The definition of a "change in control" in Mr. Butler's employment
agreement, as modified by the CIC Plan, is the same as the definition of a
"change in control" under Mr. Weinbach's employment agreement noted above.
Mr. Butler's employment agreement provides that in the event any payment
from the Company to him results in the imposition of an excise tax under section
4999 of the Code, he will receive an additional payment such that after the
payment of all such excise taxes and any taxes on the additional payments he
will be in the same after-tax position as if no excise tax had been imposed.
Certain Transactions
Harvey M. Krueger, a director of the Company, is Vice Chairman of Lehman
Brothers, which provided various investment banking and brokerage services to
the Company in the past fiscal year.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Compensation Committee of the Board of Directors is comprised of four
independent directors: Messrs. Brenneman, Heilmeier, Malek and Tisch.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") acts
under a written charter adopted by the Board of Directors, which may be viewed
online on the Company's website at www.adp.com. The Committee is responsible for
setting, on behalf of the Board of Directors, the base salaries and the total
compensation levels of the Chairman and Chief Executive Officer, the President
and Chief Operating Officer, the Senior Vice President and the Group Presidents
of the Employer Services, Brokerage Services and Dealer Services businesses, as
well as a structure for other key executives of the Company. The Committee
grants all stock options and reviews all recommendations for grants of
restricted stock to these and other key executives.
Compensation Policies
The Company's executive compensation policies for fiscal 2002, which were
reviewed by the Committee, were designed to emphasize both competitive and
variable compensation, with direct links to business objectives and exceptional
performance.
The primary components of the compensation package for key executives for
fiscal 2002 were base salary, bonus, restricted stock and stock options. The
Company and the Committee have always believed that stock ownership in the form
of restricted stock and longer-term stock option vesting is vital in linking
management to stockholder interests. The Company sets its total annual
compensation target (as described below) at the median of market range levels of
comparable sized companies in the S&P 500. The Company's executives may derive
more economic benefit from stock option price appreciation, as a percentage of
total compensation, than from base salary and bonus combined. The Committee
generally intends to cause all eligible compensation to be exempt from the
limitations of section 162(m) of the Code, but reserves the right to make
non-exempt awards where appropriate.
Annual Compensation
Total annual compensation consists of base salary, cash bonus and yearly
vesting of restricted stock. The base salaries for executives for fiscal 2002
were determined based upon the job grade of the position, the salary range of
the job grade and the performance of the executive.
Key executives earned cash bonuses in fiscal 2002 based upon individual
annual accomplishments versus individual pre-established goals.
Long-Term Compensation
Long-term compensation is comprised of restricted stock and the expected
value of stock options. The Company has from time to time sold shares of
restricted stock to executive officers and other key employees, at
14
par value, in recognition of their individual levels of relative responsibility
and prospective contributions to the business. Company-imposed restrictions on
transfer or pledge of the restricted stock generally lapse over a period of up
to five years, and are subject to continued employment. The restricted stock
plan is designed to encourage stock ownership, longevity and long-term
performance.
Stock options are granted to executive officers and other key employees in
amounts based upon their job grade and individual performance. Stock options are
granted at fair market value as of the date of grant, and have a term of up to
ten years. Stock options provide incentive for the creation of stockholder value
over the long-term, and also significantly aid in executive recruiting and
retention.
Restricted stock and stock option grants were made to individual key
executives during fiscal 2002 on a basis consistent with the above guidelines.
Benefits
The Company provided certain supplemental benefits to key executives during
fiscal 2002 to ensure that it could compete effectively for executive talent.
These supplemental benefits included additional Company-paid life insurance and
certain additional retirement benefits described in the "Defined Benefit Plans"
section of this Proxy Statement.
CEO Compensation
The Committee meets annually to evaluate the performance of the Chief
Executive Officer and to determine his compensation.
Mr. Weinbach received a base salary of $735,000 and a bonus of $173,500
during fiscal 2002. Mr. Weinbach's compensation is based on the satisfaction of
specific performance objectives and the terms of his employment agreement. Mr.
Weinbach's compensation is below the median base salary and bonus compensation
of chief executive officers at companies in the S&P 500 with annual revenues
between $3 and $12 billion, as surveyed by the Company.
The incentives provided to the Chief Executive Officer are provided in the
form of restricted stock and stock options. This ensures that the Chief
Executive Officer and the Company's stockholders have a commonality of purpose
in enhancing stockholder value.
