PAYCHEX INC
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
| o Preliminary Proxy Statement | ||
| o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
| þ Definitive Proxy Statement | ||
| o Definitive Additional Materials | ||
| o Soliciting Material Pursuant to §240.14a-12 | ||
Paychex, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| þ | No fee required. |
| o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| o | Fee paid previously with preliminary materials. |
| o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
| (2) | Form, Schedule or Registration Statement No.: |
| (3) | Filing Party: |
| (4) | Date Filed: |
Table of Contents
August 31, 2011
Dear Paychex Stockholder:
The Board of Directors cordially invites you to attend our
Annual Meeting of Stockholders (the “Annual Meeting”)
on Tuesday, October 11, 2011 at
10:00 a.m. Eastern Time at The Strong, One Manhattan
Square, Rochester, NY, 14607. Please note this is a change in
venue from the prior year.
This booklet includes the formal Notice of Annual Meeting of
Stockholders and the Proxy Statement. The Proxy Statement tells
you about the agenda items and the procedures for the Annual
Meeting. It also provides certain information about Paychex,
Inc., its Board of Directors, and its named executive officers.
It is important that your shares be represented at the Annual
Meeting. Whether or not you plan to attend the Annual Meeting,
you are encouraged to vote. You may vote by Internet, telephone,
proxy card, or written ballot at the Annual Meeting. We
encourage you to use the Internet as it is the most
cost-effective way to vote. If you elected to electronically
access the Proxy Statement and Annual Report, you will not be
receiving a proxy card and must vote via the Internet.
We hope you will be able to attend the Annual Meeting and would
like to take this opportunity to remind you that your vote is
important. If you need special assistance at the Annual Meeting,
please contact the Corporate Secretary at
(800) 828-4411,
or write to Paychex, Inc., 911 Panorama Trail South, Rochester,
New York
14625-2396,
Attention: Corporate Secretary.
Sincerely,
Martin Mucci
President and Chief Executive Officer
Table of Contents
PAYCHEX,
INC.
911 Panorama Trail South • Rochester, New
York
14625-2396
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
| Date and Time: | 10:00 a.m. Eastern Time on Tuesday, October 11, 2011. Continental breakfast will be available from 9:00 a.m. to 10:00 a.m. | |
| Location: | The Strong, One Manhattan Square, Rochester, NY, 14607. | |
| Items of Business: |
(1) To elect nine nominees to the Board of Directors for
one-year terms;
|
|
|
(2) To hold an advisory vote on executive compensation;
|
||
|
(3) To hold an advisory vote on the frequency of future
advisory votes on executive compensation;
|
||
|
(4) To ratify the selection of the independent registered
public accounting firm; and
|
||
|
(5) To transact such other business as may properly come
before the Annual Meeting, or any adjournment thereof.
|
||
| Record Date: | Stockholders of record as of the close of business on August 12, 2011, are entitled to notice of, and to vote at, the Annual Meeting. | |
| Voting: | Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted at the Annual Meeting. You may vote either by signing and returning the enclosed proxy card, via the Internet, by telephone, or by written ballot at the Annual Meeting as more fully described in the Proxy Statement. | |
| Annual Meeting Webcast: | The Annual Meeting will be simultaneously broadcast over the Internet at 10:00 a.m. Eastern Time on October 11, 2011. Please note that you will not be able to vote or ask questions through the webcast. It can be accessed at the Investor Relations page at www.paychex.com, and will be archived and available for replay for approximately one month. | |
|
August 31, 2011 By Order of the Board of Directors Stephanie L. Schaeffer Corporate Secretary |
IMPORTANT
NOTICE REGARDING THE AVAILIBILITY OF PROXY MATERIALS FOR THE
2011 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 11,
2011
Paychex,
Inc.’s Proxy Statement and Annual Report for the year ended
May 31, 2011 are available at
http://investor.paychex.com/annual.aspx
http://investor.paychex.com/annual.aspx
TABLE OF
CONTENTS
| 1 | ||||
| 1 | ||||
| 1 | ||||
| 2 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 6 | ||||
| 9 | ||||
| 9 | ||||
| 10 | ||||
| 10 | ||||
| 11 | ||||
| 11 | ||||
| 12 | ||||
| 13 | ||||
| 14 | ||||
| 14 | ||||
| 15 | ||||
| 15 | ||||
| 16 | ||||
| 17 | ||||
| 17 | ||||
| 17 | ||||
| 18 | ||||
| 19 | ||||
| 19 | ||||
| 20 | ||||
| 20 | ||||
| 21 | ||||
| 21 | ||||
| 22 | ||||
| 22 | ||||
| 24 | ||||
| 24 | ||||
| 25 | ||||
| 27 | ||||
| 27 | ||||
| 28 | ||||
| 29 | ||||
| 29 | ||||
| 29 | ||||
| 30 | ||||
| 30 | ||||
| 30 | ||||
| 30 | ||||
| 31 | ||||
| 31 | ||||
| 31 | ||||
| 32 | ||||
| 32 | ||||
| 34 | ||||
| 35 | ||||
| 36 | ||||
| 38 | ||||
| 41 | ||||
| 42 |
Table of Contents
PROXY
STATEMENT
2011
ANNUAL MEETING OF STOCKHOLDERS OF PAYCHEX, INC.
TO BE HELD ON OCTOBER 11, 2011
TO BE HELD ON OCTOBER 11, 2011
This Proxy Statement is being mailed to stockholders of Paychex,
Inc. (“Paychex,” the “Company,”
“we,” or “our”), a Delaware corporation, on
or about August 31, 2011, in connection with the
solicitation of proxies by the Board of Directors of the Company
(the “Board”) to be voted at the 2011 Annual Meeting
of Stockholders (the “Annual Meeting”). The Annual
Meeting will be held on Tuesday, October 11, 2011 at
10:00 a.m. Eastern Time at The Strong, One Manhattan
Square, Rochester, NY, 14607.
Stockholders
Entitled to Vote; Outstanding Shares; Quorum
Paychex has one class of shares outstanding, designated common
stock, $0.01 par value per share. The Board has fixed the
close of business on August 12, 2011 as the record date for
determining the holders of common stock entitled to notice of,
and to vote at, the Annual Meeting. As of the record date,
362,685,721 shares of common stock were issued and
outstanding. A majority of the issued and outstanding shares
(181,342,862 shares) present at the Annual Meeting in
person or by proxy will constitute a quorum. A quorum is
necessary to hold a valid meeting. Stockholders will be entitled
to one vote for each share of common stock held as of the record
date.
How to
Vote
Your vote is very important and we hope that you will attend the
Annual Meeting. However, whether or not you plan to attend the
Annual Meeting, please vote by proxy.
Registered Stockholders. If your shares
are registered directly in your name with the Company’s
transfer agent, American Stock Transfer &
Trust Company, LLC, you are considered a stockholder of
record of those shares. Please vote by proxy in accordance with
the instructions on your proxy card, or the instructions you
receive through electronic mail.
There are three convenient ways to submit your vote by proxy:
| • | Voting by Internet — You can vote via the Internet by visiting the website noted on your proxy card. Internet voting is available 24 hours a day. We encourage you to vote via the Internet, as it is the most cost-effective way to vote. | |
| • | Voting by telephone — You can also vote your shares by telephone by calling the toll-free telephone number indicated on your proxy card and following the voice prompt instructions. Telephone voting is available 24 hours a day. | |
| • | Voting by mail — If you choose to vote by mail, simply mark your proxy card, sign and date it, and return it in the enclosed postage-paid envelope. If you elected to electronically access the Proxy Statement and Annual Report, you will not be receiving a proxy card and must vote via the Internet. |
The deadline for Internet or telephone voting is 11:59 p.m.
Eastern Time on Monday, October 10, 2011. If you vote by
telephone or the Internet, you do not need to return your proxy
card. Signing and returning your proxy card or submitting your
proxy via the Internet or by telephone does not affect your
right to vote in person if you attend the Annual Meeting and
your shares are registered in your name.
Beneficial Stockholders. If you hold
your shares through a broker, bank, or other holder of record,
you are not a registered stockholder, but rather are considered
a “beneficial owner” of those shares. In order to vote
your shares, please refer to the voting instruction form or
other materials forwarded to you by your broker, bank, or other
holder of record. If your shares are held in the name of a
broker, bank, or other holder of record, you must obtain a
proxy, executed in your favor, from the holder of record to be
able to vote in person at the Annual Meeting.
Voting by Participants in the Paychex Employee Stock
Ownership Plan Stock Fund. If a stockholder
is a participant in the Paychex Employee Stock Ownership Plan
Stock Fund (“ESOP”) of the Paychex 401(k) Incentive
Retirement Plan (the “401(k) Plan”), the stockholder
can vote using the previously described methods. This will serve
as a voting instruction for Fidelity Management
Trust Company (the “Trustee”), where all accounts
are
1
Table of Contents
registered in the same name. As a participant in the ESOP, the
stockholder has the right to direct the Trustee, who is the
holder of record, regarding how to vote the shares of common
stock credited to the participant’s account at the Annual
Meeting. The participant’s voting instructions will be
tabulated confidentially. Only the Trustee
and/or the
tabulator will have access to the participant’s individual
voting direction. If voting instructions for the shares of
common stock in the ESOP are not received, those shares will be
voted by the Trustee in the same proportions as the shares for
which voting instructions were received from other participants
in the ESOP. Voting by ESOP participants will close at
11:59 p.m. Eastern Time on October 6, 2011. The
Trustee will then vote all shares of common stock held in the
ESOP by the established deadline.
Revoking
Your Proxy
Registered stockholders can revoke their proxy at any time prior
to it being voted at the Annual Meeting by:
| • | providing written notice of revocation to the Corporate Secretary; | |
| • | submitting a later-dated proxy via the Internet, telephone, or mail; or | |
| • | voting in person at the Annual Meeting. |
Beneficial stockholders should contact their broker, bank, or
other holder of record for instructions on how to change their
vote.
General
Information on Voting
All votes properly cast and not revoked will be voted at the
Annual Meeting in accordance with the stockholder’s
directions. Shares voted by proxy card received without choices
specified will be voted as follows:
| • | FOR the nine nominees for election to the Board; | |
| • | FOR the executive compensation program (“say-on-pay” vote); | |
| • | FOR a frequency of every year for advisory votes on executive compensation; and | |
| • | FOR the ratification of the selection of the independent registered public accounting firm (the “independent accountants”). |
If a broker holds your shares in its name, and you do not
provide your voting instructions to them, that broker is
permitted to use its own discretion and vote your shares on
routine matters. However, a broker does not have discretion to
vote your shares on non-routine matters (“broker
non-votes”). Broker non-votes are not considered votes for
or against a proposal and therefore will have no direct impact
on any proposal since they are not deemed to be duly cast nor
entitled to vote, but they will be counted for the purpose of
determining the presence or absence of a quorum. Therefore,
we urge you to give voting instructions to your broker on all
voting items.
Abstentions are also counted for the purposes of establishing a
quorum, but will have the same effect as a vote against a
proposal, except in regards to the election of directors and the
frequency of advisory votes on executive compensation. For these
two items, abstentions will have no direct impact.
2
Table of Contents
Vote
Required
The table below shows the vote required to approve each of the
proposals described in this Proxy Statement, assuming the
presence of a quorum at the Annual Meeting. With respect to
Proposals 1, 2, and 4, you may vote “FOR,”
“AGAINST,” or “ABSTAIN.” With respect to
Proposal 3, you may vote for a frequency of “ONE
YEAR,” “TWO YEARS,” or “THREE YEARS,”
or you may “ABSTAIN.”
|
Proposal Number
|
Proposal Description
|
Vote Required
|
||
|
Proposal 1
|
Election of nine nominees to the Board of Directors | Majority of the votes duly cast | ||
|
Proposal 2
|
An advisory vote on executive compensation | Majority of the shares present in person or by proxy and entitled to vote | ||
|
Proposal 3
|
An advisory vote on the frequency of future advisory votes on executive compensation | Frequency receiving majority of the votes duly cast | ||
|
Proposal 4
|
Ratification of the selection of the independent accountants | Majority of the shares present in person or by proxy and entitled to vote |
3
Table of Contents
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, based upon reports
filed by such persons with the Securities and Exchange
Commission (“SEC”), as of July 31, 2011, with
respect to the beneficial ownership of common stock of the
Company by: (i) any person (including any “group”
as that term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”))
who is known by the Company to be the beneficial owner of more
than 5% of the Company’s voting securities; (ii) each
director and nominee for director of the Company;
(iii) each of the named executive officers
(“NEO”s) of the Company named in the Fiscal 2011
Summary Compensation Table; and (iv) all directors, NEOs,
and executive officers of the Company as a group.
|
Amount of Beneficial |
||||||||
|
Ownership of |
Percent of |
|||||||
|
Name
|
Common Stock(1) | Class(1) | ||||||
|
More than 5% owners:
|
||||||||
|
B. Thomas
Golisano(2),(3),(4)
|
37,958,637 | 10.4 | % | |||||
|
1 Fishers Road
|
||||||||
|
Pittsford, NY 14534
|
||||||||
|
Capital World
Investors(5)
|
29,638,718 | 8.2 | % | |||||
|
333 South Hope Street
|
||||||||
|
Los Angeles, CA 90071
|
||||||||
|
Directors:
|
||||||||
|
B. Thomas
Golisano(2),(3),(4)
|
37,958,637 | 10.4 | % | |||||
|
Joseph G.
Doody(6)
|
5,094 | ** | ||||||
|
David J. S.
Flaschen(6),(7)
|
83,779 | ** | ||||||
|
Phillip
Horsley(6),(7)
|
148,736 | ** | ||||||
|
Grant M.
Inman(4),(6),(7)
|
246,920 | ** | ||||||
|
Pamela A.
Joseph(6),(7)
|
37,471 | ** | ||||||
|
Martin
Mucci(6),(7)
|
304,886 | ** | ||||||
|
Joseph M.
Tucci(6),(7)
|
69,971 | ** | ||||||
|
Joseph M.
Velli(6),(7)
|
36,304 | ** | ||||||
|
Named Executive Officers:
|
||||||||
|
Martin
Mucci(6),(7)
|
304,886 | ** | ||||||
|
John M.
Morphy(6),(7)
|
254,950 | ** | ||||||
|
Michael E.
Gioja(6),(7)
|
31,087 | ** | ||||||
|
William G.
Kuchta(6),(7)
|
145,813 | ** | ||||||
|
Michael A.
McCarthy(6),(7),(8)
|
92,182 | ** | ||||||
|
Jonathan J.
Judge(9)
|
55,004 | ** | ||||||
|
Delbert M.
Humenik(10)
|
813 | ** | ||||||
|
All directors, NEOs, and executive officers of the Company as
a group
(18 persons)(6),(7)
|
39,504,539 | 10.9 | % | |||||
| ** | Indicated percentage is less than 1%. | |
| (1) | Based upon the number of shares of common stock issued and outstanding as of July 31, 2011. Under the rules of the SEC, “beneficial ownership” is deemed to include shares for which the individual, directly or indirectly, has or shares voting or disposition power, whether or not they are held for the individual’s benefit, and includes shares that may be acquired within 60 days by exercise of options. | |
| (2) | Included in shares beneficially owned for Mr. Golisano are 278,060 shares owned by the B. Thomas Golisano Foundation for which Mr. Golisano is a member of the foundation’s six-member board of trustees. Mr. Golisano disclaims beneficial ownership of these shares. | |
| (3) | Mr. Golisano has 11,430,295 shares pledged as security. | |
| (4) | Included in shares beneficially owned are shares held in the names of family members or other entities: Mr. Golisano — 71,330 shares; and Mr. Inman — 136,949 shares. | |
| (5) | Beneficial ownership information is based on information contained in the Form 13F filed with the SEC on May 13, 2011 by Capital World Investors. Capital World Investors, a division of Capital Research and |
4
Table of Contents
| Management Company (“CRMC”), is deemed to be the beneficial owner of 29,638,718 shares as a result of CRMC’s acting as investment advisor to various investment companies registered under Section 8 of the Investment Company Act of 1940. | ||
| (6) | Included in shares beneficially owned are unvested restricted stock: Mr. Doody — 3,094 shares; Mr. Flaschen — 5,449 shares; Mr. Horsley — 1,652 shares; Mr. Inman — 5,449 shares; Ms. Joseph — 5,449 shares; Mr. Mucci — 52,558 shares; Mr. Tucci 5,449 shares; Mr. Velli — 5,449 shares; Mr. Morphy — 54,615 shares; Mr. Gioja — 12,714 shares; Mr. Kuchta — 17,310 shares; Mr. McCarthy — 18,042 shares; and all directors, NEOs, and executive officers as a group — 204,546 shares. | |
| (7) | Included in shares beneficially owned are shares that may be acquired upon exercise of options, which are exercisable on or prior to September 29, 2011: Mr. Flaschen — 59,979 shares; Mr. Horsley — 47,084 shares; Mr. Inman — 59,979 shares; Ms. Joseph — 24,979 shares; Mr. Mucci — 238,367 shares; Mr. Tucci — 59,979 shares; Mr. Velli — 21,979 shares; Mr. Morphy — 176,338 shares; Mr. Gioja — 17,108 shares; Mr. Kuchta — 114,188 shares; Mr. McCarthy — 68,188 shares; and all directors, NEOs, and executive officers as a group — 901,525 shares. | |
| (8) | Mr. McCarthy retired from the Company effective August 1, 2011 and, as a result, forfeited 18,042 shares of unvested restricted stock included in his beneficial ownership as of July 31, 2011. | |
| (9) | Mr. Judge resigned from his position of President and Chief Executive Officer effective July 31, 2010. | |
| (10) | Mr. Humenik resigned from his position of Senior Vice President of Sales and Marketing effective October 15, 2010. |
5
Table of Contents
PROPOSAL 1 •
ELECTION OF DIRECTORS FOR A ONE-YEAR TERM
Stockholders annually elect directors to serve for one year and
until the directors’ successors have been elected and
qualified. The nine persons listed below, each of whom currently
serves as a director, have been nominated for election to the
Board by the Company’s Governance and Compensation
Committee. Seven of the nine nominees are neither employees nor
former employees of the Company. If elected, each nominee will
hold office until the 2012 Annual Meeting of Stockholders and
until his or her successor is elected and has qualified.