Compensation Committee
of the Board of Directors
Frederic V. Malek, Chairman
Gregory D. Brenneman
George H. Heilmeier
Laurence A. Tisch
15
PERFORMANCE GRAPH
The following graph compares the cumulative return on the Common Stock of
the Company for the most recent five years with the cumulative total return on
the S&P 500 Index and a Peer Group Index* comprised of direct competitors of the
Company over the same period, assuming an initial investment of $100 on June 30,
1997, with all dividends reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AUTOMATIC DATA PROCESSING, INC. S&P 500 INDEX PEER GROUP
June-1997 100.00 100.00 100.00
June-1998 156.33 130.09 111.00
June-1999 189.97 159.65 151.97
June-2000 232.83 171.18 160.62
June-2001 217.53 145.86 221.37
June-2002 192.28 119.69 216.79
- ----------------
* The Peer Group Index is comprised of the following companies:
Ceridian Corp. First Data Corporation
Computer Sciences Corporation Fiserv, Inc.
Concord EFS, Inc. Paychex, Inc.
DST Systems, Inc. SunGard Data Systems Inc.
Electronic Data Systems Corporation Total System Services, Inc.
16
AUDIT COMMITTEE REPORT
The Audit Committee (the "Committee") is comprised of the three independent
members of the Board of Directors named below. Each member of the Audit
Committee satisfies the independence requirements of the NYSE Rules currently in
effect. The Committee has revised its written charter, which has been approved
by the Board of Directors and which is set forth in Appendix B of this Proxy
Statement.
The Committee oversees the financial management, independent auditors and
financial reporting procedures of the Company on behalf of the Board of
Directors. In fulfilling its oversight responsibilities, the Committee reviewed
and discussed the Company's audited financial statements with management, which
has primary responsibility for the preparation of the financial statements. In
performing its review, the Committee discussed the propriety of the application
of accounting principles by the Company, the reasonableness of significant
judgments and estimates used in the preparation of the financial statements, and
the clarity of disclosures in the financial statements. Management represented
to the Committee that the Company's financial statements were prepared in
accordance with generally accepted accounting principles. The Committee also
reviewed and discussed the Company's audited financial statements with Deloitte
& Touche LLP, the Company's independent auditors for fiscal 2002, which is
responsible for expressing an opinion on the conformity of the Company's audited
financial statements with generally accepted accounting principles.
The Committee has discussed with Deloitte & Touche LLP the matters that
are required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees), as amended. Deloitte & Touche LLP has
provided to the Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and the Committee discussed with Deloitte & Touche LLP the firm's
independence, including the matters in those written disclosures. The Committee
also considered whether Deloitte & Touche LLP's provision of non-audit services,
including financial information systems design and implementation services, to
the Company and its affiliates and the fees and costs billed and expected to be
billed by Deloitte & Touche LLP for those services, is compatible with Deloitte
& Touche LLP's independence. The Committee has discussed with the Company's
internal and independent auditors, with and without management present, their
evaluations of the Company's internal accounting controls and the overall
quality of the Company's financial reporting.
In addition, the Committee discussed with management, and took into
consideration when issuing this report, the Auditor Independence Policy adopted
by the Company in May 2002 and subsequently revised in August 2002, which
prohibits the Company or any of its affiliates from entering into most non-audit
related consulting arrangements with its independent auditors on a going-forward
basis. The Auditor Independence Policy is discussed in further detail below
under "Independent Auditors Fees."
Based on the considerations referred to above, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for fiscal 2002 and that
Deloitte & Touche LLP be appointed independent auditors for the Company for
fiscal 2003.
Audit Committee
of the Board of Directors
Leon G. Cooperman, Chairman
Joseph A. Califano, Jr.
Ann Dibble Jordan
17
INDEPENDENT AUDITORS FEES
In addition to retaining Deloitte & Touche LLP to audit the consolidated
financial statements for fiscal 2002, Deloitte & Touche LLP, as well as other
accounting and consulting firms, were retained to provide various consulting
services in fiscal 2002. The aggregate fees billed for professional services by
Deloitte & Touche LLP in fiscal 2002 for these various services were:
Audit Fees: $2.2 million for services rendered for the annual audit of the
Company's consolidated financial statements for fiscal 2002 and the quarterly
reviews of the financial statements included in the Company's Forms 10-Q;
Financial Information Systems Design and Implementation Fees: $1.1 million
for services rendered in connection with the design or implementation of
hardware or software systems that aggregate source data underlying the financial
statements or generate information that is significant to the financial
statements taken as a whole; and
All Other Fees: $3.9 million for all other services consisting primarily of
tax services ($.8 million), non-financial statement audit-related services
($2.8 million), and other consulting and assistance not associated with the
audit of the financial statements ($.3 million).