Although the Board believes that all of the nominees will be
available to serve as a director, the persons named in the
enclosed proxy may exercise discretionary authority to vote for
substitute nominees proposed by the Board. Below we identify and
describe the key experience, qualifications, and skills our
directors bring to the Board that are important in light of our
business and structure. Also included below are any public
company directorships held during the past five years and
directors’ periods of service to our Board.
|
Director |
Position, Principal Occupation, Business |
|||||||||
|
Name
|
Age
|
Since
|
Experience, Directorships, and Qualifications
|
|||||||
|
B. Thomas Golisano
|
69 | 1979 | Mr. Golisano founded Paychex in 1971 and is Chairman of the Board of the Company. Until October 2004, he served as President and Chief Executive Officer of the Company. He serves on the board of trustees of the Rochester Institute of Technology. Mr. Golisano serves as a director of numerous non-profit organizations and private companies, and is founder and member of the board of trustees of the B. Thomas Golisano Foundation. He serves on our Executive Committee. Mr. Golisano has extensive executive experience as the founder and former Chief Executive Officer of Paychex, which provides him with in-depth knowledge of the operations of the Company and qualifies him to lead the Board. | |||||||
|
Joseph G. Doody
|
58 | 2010 | Mr. Doody has served as President, North American Delivery of Staples, Inc., an office products company, since 1998. From 1974 to 1998, Mr. Doody held several managerial positions with Eastman Kodak Company, an imaging technology company, most recently serving as General Manager and Vice President, North America, Office Imaging. Mr. Doody serves as a director of Casella Waste Systems, Inc. and is a member of the Executive Advisory Committee for the Simon Graduate School of Business at the University of Rochester. He serves on our Audit Committee. Mr. Doody’s strong understanding of small- to medium-sized businesses through his experience at Staples, as demonstrated by growth within his organization, provides our Board with important operational insight. | |||||||
6
Table of Contents
|
Director |
Position, Principal Occupation, Business |
|||||||||
|
Name
|
Age
|
Since
|
Experience, Directorships, and Qualifications
|
|||||||
|
David J. S. Flaschen
|
55 | 1999 | Mr. Flaschen is an investor and advisor to a number of private companies providing business, marketing, and information services. Most recently, he was a partner with Castanea Partners, a private equity investment firm, from 2005 to 2011. Mr. Flaschen is a director of various private companies. He is the Chairman of our Audit Committee and serves on our Investment Committee and Governance and Compensation Committee. Mr. Flaschen has extensive executive experience in information and marketing services. His financial expertise is a great benefit to the Board and Audit Committee, acquired through his education and his experience, including his role in assessing financial performance of other companies and in reviewing and understanding financial statements. | |||||||
|
Phillip Horsley
|
72 | 2011 | Mr. Horsley is the founder of Horsley Bridge Partners, a leading manager of private equity investments for institutional investors, since 1982. Mr. Horsley was a director of the Company from 1982 to 2009, and is standing for re-election at the 2011 Annual Meeting. Mr. Horsley has a strong background in finance and business and has expertise in investment management. Mr. Horsley’s long-term relationship with the Company provides him with extensive knowledge of the Company’s history and operating environment. | |||||||
|
Grant M. Inman
|
69 | 1983 | Mr. Inman is the founder and General Partner of Inman Investment Management, a private investment company formed in 1998. He is a director of Lam Research Corporation and several private companies. He was a director of Wind River Systems, Inc. until July 2009. Mr. Inman is a trustee of the University of California, Berkeley Foundation. He is the Chairman of our Investment Committee and serves on our Audit Committee and Governance and Compensation Committee. Mr. Inman has a strong background in finance, business, and entrepreneurial experience, and has expertise in investment management. Mr. Inman’s 28-year tenure on the Board provides him with extensive knowledge of the Company. | |||||||
|
Pamela A. Joseph
|
52 | 2005 | Ms. Joseph is Vice Chairman of U.S. Bancorp Payment Services and Chairman of Elavon (formerly NOVA Information Systems, Inc.), a wholly owned subsidiary of U.S. Bancorp. U.S. Bancorp Payment Services and Elavon manage and facilitate payment processing. Ms. Joseph has been Vice Chairman of U.S. Bancorp since December 2004 and serves on its 14-member managing committee. She is a director of Centene Corporation. Ms. Joseph serves on our Audit Committee and our Executive Committee. She has extensive executive experience in the financial services industry, and brings a wealth of technology insight to the Board and Audit Committee. | |||||||
7
Table of Contents
|
Director |
Position, Principal Occupation, Business |
|||||||||
|
Name
|
Age
|
Since
|
Experience, Directorships, and Qualifications
|
|||||||
|
Martin Mucci
|
51 | 2010 | Mr. Mucci has served as President and Chief Executive Officer of the Company since September 2010. Mr. Mucci joined the Company in 2002 as Senior Vice President, Operations. Prior to joining Paychex, he held senior level positions with Frontier Telephone of Rochester, a telecommunications company, during his 20-year career. Mr. Mucci is a director of Cbeyond, Inc. He is currently Chairman of the St. John Fisher College Board of Trustees, and also serves as the Chairman of the Catholic Family Center Board of Governors. He is Chairman of our Executive Committee. The Board selected Mr. Mucci to serve as a director as he provides day-to-day leadership as the current Chief Executive Officer of Paychex, giving him in-depth knowledge of the Company, its operations, and opportunities. | |||||||
|
Joseph M. Tucci
|
64 | 2000 | Mr. Tucci has been the Chairman of the Board of Directors of EMC Corporation, the world leader in information infrastructure technology and solutions, since January 2006. He has been Chief Executive Officer and President of EMC Corporation since January 2001, and President since January 2000. Mr. Tucci is also Chairman of the Board of Directors of VMware, Inc. He is Chairman of our Governance and Compensation Committee. Mr. Tucci’s experience as Chief Executive Officer of EMC Corporation provides him with extensive executive management experience and knowledge of the challenges a company faces due to rapid changes in the marketplace. | |||||||
|
Joseph M. Velli
|
53 | 2007 | Mr. Velli has been Chairman and Chief Executive Officer of BNY ConvergEx Group, LLC, a leading global agency brokerage and technology company offering a comprehensive suite of investment services, since October 2006. Prior to the formation of BNY ConvergEx Group, he was a Senior Executive Vice President of The Bank of New York since September 1998 and assumed the additional role of Chief Executive Officer of BNY Securities Group in October 2002. He is a director of E*Trade Financial Corporation. He serves on our Investment, Governance and Compensation, and Executive Committees. Mr Velli has extensive knowledge of the capital markets and plays a key role in the Board’s discussions of the Company’s investments and liquidity. | |||||||
Our by-laws provide that each director shall be elected by a
majority of the votes cast for the director at any meeting for
the election of directors at which a quorum is present. If a
nominee that is an incumbent director does not receive a
required majority of the votes cast, the director shall offer to
tender his or her resignation to the Board. The Governance and
Compensation Committee of the Board shall consider such offer
and will make a recommendation to the Board on whether to accept
or reject the resignation, or whether other action should be
taken. The Board will consider the committee’s
recommendation and will determine whether to accept such offer.
The Board of Directors recommends the election of each of the
nominees identified above. Unless otherwise directed, the
persons named in the enclosed proxy will vote the proxy FOR the
election of each of these nominees.
8
Table of Contents
DIRECTOR
COMPENSATION
FOR THE
FISCAL YEAR ENDED MAY 31, 2011
Director compensation is set by the Governance and Compensation
Committee and approved by the Board. The Board’s authority
cannot be delegated to another party. The Company compensates
the independent directors of the Board using a combination of
cash and equity-based compensation. The Company’s
management does not play a role in setting Board compensation.
Martin Mucci, President and Chief Executive Officer
(“CEO”) of the Company since September 2010, and
Jonathan J. Judge, former President and CEO of the Company,
received no compensation for their services as directors. The
compensation received by Mr. Mucci and Mr. Judge in
their roles as President and CEO are shown in the Fiscal 2011
Summary Compensation Table, contained in the Named Executive
Officer Compensation Section of this Proxy Statement.
Cash
Compensation
The annual cash compensation paid to the independent directors
in effect for the fiscal year ended May 31, 2011
(“fiscal 2011”) is as follows:
|
Compensation Element
|
Amount | |||
|
Annual cash retainer, applicable to all independent directors
|
$ | 70,000 | ||
|
Audit Committee member annual retainer
|
$ | 10,000 | ||
|
Governance and Compensation Committee member annual retainer
|
$ | 7,500 | ||
|
Investment Committee member annual retainer
|
$ | 5,000 | ||
|
Executive Committee member annual retainer
|
$ | 5,000 | ||
|
Audit Committee Chair annual retainer
|
$ | 20,000 | ||
|
Governance and Compensation Committee Chair annual retainer
|
$ | 12,500 | ||
The cash compensation component is comprised solely of annual
retainers, which are paid in quarterly installments. The
retainers for the chairs of the Audit Committee and Governance
and Compensation Committee were included to provide compensation
for those Board members who contribute additional time in
preparation for committee meetings. These amounts are in
addition to member annual retainer amounts. Effective
July 7, 2010, annual retainers were increased to the levels
noted above. The most significant change was in the annual
retainer, increasing $25,000 to $70,000.
Mr. Golisano, who is not an independent director, received
an annual retainer of $200,000 for his services as Chairman of
the Board, paid in quarterly installments. This reflects an
increase of $60,000 effective July 7, 2010, in conjunction
with the other increases to director cash compensation. The
Chairman of the Board does not receive any other cash or
equity-based compensation.
9
Table of Contents
Equity-Based
Compensation
Equity-based compensation consists of a blend of stock options
and restricted stock. In July 2010, the restricted stock awards
granted in July 2007 lapsed. For Messrs. Flaschen, Inman,
and Tucci and Ms. Joseph, 1,334 shares lapsed
resulting in a value of $34,244 each. For Mr. Velli,
2,001 shares lapsed resulting in a value of $51,366. In
July 2010, independent directors Messrs. Flaschen, Inman,
Tucci, and Velli and Ms. Joseph received an annual award
under the Paychex, Inc. 2002 Stock Incentive Plan (the
“2002 Plan”) as follows:
|
Restricted Stock Awards
|
Option Awards
|
|||
|
Grant Date
|
July 7, 2010 | July 7, 2010 | ||
|
Exercise Price
|
NA | $26.02 | ||
|
Quantity
|
1,922 | 7,686 | ||
|
Vesting Schedule
|
On the third anniversary of the date of grant. | One-third per annum over three years from the date of grant. | ||
|
Certain Restrictions
|
Shares may not be sold during the director’s tenure as a member of the Board, except as necessary to satisfy tax obligations. | |||
|
Other
|
Upon the discretion of the Board, unvested shares may be accelerated in whole or in part for certain events including, but not limited to, director retirement.(1) | Unvested options outstanding upon the retirement of a Board member will be canceled. |
| (1) | Retirement eligibility for this purpose begins at age 55 or older with ten years of service as a member of the Board. |
With the July 2010 award, the equity-based compensation
structure for independent directors was based on a total value
of approximately $100,000 per director, with approximately 50%
awarded in the form of stock options and 50% in the form of
restricted stock. The total estimated value was reduced from a
previous target of $120,000 with the increase to director annual
retainers as noted previously under “Cash
Compensation.” The quantity of equity awards granted varies
based on the estimated fair value as of the grant date.
On October 13, 2010, Mr. Doody was granted 5,765
options to purchase common stock at an exercise price of $27.63
and 1,442 shares of restricted stock. The terms of these
grants are similar to the equity awards granted in July 2010,
with the exception that both awards vest fully on the first
anniversary of the grant date. These awards were granted to
Mr. Doody upon his appointment to the Board. The award
quantities are based on a proration of 75% of the quantities
awarded to directors in July 2010.
In July 2011, the Board granted each independent director 11,468
options to purchase shares of the Company’s common stock at
an exercise price of $31.63 per share and 1,652 shares of
restricted stock. The terms of these awards were similar to the
equity awards granted in July 2010, with the exception that
these awards vest on the first anniversary of the grant date.
The award quantities are based on an estimated total value of
approximately $100,000.
Deferred
Compensation Plan
We maintain a non-qualified and unfunded deferred compensation
plan in which all independent directors are eligible to
participate. Directors may elect to defer up to 100% of their
Board cash compensation. Gains and losses are credited based on
the participant’s selection of a variety of designated
investment choices, which the participant may change at any
time. We do not match any participant deferral or guarantee a
certain rate of return. The interest rates earned on these
investments are not above-market or preferential. Refer to the
Non-Qualified Deferred Compensation table and discussion within
the Named Executive Officer Compensation section of this Proxy
Statement for a listing of investment funds available to
participants and the annual rates of return on those funds.
Mr. Flaschen defers 100% of his Board cash compensation
under this plan. No other directors participate in the plan at
this time.
10
Table of Contents
Benefits
We reimburse each director for expenses associated with
attendance at Board and committee meetings.
Stock
Ownership Guidelines
The Governance and Compensation Committee set a stock ownership
guideline for our independent directors with a value of four
times his or her annual Board retainer, not including any
committee retainers. The ownership guideline was established to
provide long-term alignment with stockholders’ interests.
The independent directors are expected to attain the ownership
guideline within five years after the later of first becoming a
director or the initial adoption of the guideline. Directors
must hold underlying stock received through restricted stock
awards until their service on the Board is complete, with the
exception of those shares sold as necessary to satisfy tax
obligations. For the purpose of achieving the ownership
guideline, unvested restricted stock awarded to the directors is
included.
Directors must adhere to strict standards with regards to
trading in the Company’s stock. They may not, among other
things:
| • | speculatively trade in the Company’s stock; | |
| • | short sell any securities of the Company; or | |
| • | buy or sell puts or calls on the Company’s securities. |
11
Table of Contents
Fiscal
2011 Director Compensation
The table below presents the total compensation received from
the Company by all directors for fiscal 2011.
|
Fees Earned |
||||||||||||||||
|
or Paid in |
Stock Awards |
Option Awards |
Total |
|||||||||||||
|
Name
|
Cash ($)(1) | ($)(2),(4) | ($)(3),(4) | ($) | ||||||||||||
|
B. Thomas Golisano
|
$ | 200,000 | $ | — | $ | — | $ | 200,000 | ||||||||
|
Joseph G.
Doody(5)
|
$ | 40,000 | $ | 39,842 | $ | 21,227 | $ | 101,069 | ||||||||
|
David J. S.