While the Audit Committee believes that the non-audit services provided by
Deloitte & Touche LLP during fiscal 2002 are compatible with maintaining its
independence, in May 2002, the Audit Committee recommended to the Board of
Directors, and the Board of Directors adopted, a policy, i.e., the Auditor
Independence Policy, which prohibits most non-audit related arrangements with
the Company's independent auditors. The Auditor Independence Policy was further
revised in August 2002 to reflect additional non-audit related services that are
prohibited. The policy prohibits the Company's independent auditors from
providing: (i) bookkeeping or other services related to the accounting records
or financial statements of the Company; (ii) financial information systems
design and implementation services; (iii) appraisal or valuation services,
fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v)
internal audit outsourcing services; (vi) management functions or human
resources; (vii) broker or dealer, investment adviser or investment banking
services; (viii) legal services and expert services unrelated to the audit; and
(ix) any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
The independent auditors will continue to provide audit and audit-related
services to the Company that have been appropriately pre-approved by the Audit
Committee. The independent auditors may only perform non-prohibited non-audit
related services that have been specifically approved in advance by the Audit
Committee, regardless of the dollar value of the services to be provided. In
addition, before the Audit Committee will even consider granting its approval,
the Company's management must have determined that such specific non-prohibited
non-audit related services can be best performed by the independent auditors
based on its in-depth knowledge of the Company's business, processes and
policies. The Audit Committee will, as part of its approval process, consider
the potential impact of any proposed work on the auditors' independence.
18
PROPOSAL 2
APPOINTMENT OF AUDITORS
At the Annual Meeting of Stockholders, the stockholders will vote on the
ratification of the appointment of Deloitte & Touche LLP, certified public
accountants, as independent auditors to audit the accounts of the Company and
its subsidiaries for the fiscal year begun July 1, 2002. Deloitte & Touche LLP
is a member of the SEC Practice Section of the American Institute of Certified
Public Accountants. A representative of Deloitte & Touche LLP will be present at
the Annual Meeting of Stockholders and will have an opportunity to make a
statement if he or she desires. He or she will be available to answer
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF THE AUDITORS.
OTHER MATTERS
So far as the Board of Directors is aware, only the aforementioned matters
will be acted upon at the meeting. If any other matters properly come before the
meeting, the accompanying proxy may be voted on such other matters in accordance
with the best judgment of the person or persons voting said proxy.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended June 30, 2002, the Company believes that all
filing requirements under Section 16(a) of the Exchange Act applicable to its
officers, directors and beneficial owners have been complied with, except that
there was an inadvertent omission to report: (i) a grant of options in October
2000 in a Form 4 (Statement of Changes in Beneficial Ownership of Securities)
filed on behalf of each of Messrs. Fradin, Daly, Hogan and Colotti, each an
executive officer, which was subsequently reported on behalf of each of Messrs.
Fradin, Daly and Colotti in a Form 5 (Annual Statement of Beneficial Ownership
of Securities) filed in June 2002 and on behalf of Mr. Hogan in a Form 4 filed
in May 2002, (ii) a grant of restricted stock in September 2000 in a Form 4
filed on behalf of Mr. Barfitt, an executive officer, which was subsequently
reported in a Form 4 filed on behalf of Mr. Barfitt in May 2002, (iii) the sale
of common stock of the Company in September 2001 in a Form 4 filed on behalf of
Mr. Hall, an executive officer, which was subsequently reported in a Form 4
filed on behalf of Mr. Hall in October 2001, (iv) the sale of common stock of
the Company in November 2001 in a Form 4 filed on behalf of Mr. Durity, an
executive officer, which was subsequently reported in a Form 4 filed on behalf
of Mr. Durity in December 2001, (v) the sale of common stock of the Company in
November 2001 in a Form 4 filed on behalf of Mr. Taub, a director, which was
subsequently reported in a Form 4 filed on behalf of Mr. Taub in December 2001,
(vi) the sale of common stock of the Company in August 2001 in a Form 4 filed on
behalf of Mr. Douville, an executive officer, which was subsequently reported in
a Form 4 filed on behalf of Mr. Douville in February 2002, (vii) the sale of
common stock of the Company in March 2002 in a Form 4 filed on behalf of Mr.