Flaschen(6)
|
$ | 112,500 | $ | 50,010 | $ | 30,541 | $ | 193,051 | ||||||||
|
Grant M. Inman
|
$ | 92,500 | $ | 50,010 | $ | 30,541 | $ | 173,051 | ||||||||
|
Pamela A. Joseph
|
$ | 82,500 | $ | 50,010 | $ | 30,541 | $ | 163,051 | ||||||||
|
Joseph M. Tucci
|
$ | 90,000 | $ | 50,010 | $ | 30,541 | $ | 170,551 | ||||||||
|
Joseph M. Velli
|
$ | 85,000 | $ | 50,010 | $ | 30,541 | $ | 165,551 | ||||||||
| (1) | The amounts in this column are as described previously under “Cash Compensation.” | |
| (2) | Except for Mr. Doody as discussed in note 5, the amounts in this column reflect the fair value of $26.02 per share for restricted stock awards granted on July 7, 2010, and do not reflect whether the recipient has actually realized a financial gain from these awards (such as a lapse in a restricted stock award). The fair value of restricted stock awards is determined based on the closing price of the underlying common stock on the date of grant. | |
| (3) | Except for Mr. Doody as discussed in note 5, the amounts in this column reflect the fair value of $3.97 per option granted on July 7, 2010, as determined using a Black-Scholes option pricing model, and do not reflect whether the recipient has actually realized a financial gain from these awards (such as by exercising stock options). Refer to note 3 to the Fiscal 2011 Summary Compensation Table, contained in the Named Executive Officer Compensation section of this Proxy Statement, for the assumptions used in determining the fair value of these awards. | |
| (4) | As of May 31, 2011, each director had unvested restricted stock outstanding as follows: Mr Doody — 1,442 shares; Mr. Flaschen — 5,672 shares; Mr. Inman — 5,672 shares; Ms. Joseph — 5,672 shares; Mr. Tucci— 5,672 shares; and Mr. Velli — 5,672 shares. As of May 31, 2011, each director had the following number of options outstanding: Mr. Doody — 5,765; Mr. Flaschen — 67,186; Mr. Inman — 67,186; Ms. Joseph — 32,186; Mr. Tucci — 67,186; and Mr. Velli — 29,186. | |
| (5) | Mr. Doody was appointed to the Board in October 2010. On October 13, 2010, he was granted restricted stock awards with a fair value of $27.63 per share and stock options with a fair value of $3.68 per share. For the stock options, the fair value was determined using the following assumptions: risk-free interest rate of 1.2%; dividend yield of 4.3%; volatility factor of .25; and expected option term life of 5.0 years. | |
| (6) | Mr. Flaschen defers 100% of his cash fees earned to our non-qualified and unfunded deferred compensation plan. |
12
Table of Contents
PROPOSAL 2 •
ADVISORY VOTE ON EXECUTIVE COMPENSATION
We are asking our stockholders to provide advisory approval for
our NEO compensation, as described in the Compensation
Discussion and Analysis (the “CD&A”) section and
Named Executive Officer Compensation section of this Proxy
Statement. This proposal, commonly known as a
“say-on-pay”
proposal, gives our stockholders an opportunity to express their
views on the overall compensation of our NEOs and the
philosophy, policies, and practices as described in this Proxy
Statement. We encourage stockholders to read the sections of
this Proxy Statement referenced, which provide detailed
information on the Company’s compensation policies and
practices, and overall compensation of our NEOs.
Our executive compensation programs are designed to attract,
develop, motivate, and retain highly qualified NEOs, who are
critical to our success. We believe in a
pay-for-performance
approach to NEO compensation, and under our compensation
programs, the NEOs are rewarded for the achievement of specific
annual and longer-term strategic and financial goals of the
Company. Some key aspects of our compensation programs are as
follows:
| • | NEO compensation is evaluated and determined by our Governance and Compensation Committee, which is comprised of all independent directors. This committee utilizes the services of an independent consultant to advise them on matters of executive compensation. | |
| • | Our executive compensation program is designed to implement core compensation principles, including alignment with shareholder interests, long-term value creation, and pay-for-performance. This is done through a mix of fixed and variable compensation. In addition, a mix of annual and long-term incentive programs creates a balance between short-term and long-term focus, reducing risk in the compensation programs. | |
| • | In fiscal 2011, the equity-based long-term incentive awards were changed to include a mix of option awards, time-vested restricted stock awards, and performance awards. The performance awards were added to drive longer-term financial goals anticipated to increase shareholder value. | |
| • | The Governance and Compensation Committee used its discretion to award only time-vested restricted stock to certain officers nearing retirement, to encourage retention. | |
| • | The Board approved a change-in-control plan for officers of the Company to secure their continued service and ensure optimization of stockholder value in the event of a change-in-control. The plan outlines standard severance arrangements for executives if involuntary termination occurs within twelve months of a change-in-control event. The value of the benefits under the plan are conservative relative to our Peer Group and the plan does not provide for tax gross-ups. |
In addition, we have compensation practices that ensure
consistent leadership and decision-making, certain of which are
intended to mitigate risk. These include:
| • | Stock ownership guidelines for directors and executive officers. | |
| • | A long-standing insider trading policy. | |
| • | Equity-based compensation agreements contain certain non-compete and other forfeiture provisions that will allow the Company to cancel all or any outstanding portion of equity awards and recover the gross value of any vested restricted shares or profits from exercises of option awards. | |
| • | Employment of all executive officers “at will.” |
The Governance and Compensation Committee and the Board believe
that the policies, procedures, and amounts of compensation
discussed here and described further in this Proxy Statement are
effective in achieving the desired goals of aligning our
executive compensation structure with the interests of our
stockholders. To indicate approval of our executive
compensation, a majority of the shares present in person or by
proxy and entitled to vote at the Annual Meeting must be voted
for the proposal.
This
say-on-pay
vote is advisory, and therefore is not binding on the Company,
the Governance and Compensation Committee, or our Board. Our
Board values the opinions of our stockholders and, to the extent
that there is any significant vote against the NEO compensation
as disclosed in this Proxy Statement, we will
13
Table of Contents
consider our stockholders concerns and the Governance and
Compensation Committee will evaluate whether actions are
necessary to address these concerns.
The Board of Directors recommends a vote FOR the advisory
vote approving the executive compensation, as disclosed in this
Proxy Statement.
PROPOSAL 3 • ADVISORY
VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE
COMPENSATION
In addition to the advisory
say-on-pay
vote, we are seeking a stockholder advisory vote on the
frequency of future
say-on-pay
votes, as provided in Proposal 2. Stockholders may indicate
how often they would prefer a
say-on-pay
advisory vote to occur: every year, every two years, or every
three years. In addition, stockholders may abstain from voting.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
requires the Company to hold the advisory vote on the frequency
of
say-on-pay
votes at least once every six years.
After careful consideration, our Board has determined that an
annual
say-on-pay
vote is the most appropriate for the Company at this time, and
recommends that stockholders vote for the Company to hold annual
advisory votes on executive compensation, as decisions on
executive compensation are made annually. We believe that an
annual advisory
say-on-pay
vote allows us to obtain frequent and timely input from our
stockholders regarding corporate governance and executive
compensation philosophy, policies, and practices.
The option of one year, two years, or three years that receives
the majority of votes cast will be the frequency for the
advisory
say-on-pay
vote that has been selected by the stockholders. However, as
this is an advisory vote, it is not binding on the Company or
the Board. The Board will take into account the opinion of our
stockholders when determining which frequency for future
say-on-pay
votes is best suited to the Company.
The Board of Directors recommends a vote for a frequency of
EVERY YEAR for which stockholders will have an opportunity to
cast an advisory vote on the compensation of the Company’s
NEOs as set forth in the Proxy Statement.
PROPOSAL 4 •
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee has appointed the firm of Ernst &
Young LLP as the Company’s independent accountants for the
fiscal year ending May 31, 2012. Although action by
stockholders in this matter is not required, the Audit Committee
believes that it is appropriate to seek stockholder ratification
of this appointment and to seriously consider stockholder
opinion on this issue. If the stockholders do not ratify the
appointment, the Audit Committee will review its future
selection of the independent accountants, but may still retain
them.
Representatives from Ernst & Young LLP, the
Company’s independent accountants since 1983, will be
present at the Annual Meeting, will be afforded the opportunity
to make any statements they wish, and will be available to
respond to appropriate questions from stockholders.
To ratify the appointment of Ernst & Young LLP, a
majority of the shares present in person or by proxy and
entitled to vote at the Annual Meeting must be voted for the
proposal.
The Board of Directors recommends a vote FOR the proposal to
ratify the appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm for
the fiscal year ending May 31, 2012.
14
Table of Contents
Fees For
Professional Services
The following table shows the aggregate fees for professional
services rendered for the Company by Ernst & Young LLP:
| Year Ended May 31, | ||||||||
| 2011 | 2010 | |||||||
|
Audit fees
|
$ | 744,000 | $ | 737,000 | ||||
|
Audit-related fees
|
49,000 | 45,000 | ||||||
|
All other fees
|
65,000 | — | ||||||
|
Total fees
|
$ | 858,000 | $ | 782,000 | ||||
Audit fees for fiscal 2011 and for the fiscal year ended
May 31, 2010 (“fiscal 2010”) were for
professional services rendered for the audits of the
Company’s annual consolidated financial statements, reviews
of the financial statements included in the Company’s
Quarterly Reports on
Form 10-Q,
audits of the effectiveness of internal control over financial
reporting, and for statutory and regulatory filings.