Colotti, an executive officer, which was subsequently reported in a Form 4 filed
on behalf of Mr. Colotti in April 2002, (viii) the exercise of stock options in
June 2000 in a Form 4 filed on behalf of Mr. Colotti, an executive officer,
which was subsequently reported in a Form 5 filed on behalf of Mr. Colotti in
June 2002, and (ix) the purchase of common stock of the Company in fiscal 2002
in a Form 3 (Initial Statement of Beneficial Ownership of Securities) filed on
behalf of Mr. Op de Beeck, an executive officer, which was subsequently reported
in a Form 5 filed on behalf of Mr. Op de Beeck in June 2002.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2003 Annual Meeting
must be received by the Company for inclusion in the 2003 Proxy Statement no
later than May 26, 2003.
For any stockholder proposal that is not submitted for inclusion in the
2003 Proxy Statement (as described in the preceding paragraph) but is instead
sought to be presented directly at the 2003 Annual Meeting, SEC rules permit
management to vote proxies in its discretion if the Company (a) receives notice
of the proposal before the close of business on August 11, 2003 and advises
stockholders in next year's proxy statement about the nature of
19
the matter and how management intends to vote on such matter, or (b) does not
receive notice of the proposal prior to the close of business on August 11,
2003.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended June 30, 2002, which
is not a part of the proxy soliciting material, is being mailed to the Company's
stockholders together with this Proxy Statement.
ELECTRONIC ACCESS TO PROXY MATERIALS AND ANNUAL REPORT
This Proxy Statement and the Company's Annual Report may be viewed online
at www.adp.com. Stockholders of record may elect to view future proxy statements
and annual reports over the Internet rather than receiving paper copies in the
mail and can thereby save the Company the cost of producing and mailing these
documents. If you vote your shares over the Internet this year, you will be
given the opportunity to choose electronic access at the time you vote. You can
also choose electronic access by following the instructions that you will
receive in connection with next year's annual meeting of stockholders.
Stockholders who choose electronic access will receive an e-mail next year
containing the Internet address to use to access the proxy statement and annual
report. Your choice will remain in effect until you cancel it. You do not have
to elect Internet access each year.
IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS
In accordance with notices previously sent to stockholders, the Company is
delivering one annual report and proxy statement in one envelope addressed to
all stockholders who share a single address unless they have notified the
Company that they wish to "opt out" of the program known as "householding."
Householding is intended to reduce the Company's printing and postage costs.
If you are a registered stockholder and you choose not to have the
aforementioned disclosure documents sent to a single household address as
described above, you must "opt-out" by writing to ADP Investor Communication
Services, Sharelink Department, 51 Mercedes Way, Edgewood, New York 11717 or by
calling (631) 254-7637 and we will cease householding all such disclosure
documents within 30 days. If we do not receive instructions to remove your
account(s) from this service, your account(s) will continue to be "householded"
until we notify you otherwise.
If you own the Company's Common Stock in nominee name (such as through a
broker), information regarding householding of disclosure documents should have
been forwarded to you by your broker.
For the Board of Directors
James B. Benson
Secretary
Roseland, New Jersey
September 23, 2002
20
APPENDIX A
AUTOMATIC DATA PROCESSING, INC.
CATEGORICAL STANDARDS OF DIRECTOR INDEPENDENCE
A director who meets all of the following categorical standards shall be
presumed to be "independent":
o During the past five years, the Company has not employed the director,
and has not employed (except in a non-officer capacity) any of his or
her immediate family members.
o During the past five years, the director has not been employed (or
affiliated with) the Company's present or former auditors, nor has any
of his or her immediate family members been so employed or affiliated
(except in an non-officer capacity not involving the Company's business).
o During the past five years, neither the director, nor any of his or her
immediate family members, has been part of an "interlocking
directorate" in which an executive officer of the Company serves on the
compensation (or equivalent) committee of another company that employs
the director.
o The director does not (directly or indirectly as a partner, shareholder
or officer of another company) provide consulting, legal or financial
advisory services to the Company or the Company's present or former
auditors.