Audit-related fees for fiscal 2011 and fiscal 2010 were
for employee benefit plan audits.
All other fees for fiscal 2011 were for an information
technology data security review. There were no tax or other
non-audit-related services provided by the independent
accountants for fiscal 2010.
Audit
Committee Policy on Pre-Approval of Services of Independent
Accountants
The Audit Committee’s policy is to pre-approve all audit
and permissible non-audit services provided by the independent
accountants. The Audit Committee pre-approved all such audit and
audit-related services provided by the independent accountants
during fiscal 2011 and fiscal 2010.
15
Table of Contents
REPORT OF
THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors oversees the
Company’s financial reporting process on behalf of the
Board and is composed entirely of independent directors. The
Audit Committee is governed by a written charter and its primary
responsibilities are highlighted in the Corporate Governance
section of this Proxy Statement.
Paychex management is responsible for the preparation of the
consolidated financial statements, the financial reporting
process, and for the Company’s internal controls over
financial reporting. Ernst & Young LLP, the
Company’s independent accountants, is responsible for
performing independent audits of the Company’s consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board. The independent
accountants are also responsible for expressing an opinion on
the effectiveness of the Company’s internal controls over
financial reporting. The Audit Committee monitors and oversees
these processes.
As part of the oversight processes, the Audit Committee
regularly meets with management, the Company’s internal
auditors, and the independent accountants. The Audit Committee
meets with the internal auditors and independent accountants,
with and without management present, to discuss the overall
scope and plans for various audits, results of their
examinations, their evaluations of the Company’s internal
controls, and the overall quality and effectiveness of the
Company’s financial reporting process and legal and ethical
compliance programs, including the Company’s Code of
Business Ethics and Conduct. The Audit Committee held six
meetings during fiscal 2011 and had full access to each of the
aforementioned parties.
In fulfilling its oversight responsibilities, the Audit
Committee has reviewed and discussed with management and the
independent accountants the consolidated financial statements
for fiscal 2011, including a discussion on the quality and
acceptability of the Company’s accounting policies, the
reasonableness of significant judgments and estimates, and the
clarity of disclosures in the consolidated financial statements.
The Audit Committee also monitored the progress and results of
testing of internal controls over financial reporting, reviewed
reports from management and internal audit regarding design,
operation, and effectiveness of internal controls over financial
reporting, and reviewed the report from the independent
accountants regarding the effectiveness of the Company’s
internal control over financial reporting.
The Audit Committee has discussed with the independent
accountants the matters required to be discussed by Statement on
Auditing Standards No. 61 (Codification of Statements on
Auditing Standards, AU 380) and SEC Rule 207. The
independent accountants have provided the Audit Committee with
the written disclosures and the letter required by the Public
Company Accounting Oversight Board regarding independent
accountants’ communications with the audit committee
concerning independence, and the Audit Committee has discussed
with the independent accountants and management the
accountants’ independence.
Based upon the reviews and discussions referred to above, the
Audit Committee recommended and the Board approved that the
audited consolidated financial statements be included in the
Company’s
Form 10-K
for fiscal 2011 for filing with the SEC. The Audit Committee has
recommended for approval by the Board the selection of the
Company’s independent accountants.
The Audit Committee:
David J. S. Flaschen, Chairman
Joseph G. Doody
Grant M. Inman
Pamela A. Joseph
Joseph G. Doody
Grant M. Inman
Pamela A. Joseph
16
Table of Contents
CORPORATE
GOVERNANCE
Information
About the Board of Directors and Corporate Governance
The Board is elected by the stockholders to oversee the overall
success of the Company, review its operational and financial
capabilities, and periodically assess its long-term strategic
objectives. The Board serves as the final decision-making body
of the Company, except for those matters for which authority is
reserved for, or shared with, the stockholders. The Board
selects and oversees the members of senior management, who are
charged by the Board with conducting the
day-to-day
business of the Company.
The Board currently separates the role of Chairman of the Board
from the CEO. The Board believes that the Company is best served
by having a Chairman who has in-depth knowledge of the
Company’s operations and the industry, but is not involved
in the
day-to-day
operations of the Company. Mr. Golisano’s extensive
experience as founder and former CEO qualifies him to lead the
Board, particularly as it focuses on strategic risks and
opportunities facing the Company. Our corporate governance
guidelines also provide that the Board will designate a Lead
Independent Director, currently Mr. Tucci, who has the
responsibility for conducting regularly scheduled executive
sessions of the independent directors.
The Board held four meetings during fiscal 2011 and two
conference calls. To the extent practicable, directors are
expected to attend all Board meetings and meetings of the
committees on which they serve. During fiscal 2011, each
director attended more than 90% of the Board meetings and
committee meetings on which the director served. Directors are
encouraged to attend annual meetings of stockholders. All
directors attended the 2010 Annual Meeting of Stockholders.
Regularly scheduled executive sessions of the independent
members of the Board, without members of management present, are
held in conjunction with meetings of the Board. As appropriate,
matters presented to the Board by the Governance and
Compensation Committee are reviewed and discussed in executive
session by the independent directors, which in fiscal 2011 were
all directors except for Mr. Golisano, Mr. Judge, and
Mr. Mucci.
Risk
Oversight
One of the functions of the Board is oversight of risks inherent
in the operation of the Company’s business. The Board
fulfills this function through regular reports from officers for
oversight of particular risks within the Company, through review
of the Company’s strategic plan, and through delegation of
certain risk oversight functions to various committees. The
Audit Committee has oversight responsibility for the areas of
financial risk, data security risk, compliance risk, and fraud
risk. The Investment Committee has established a policy
outlining risk-tolerance and detailing requirements for the
Company’s investment portfolios, and oversees compliance
with that policy. The Governance and Compensation Committee
oversees risks related to compensation programs, as discussed in
greater detail below, as well as risks related to corporate
governance matters including succession planning, director
independence, and related person transactions. The
responsibilities of each committee are detailed in the
individual committee charters, which are available on the
Company’s website and are summarized in the Board of
Directors Committees section that follows.
As part of its risk oversight, the Board conducted an assessment
of risks arising from the Company’s compensation programs.
The Governance and Compensation Committee reviewed such programs
with its independent compensation consultant. The Governance and
Compensation Committee’s assessment included a review of
mitigating factors including the performance metrics used in
each compensation arrangement, the balance of fixed and variable
and short-term and long-term compensation, stock ownership
guidelines, and recoupment and other forfeiture provisions.
Based on this review, the Governance and Compensation Committee
concluded that its compensation policies and procedures are not
reasonably likely to have a material adverse effect on the
Company.
17
Table of Contents
Board of
Directors Committees
The Board has established four standing committees with the
following director assignments and independence determination:
|
Governance and |
||||||||||
|
Executive |
Audit |
Investment |
Compensation |
|||||||
|
Name
|
Independence(1)
|
Committee
|
Committee
|
Committee
|
Committee
|
|||||
|
B. Thomas Golisano
|
X | |||||||||
|
Martin Mucci
|
Chairman | |||||||||
|
Joseph G. Doody
|
X | X | ||||||||
|
David J. S. Flaschen
|
X | Chairman | X | X | ||||||
|
Grant M. Inman
|
X | X | Chairman | X | ||||||
|
Pamela A. Joseph
|
X | X | X | |||||||
|
Joseph M. Tucci
|
X | Chairman | ||||||||
|
Joseph M. Velli
|
X | X | X | X | ||||||
|
Number of meetings held by committee during fiscal 2011
|
2 | 6 | 1 | 5 |
| (1) | Directors are independent within the meaning of applicable SEC and NASDAQ director independence standards. |
Note: Phillip Horsley was appointed to the Board in July 2011,
and serves on the Investment and Governance and Compensation
Committees.
The Board has determined that all members of the Audit Committee
meet the independence, experience, and other applicable NASDAQ
listing requirements and applicable SEC rules regarding
independence, and that Mr. Flaschen qualifies as an
“Audit Committee Financial Expert,” as defined by
applicable SEC rules. The Board has also determined that all
members of the Governance and Compensation Committee meet the
NASDAQ independence criteria.
Executive Committee. The primary
responsibility of the Executive Committee is to exercise all the
powers and authority of the Board except as limited by law.
Audit Committee. The primary responsibilities
of the Audit Committee are to:
| • | serve as an independent and objective party to monitor the Company’s financial reporting process, internal control system, and financial risk management processes; | |
| • | review the performance and independence of the Company’s independent accountants; | |
| • | review and appraise the performance of the Company’s internal auditors; | |
| • | provide an open avenue of communication among the independent accountants, financial and senior management, the internal auditors, and the Board; and | |
| • | review significant risk exposures and processes to monitor, control, and report such exposures; annually reporting on such information to the Board. |
Investment Committee. The primary
responsibilities of the Investment Committee are to:
| • | review the Company’s investment policies and strategies, and the performance of the Company’s investment portfolios; and | |
| • | determine that the investment portfolios are managed in compliance with the established investment policy. |
Governance and Compensation Committee. The
primary responsibilities of the Governance and Compensation
Committee are to:
| • | evaluate and determine compensation for the directors, CEO, and senior executive officers; |
18
Table of Contents
| • | provide general oversight with respect to governance of the Board, including periodic review and assessment of corporate governance policies; | |
| • | evaluate compensation policies for mitigating factors on risks that are reasonably likely to have a material adverse effect on the Company; | |
| • | identify, evaluate, and recommend to the Board candidates for nomination for election to the Board; and | |
| • | review annually the independence of directors. |
The Audit, Investment, and Governance and Compensation
Committees’ responsibilities are more fully described in
each committee’s charter adopted by the Board, which are
accessible on the Company’s website at
www.paychex.com at the Investor Relations section under
“Corporate Governance.”
Nomination
Process
The Governance and Compensation Committee functions as our
nominating committee. The Board does not have a formal policy
regarding diversity. However, the Board has determined that it
is necessary for the continued success of the Company to ensure
that the Board is composed of individuals having a variety of
complementary experience, education, training, and relationships
relevant to the then-current needs of the Board and the Company.
The Board’s Nomination Policy included in the Governance
and Compensation Committee Charter is intended to achieve this
result.
In evaluating candidates for nomination to the Board, including
candidates for nomination recommended by a stockholder, the
Nomination Policy requires Governance and Compensation Committee
members to consider the contribution that a candidate for
nomination would be expected to make to the Board and the
Company, based upon the current composition and needs of the
Board, and the candidate’s demonstrated business judgment,
leadership abilities, integrity, prior experience, education,
training, relationships, and other factors that the Board
determines relevant. In identifying candidates for nomination to
fill vacancies created by the expiration of the term of any
incumbent director, the Nomination Policy requires Governance
and Compensation Committee members to determine whether such
incumbent director is willing to stand for re-election and, if
so, to take into consideration the value to the Board and to the
Company of their continuity and familiarity with the
Company’s business. The Board has previously used a
third-party search firm to identify director candidates and the
charter authorizes the Governance and Compensation Committee to
continue this practice.
The Nomination Policy requires the Governance and Compensation
Committee to consider candidates for nomination to the Board
recommended by any reasonable source, including stockholders.
Stockholders who wish to do so may recommend candidates for
nomination by identifying such candidates and providing relevant
biographical information in written communications to the
Chairman of the Governance and Compensation Committee in
accordance with the policy described in the section entitled
“Communications with the Board of Directors.”
Policy on
Transactions with Related Persons
It is the Company’s policy to avoid transactions with
related persons. However, there may be occasions when a
transaction with a related person is in the best interest of the
Company. The Company’s policies and procedures for review
and approval of related-person transactions appear in the
Company’s Standards of Conduct, Conflict of Interest, and
Employment of Relatives Standards, which are internally
distributed, and in the Company’s Code of Business Ethics
and Conduct, which is posted on the Company’s website.
All employees are required to disclose specified transactions,
which include certain financial interests in or relationships
with any supplier, customer, partner, subcontractor, or
competitor; serving on the board of non-profit organizations;
and engaging in any activity that could create the appearance of
a conflict of interest, including financial involvement or
dealings with employees or representatives of the types of
entities listed above. The Company reviews and determines if a
conflict of interest exists related to any such transactions.
For officers, the Company’s Chief Financial Officer
(“CFO”) oversees the review of such transactions.
19
Table of Contents
Members of the Board are required to disclose to the Chairman of
the Board or the Chair of the Governance and Compensation
Committee any situation that involves, or may reasonably be
expected to involve, a conflict of interest with the Company,
including engaging in any conduct or activities that would
impair the Company’s relationship with any person or entity
with which the Company has or proposes to enter into a business
or contractual relationship.
The Company’s finance department annually reviews the
Company’s listing of related parties for determination of
potential related-person transactions that would be disclosable
in the Company’s periodic reports or proxy materials under
United States generally accepted accounting principles
(“GAAP”) and SEC rules.
The Governance and Compensation Committee is required to
consider all questions of possible conflicts of interest of
Board members and executive officers, including review and
approval of transactions of the Company in excess of $120,000 in
which a director, executive officer, or an immediate family
member of a director or executive officer has an interest.
Mr. Tucci, a member of the Board, is the Chairman,
President, and Chief Executive Officer of EMC Corporation.
During fiscal 2011, the Company purchased through negotiated
transactions approximately $5.7 million of data processing
equipment and software from EMC Corporation. Mr. Tucci was
not personally involved in the negotiation of these transactions.
Mr. Doody, a member of the Board, is the President for
North American Delivery, one of Staples, Inc. significant
business segments. During fiscal 2011, the Company purchased
through negotiated transactions approximately $1.8 million
of office supplies from Staples, Inc. Mr. Doody was not
personally involved in the negotiation of these transactions.
Mr. Judge, the Company’s former President and CEO and
a former member of the Board until October 2010, is a member of
the Board of Directors of Dun & Bradstreet
Corporation. During fiscal 2011, the Company purchased
$0.4 million of services from Dun & Bradstreet
Corporation.
Governance
and Compensation Committee Interlocks and Insider
Participation
None of the members of the Governance and Compensation Committee
were at any time during fiscal 2011, or at any other time, an
officer or employee of the Company. Mr. Tucci, a member of
the Board, is Chairman of the Governance and Compensation
Committee, and is also an executive of EMC Corporation. As noted
above, the Company purchases data processing equipment and
software from EMC Corporation. During fiscal 2011, no member of
the Governance and Compensation Committee or Board was an
executive officer of another entity on whose compensation
committee or board of directors an executive officer of Paychex
served.
Communications
with the Board of Directors
The Board has established procedures to enable stockholders and
other interested parties to communicate in writing with the
Board, including the chairman of any standing committee of the
Board. Written communications should be clearly marked
“Stockholder and Other Interested Parties — Board
Communication,” and be mailed to Paychex, Inc. at 911
Panorama Trail South, Rochester, New York,
14625-2396,
Attention: Corporate Secretary. In the case of communications
intended for committee chairmen, the specific committee must be
identified. Any such communications that do not identify a
standing committee will be forwarded to the Board. The Corporate
Secretary will promptly forward all stockholder and other
interested party communications to the Board or to the
appropriate standing committee of the Board, as the case may be.
20
Table of Contents
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors,
executive officers, and beneficial owners of more than 10% of
the Company’s common stock to file reports of their
ownership and changes in their ownership of the Company’s
equity securities with the SEC. Based solely on our review of
information supplied to the Company and filings made with the
SEC, the Company believes that during fiscal 2011, its
directors, executive officers, and greater than 10% beneficial
owners have complied in a timely manner with all applicable
Section 16 filing requirements, with one exception.
Mr. Doody’s Form 3 filing upon becoming a member
of the Board was filed timely, but was subsequently amended more
than ten days after his appointment to the Board.
CODE OF
BUSINESS ETHICS AND CONDUCT
The Company has a Code of Business Ethics and Conduct that
applies to all of its directors, officers, and employees. The
Company requires all to adhere to this code in addressing legal
and ethical issues that they encounter in the course of doing
their work. This code requires our directors, officers, and
employees to avoid conflicts of interest, comply with all laws
and regulations, conduct business in an honest and ethical
manner, and otherwise act with integrity and in the
Company’s best interest. All newly hired employees are
required to certify that they have reviewed and understand this
code. In addition, each year all employees are reminded of and
asked to affirmatively acknowledge their obligation to follow
the code. The Code of Business Ethics and Conduct is available
for review on the Company’s website at
www.paychex.com at the Investor Relations section under
“Corporate Governance.” The Company intends to
disclose any amendment to, or waiver from, a provision of its
Code of Business Ethics and Conduct that relates to any element
of the code of ethics definition enumerated in Item 406 of
SEC
Regulation S-K
by posting such information on its website at the address
specified above.