o The director is not employed by (or affiliated with) a significant
supplier or customer of the Company. For the purposes of this
categorical standard, a supplier or customer shall be considered
significant if its sales to, or purchases from, the Company represent
more than (i) 1% of the sales of the customer or supplier or (ii) 1% of
the Company's revenues.
o During the past five years, the director has not had a personal services
contract with the Company, its chairman, chief executive officer or other
executive officer, or any affiliate of the Company.
o The director is not an employee, officer or director of a foundation,
university or other non-profit organization to which the Company gives
directly, or indirectly through the provision of services, more than
$100,000 per annum or 1% of the total annual donations received
(whichever is less).
o The director does not, either directly or indirectly as a partner,
shareholder or officer of another company, own more than 5% of the
Company's common stock.
A-1
APPENDIX B
AUTOMATIC DATA PROCESSING, INC.
AUDIT COMMITTEE CHARTER
I. Purpose
The primary functions of the Audit Committee are to assist the Board of
Directors in fulfilling its oversight responsibilities with respect to: (i) the
Company's systems of internal controls regarding finance, accounting, legal
compliance and ethical behavior; (ii) the Company's auditing, accounting and
financial reporting processes generally; (iii) the Company's financial
statements and other financial information provided by the Company to its
stockholders, the public and others; (iv) the Company's compliance with legal
and regulatory requirements; and (v) the performance of the Company's Corporate
Audit Department and independent auditors. Consistent with these functions, the
Committee will encourage continuous improvement of, and foster adherence to, the
Company's policies, procedures and practices at all levels.
Although the Committee has the powers and responsibilities set forth in
this Charter, the role of the Committee is oversight. The members of the
Committee are not full-time employees of the Company and may or may not be
accountants or auditors by profession or experts in the fields of accounting or
auditing and, in any event, do not serve in such capacity. Consequently, it is
not the duty of the Committee to conduct audits or to determine that the
Company's financial statements and disclosures are complete and accurate and are
in accordance with generally accepted accounting principles and applicable rules
and regulations. These are the responsibilities of Management and the
independent auditors.
II. Organization
The Audit Committee shall be comprised of three or more directors as
determined by the Board of Directors, each of whom shall satisfy the
independence, financial literacy and experience requirements of Section 10A of
the Securities Exchange Act of 1934, The New York Stock Exchange and any other
regulatory requirements.
Committee members shall be elected by the Board at the annual
organizational meeting of the Board of Directors on the recommendation of the
Nominating/Corporate Governance Committee; members shall serve until their
successors shall be duly elected and qualified. The Committee's chairperson
shall be designated by the full Board or, if it does not do so, the Committee
members shall elect a chairperson by vote of a majority of the full Committee.
The Committee may form and delegate authority to subcommittees when
appropriate.
III. Meetings
The Audit Committee shall meet four times per year on a quarterly basis, or
more frequently as circumstances require. The Committee shall require members of
Management, the Corporate Audit Department, the independent auditors and others
to attend meetings and to provide pertinent information, as necessary. As part
of its job to foster open communications, the Committee shall meet in separate
executive sessions during each of its four regularly scheduled meetings with
Management, the head of the Corporate Audit Department and the Company's
independent auditors to discuss any matters that the Committee (or any of these
groups) believes should be discussed privately.
IV. Responsibilities and Duties
In recognition of the fact that the Company's independent auditors are
ultimately accountable to the Audit Committee, the Committee shall have the sole
authority and responsibility to select, evaluate, and, where appropriate,
replace the independent auditors or nominate the independent auditors for
shareholder approval. The Committee shall approve all audit engagement fees and
terms and all non-audit engagements with the independent auditors. The Committee
shall consult with Management but shall not delegate these responsibilities.
B-1
To fulfill its responsibilities and duties, the Audit Committee shall:
With respect to the independent auditors:
----------------------------------------
1. Be directly responsible for the appointment, compensation and oversight
of the work of the independent auditors (including resolution of
disagreements between Management and the independent auditors regarding
financial reporting) for the purpose of preparing its audit report or
related work.
2. Have the sole authority to review in advance, and grant any appropriate
pre-approvals of, (i) all auditing services to be provided by the
independent auditors and (ii) all non-audit services to be provided by
the independent auditors as permitted by Section 10A of the Securities
Exchange Act of 1934, and in connection therewith to approve all fees
and other terms of engagement. The Committee shall also review and
approve disclosures required to be included in Securities and Exchange
Commission periodic reports filed under Section 13(a) of the Securities
Exchange Act of 1934 with respect to non-audit services.
3. Review the performance of the Company's independent auditors on at
least an annual basis.
4. On an annual basis, review and discuss with the independent auditors
all relationships the independent auditors have with the Company in
order to evaluate the independent auditors' continued independence. The
Committee: (i) shall ensure that the independent auditors submit to the
Committee on an annual basis a written statement (consistent with
Independent Standards Board Standards No. 1) delineating all
relationships and services that may impact the objectivity and
independence of the independent auditors; (ii) shall discuss with the
independent auditors any disclosed relationship or services that may
impact the objectivity and independence of the independent auditors;
and (iii) shall satisfy itself as to the independent auditors'
independence.
5. At least annually, obtain and review an annual report from the
independent auditors describing (i) the independent auditors' internal
quality control procedures and (ii) any material issues raised by the
most recent internal quality control review, or peer review, of the
independent auditors, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
independent auditors, and any steps taken to deal with any such issues.
6. Confirm that the lead audit partner, or the lead audit partner
responsible for reviewing the audit, for the Company's independent
auditors has not performed audit services for the Company for each of
the five previous fiscal years.
7. Review all reports required to be submitted by the independent auditors
to the Committee under Section 10A of the Securities Exchange Act of
1934.
8. Review, based upon the recommendation of the independent auditors
and the Corporate Audit Department, the scope and plan of the work to
be done by the independent auditors for each fiscal year.
With respect to financial statements:
------------------------------------
9. Review and discuss with Management, the Corporate Audit Department
and the independent auditors the Company's quarterly financial
statements (including disclosures made in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
independent auditors' review of the quarterly financial statements)
prior to submission to stockholders, any governmental body, any stock
exchange or the public.
10. Review and discuss: (i) with Management, the Corporate Audit Department
and the independent auditors the Company's annual audited financial
statements (including disclosures made in "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
11. Discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, as amended,
relating to the conduct of the audit.
B-2
12. Recommend to the Board of Directors, if appropriate, that the Company's
annual audited financial statements be included in the Company's annual
report on Form 10-K for filing with the Securities and Exchange
Commission.
13. Prepare the report required by the Securities and Exchange Commission
to be included in the Company's annual proxy statement and any other
Committee reports required by applicable securities laws or stock
exchange listing requirements or rules.
Periodic and Annual Reviews:
---------------------------
14. Periodically review separately with each of Management, the independent
auditors and the Corporate Audit Department (i) any significant
disagreement between Management and the independent auditors or the
Corporate Audit Department in connection with the preparation of the
financial statements, (ii) any difficulties encountered during the
course of the audit (including any restrictions on the scope of work or
access to required information), and (iii) Management's response to
each.
15. Periodically discuss with the independent auditors, without
Management being present, (i) their judgments about the quality,
appropriateness, and acceptability of the Company's accounting
principles and financial disclosure practices, as applied in its
financial reporting, and (ii) the completeness and accuracy of the
Company's financial statements.
16. Consider and approve, if appropriate, significant changes to the
Company's accounting principles and financial disclosure practices as
suggested by the independent auditors, Management or the Corporate
Audit Department. Review with the independent auditors, Management and
the Corporate Audit Department, at appropriate intervals, the extent to
which any changes or improvements in accounting or financial practices,
as approved by the Committee, have been implemented.
17. Review with Management, the independent auditors, the Corporate
Audit Department and the Company's counsel, as appropriate, any legal,
regulatory or compliance matters that could have a significant impact
on the Company's financial statements, including significant changes in
accounting standards or rules as promulgated by the Financial
Accounting Standards Board, the Securities and Exchange Commission or
other regulatory authorities with relevant jurisdiction.
18. Obtain and review an annual report from Management relating to the
accounting principles used in preparation of the Company's financial
statements (including those policies for which Management is required
to exercise discretion or judgments regarding the implementation
thereof).
Discussions with Management:
---------------------------
19. Review and discuss with Management the Company's earnings press
releases (including the use of "pro forma" or "adjusted" non-GAAP
information) as well as financial information and earnings guidance
provided to analysts and rating agencies.
20. Review and discuss with Management all material off-balance sheet
transactions, arrangements, obligations (including contingent
obligations) and other relationships of the Company with unconsolidated
entities or other persons, that may have a material current of future
effect on financial condition, changes in financial condition, results
of operations, liquidity, capital resources, capital reserves or
significant components of revenues or expenses.
21. Inquire about the application of the Company's accounting policies
and its consistency from period to period, and the compatibility of
these accounting policies with generally accepted accounting
principles, and (where appropriate) the Company's provisions for future
occurrences which may have a material impact on the financial
statements of the Company.
22. Review and discuss with Management (i) the Company's major financial
risk exposures and the steps Management has taken to monitor and
control such exposures (including Management's risk assessment and
risk management policies), and (ii) the program that Management has
established to monitor compliance with its code of business ethics and
conduct for directors, officers and employees.
B-3
23. Review and discuss with Management all disclosures made by the Company
concerning any material changes in the financial condition or
operations of the Company.
24. Obtain explanations from Management for unusual variances in the
Company's annual financial statements from year to year, and review
annually the independent auditors' letter of the recommendations to
Management and Management's response.
With respect to the internal audit function and internal controls:
-----------------------------------------------------------------
25. Review, based upon the recommendation of the independent auditors and
the head of the Corporate Audit Department, the scope and plan of the
work to be done by the Corporate Audit Department.
26. Review and approve the appointment and replacement of the head of the
Corporate Audit Department, and review on an annual basis the
performance of the Corporate Audit Department.
27. In consultation with the independent auditors and the Corporate Audit
Department, (a) review the adequacy of the Company's internal control
structure and system, and the procedures designed to insure compliance
with laws and regulations, and (b) discuss the responsibilities, budget
and staffing needs of the Corporate Audit Department.
28. Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
Other:
-----
29. Review and approve all related-party transactions.
30. Review and approve (i) any change or waiver in the Company's code
of business conduct and ethics for directors or executive officers, and
(ii) any disclosure made on Form 8-K regarding such change or waiver.
31. Establish the policy for the Company's hiring of employees or
former employees of the independent auditors who were engaged on the
Company's account.
32. Review any Management decision to seek a second opinion from
independent auditors other than the Company's regular independent
auditors with respect to any significant accounting issue.
33. Review with Management and the independent auditors the sufficiency
and quality of the Corporate Audit Department staff and other financial
and accounting personnel of the Company.
34. Review and reassess the adequacy of this Charter annually and recommend
to the Board any changes the Committee deems appropriate.
35. The Committee shall conduct an annual performance evaluation.
36. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law as the Committee or the Board deems
necessary or appropriate.
37. This Charter will be made available on the Company's website at
"www.adp.com."
V. Resources
The Audit Committee shall have the authority to retain independent legal,
accounting and other consultants to advise the Committee. The Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent auditors to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine the extent of funding necessary for payment
of compensation to the independent auditors for purpose of rendering or issuing
the annual audit report and to any independent legal, accounting and other
consultants retained to advise the Committee.
B-4
September 23, 2002
Dear Stockholder:
You are cordially invited to join us at the 2002 Annual Meeting of
Stockholders of Automatic Data Processing, Inc. This year's meeting will be
held at the corporate offices of the Company at One ADP Boulevard, Roseland, New
Jersey, on Tuesday, November 12, 2002, starting at 10:00 a.m. I hope you will be
able to attend. At the meeting we will (i) elect directors and (ii) vote on the
appointment of Deloitte & Touche LLP as independent auditors.
It is important that your shares be voted, whether or not you plan to be
present at the meeting. You should specify your choices by marking the
appropriate boxes on the proxy form on the reverse side, and date, sign and
return your proxy form in the enclosed, postage-paid return envelope as promptly
as possible. Alternatively, you may vote by phone or by the Internet, as
described on the reverse side. If you date, sign and return your proxy form
without specifying your choices, your shares will be voted in accordance with
the recommendation of your directors.
Please retain and present this top portion of the proxy card as your
admission ticket together with a valid picture identification to gain
admittance to the meeting. This ticket will admit only the stockholder listed
on the reverse side and is not transferable. If your shares are in the name of
your broker or bank or you received your proxy materials electronically, you
will need to bring evidence of your stock ownership, such as your most recent
brokerage account statement.
As in the past years, we will discuss the business of the Company and its
subsidiaries during the meeting. I welcome your comments and suggestions, and we
will provide time during the meeting for questions from stockholders. I am
looking forward to seeing you at the meeting.
Sincerely,
/s/ Arthur F. Weinbach
----------------------
Arthur F. Weinbach
Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
[ADP logo]
Proxy
This proxy is solicited on behalf of the Board of Directors
Properly executed proxies received by the day before the cut-off date or the
meeting date will be voted as marked and, if not marked, will be voted FOR the
election of the nominees listed in the accompanying Proxy Statement and FOR
proposal (2) on the reverse side.
The undersigned hereby appoints Arthur F. Weinbach and Gary C. Butler, and each
of them, attorneys and proxies with full power of substitution, in the name,
place and stead of the undersigned, to vote as proxy at the 2002 Annual Meeting
of Stockholders of Automatic Data Processing, Inc. to be held at the corporate
offices of the Company, ONE ADP BOULEVARD, ROSELAND, NEW JERSEY, on Tuesday,
November 12, 2002 at 10:00 a.m., or at any adjournment or adjournments thereof,
according to the number of votes that the undersigned would be entitled to cast
if personally present.
If shares of Automatic Data Processing, Inc. Common Stock are issued to or held
for the account of the undersigned under employee plans and voting rights
attach to such shares (any of such plans, a "Voting Plan"), then the undersigned
hereby directs the respective fiduciary of each applicable Voting Plan to vote
all shares of Automatic Data Processing, Inc. Common Stock in the undersigned's
name and/or account under such Voting Plan in accordance with the instructions
given herein, at the Annual Meeting and at any adjournments or postponements
thereof, on all matters properly coming before the Annual Meeting, including but
not limited to the matters set forth on the reverse side.
Either of said attorneys and proxies or substitutes, who shall be present at
such meeting or at any adjournment or adjournments thereof, shall have all the
powers granted to such attorneys and proxies.
Please date, sign and mail the proxy promptly in the self-addressed return
envelope which requires no postage if mailed in the United States. When signing
as an attorney, executor, administrator, trustee or guardian, please give your
full title as such. If shares are held jointly, both owners should sign.
Alternatively, you may vote by phone or by the Internet, as described in the
instructions on the reverse side.
[ADP logo] VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
AUTOMATIC DATA PROCESSING, INC. instructions and for electronic delivery
PROXY SERVICES of information up until 11:59 P.M. Eastern
P.O. BOX 9142 Time the day before the cut-off date or
FARMINGDALE, NY 11735 meeting date. Have your proxy card in hand
when you access the web site. You will be
prompted to enter your 12-digit Control
Number which is located below to obtain
your records and to create an electronic
voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59
P.M. Eastern Time the day before the
cut-off date or meeting date. Have your
proxy card in hand when you call. You will
be prompted to enter your 12-digit Control
Number which is located below and then
follow the simple instructions the Vote
Voice provides you.
ADMISSION TICKET VOTE BY MAIL
- ---------------- Mark, sign, and date your proxy card and
Please retain and present this top return it in the postage-paid envelope we
portion of the proxy card as your have provided or return it to Automatic
admission ticket together with a Data Processing, Inc. c/o ADP, 51 Mercedes
valid picture identification to Way, Edgewood, NY 11717. All proxy cards
gain admittance to the Annual must be received by the day before the
Meeting. cut-off date or the meeting date.
- --------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
AUTOMATIC DATA PROCESSING, INC.
The Board of Directors recommends a vote
FOR the proposals regarding:
(1) Election of Directors
Nominees: For Withhold For All To withhold authority to vote, mark "For All Except"
01) Gregory D. Brenneman 07) Harvey M. Krueger All All Except and write the nominee's number on the line below.
02) Gary C. Butler 08) Frederic V. Malek
03) Joseph A. Califano, Jr. 09) Henry Taub [ ] [ ] [ ] ----------------------------------------------------
04) Leon G. Cooperman 10) Laurence A. Tisch
05) George H. Heilmeier 11) Arthur F. Weinbach
06) Ann Dibble Jordan 12) Josh S. Weston
For Against Abstain
(2) Appointment of Deloitte & Touche LLP [ ] [ ] [ ]
(3) Upon any and all other matters which may properly come before the meeting
or any adjournment thereof.
Please sign below exactly as the name(s) appear on your stock certificate
(as indicated hereon). If the shares are issued in the names of two or
more persons, all such persons must sign the proxy.
If you plan to attend the meeting, please check box to the right. [ ]
- ---------------------------------- ------- ----------------------- ------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date