21
Table of Contents
COMPENSATION
DISCUSSION AND ANALYSIS
Executive
Summary
2011
Business and Financial Highlights
Our financial results for fiscal 2011 reflected continued
gradual improvement in many of our key business indicators that
had in the prior two years been challenged by the economic
recession. These improvements resulted in a return to
year-over-year
growth, after experiencing a decline in the previous year.
|
Our performance targets incorporated into our executive compensation programs typically are based on the financial measures of service revenue and operating income, net of certain items. Service revenue for fiscal 2011 increased 5% compared to the prior year, and operating income, net of certain items, increased 7% for fiscal 2011 compared to the prior year. We also continued to manage our expenses, allowing our operating income, net of certain items, as a percent of service revenue to increase to 36.3% for fiscal 2011, up from 35.4% for fiscal 2010.
For more information about our fiscal 2011 business results, see the section of our Fiscal 2011 Annual Report on Form 10-K (“Form 10-K”) entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, during fiscal 2011, we had the following accomplishments: |
|
|
|
• We
acquired two software-as-a-service companies, SurePayroll, Inc.
and ePlan Services, Inc. These acquisitions opened up additional
areas of the markets we serve. They leverage our strength in
payroll and retirement services, offering expanded channels for
selling. • We
introduced new service offerings, including the highly
successful Paychex HR Essentials, an administrative services
organization that provides support to our clients over the phone
or online to help manage employee-related
topics. • We
continued to invest in our product development and supporting
technology by expanding our enhanced platform for payroll
processing to additional products. |
|
During fiscal 2011, we had changes in our executive officer team
as follows:
| • | Jonathan J. Judge resigned as President and CEO effective July 31, 2010 and did not stand for reelection to our Board in October 2010. | |
| • | Martin Mucci, previously our Senior Vice President of Operations, was appointed President and CEO in September 2010 and appointed to the Board in October 2010. |
22
Table of Contents
| • | John M. Morphy, Senior Vice President, CFO, and Secretary, announced his plans to retire in January 2012, and effective June 1, 2011, Mr. Efrain Rivera was appointed as his successor. Mr. Morphy continues to serve as Vice President of Finance until his retirement. | |
| • | Delbert M. Humenik resigned as Senior Vice President of Sales and Marketing in October 2010. | |
| • | William G. Kuchta, previously our Vice President of Organizational Development announced his plans to retire in October 2011, and Ms. Laurie L. Zaucha was appointed in March 2011 to be his successor. Mr. Kuchta continues to serve as Vice President of Government Affairs until his retirement. |
2011
Executive Compensation Highlights
We believe in a
pay-for-performance
approach to executive compensation. For those NEOs not nearing
retirement, 66% of total compensation was in the form of
pay-for-performance
for fiscal 2011. Therefore, the Company’s financial results
were a significant factor in the decisions made by the
Governance and Compensation Committee related to executive
compensation for fiscal 2011.
| • | Annual Officer Performance Incentive Program. As previously discussed, some of our key business indicators, including checks per client, discounting, and client retention, gradually improved throughout fiscal 2011. As a result, we slightly exceeded our established performance target on service revenue. Our continued expense management also resulted in exceeding our maximum on both operating income, net of certain items, and operating income, net of certain items, as a percent of service revenue. We did continue to experience challenges in the new sales environment as a result of lack of growth in new business starts. Therefore, results did not meet the threshold for payout for annualized new business revenue. For fiscal 2011, the NEOs earned, on average, annual officer performance incentive program (“annual incentive program”) payouts equal to approximately 110% of the target payout. Refer to the section of this CD&A entitled “Annual Officer Performance Incentive Program” for a more detailed discussion of this program. | |
| • | Equity-based compensation. In July 2010, the equity-based compensation structure was changed as performance shares were added. NEOs were granted annual equity-based compensation in the form of stock options, time-vested restricted stock, and performance shares. Certain officers considering retirement were granted solely time-vested restricted stock for retention purposes. Performance shares add to the pay-for-performance philosophy by rewarding NEOs for leading their organizations to achieve longer-term financial goals that are anticipated to increase shareholder value. Refer to the section of this CD&A entitled “Equity-Based Compensation” for further discussion. | |
| • | CEO Compensation. Upon his promotion to President and CEO in September 2010, Mr. Mucci was awarded a base salary of $800,000, and was granted additional awards of stock options, restricted stock, and performance shares, as detailed in the Grants of Plan-Based Awards Table included in the Named Executive Officer Compensation section of this Proxy Statement. The terms of these awards were consistent with those the other NEOs received as part of their annual equity award in July 2010. | |
| • | Separation Arrangements. As part of Mr. Judge’s separation and release, he received a separation payment of $1.9 million, immediate acceleration of unvested equity awards granted prior to July 1, 2007, and COBRA premiums for health insurance for twelve months. An additional 11,111 shares of restricted stock and an additional 30,000 stock options from the July 17, 2007 awards also vested immediately on July 31, 2010. |
As part of Mr. Humenik’s separation and release, he
received a lump-sum payment equal to six months salary and
health insurance premiums. For further discussion of the
agreements with Mr. Judge and Mr. Humenik, refer to
the section of this CD&A entitled “Separation
Agreements.”
| • | Change-In-Control. In April 2011, the Board approved a Change-In-Control Plan covering the officers of the Company. This plan provides that upon involuntary termination within 12 months of a change-in-control, the officer is entitled to certain severance benefits. The value of the benefits under the plan are conservative relative to our Peer Group and the plan does not provide for tax gross-ups. For further information on this plan, refer to the section of this CD&A entitled “Change-in-Control Plan.” |
23
Table of Contents
Corporate
Governance Highlights
We endeavor to maintain governance standards and oversight of
our executive compensation policies and practices. The following
governance practices were in place during fiscal 2011, and these
practices, among other elements of our compensation programs,
aid in mitigating risk associated with our compensation programs.
| • | Our Governance and Compensation Committee, which is comprised solely of independent directors, utilizes the services of Steven Hall & Partners (“Steven Hall”) as an independent compensation consultant, who reports only to the committee and does not perform any other services for the Company. | |
| • | We have stock ownership guidelines for our executive officers. | |
| • | The benefits our NEOs receive in the form of vacation, health insurance, life insurance, and Company matching contributions to the 401(k) Plan are the same benefits generally available to all of our employees. | |
| • | Our equity-based compensation agreements contain certain non-compete and other forfeiture provisions that will allow the Company to cancel all or any outstanding portion of equity awards and recover the gross value of any vested restricted shares or profits from exercises of option awards. | |
| • | Employment of all executive officers “at will.” |
Refer to the remainder of this CD&A for a discussion of the
overall compensation philosophy, practice, and analysis of
elements of the compensation awarded to our NEOs as detailed in
the Fiscal 2011 Summary Compensation Table included in the Named
Executive Officer Compensation section of this Proxy Statement.
Objectives
of Compensation Program
The Company believes in a
pay-for-performance
approach to NEO compensation. The overall objectives of our
officer compensation plan are to tie compensation to our overall
financial and strategic objectives; align the interests of NEOs
with the interests of our stockholders; reward exceptional
individual performance; provide competitive opportunities when
compared with companies of comparable size; and attract, retain,
and develop highly qualified NEOs.
To achieve these objectives, our officer compensation plan has
been designed to:
| • | be closely linked to, and deliver pay opportunities based on, Company and individual performance; | |
| • | have incentives based on a focused set of financial, operational, and strategic goals; | |
| • | provide the appropriate mix of individualized base salary, variable compensation, and short- and long-term incentives to deliver additional compensation opportunity for superior performance and reduced compensation opportunity in periods where performance goals are not achieved; and | |
| • | be clearly communicated to NEOs, stockholders, and other key parties. |
Role of
Governance and Compensation Committee
As part of the committee’s responsibility to evaluate and
determine NEO compensation, on an annual basis the committee:
| • | reviews base salaries for adjustments, if any; | |
| • | establishes the performance targets and payouts of the annual incentive program; | |
| • | approves the prior year payouts under the annual incentive program; | |
| • | grants equity awards under our 2002 Plan; and | |
| • | considers the impact of section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). |
As outlined in its charter, the committee has the authority to
retain consultants and advisors, at the Company’s expense,
to assist in the discharge of the committee’s duties. The
committee can retain and dismiss such consultants
24
Table of Contents
and advisors at any time. The committee’s consultants
report directly to the committee and have direct access to the
committee through the committee’s chair. The committee
requires that any consultant it retains cannot be utilized by
management for other purposes. Although management, particularly
the Vice President of Human Resources and Organizational
Development, may work closely with the committee’s
consultant, the consultant is ultimately accountable to the
committee on matters related to executive compensation.
For fiscal 2011, the committee retained the services of Steven
Hall as its independent compensation consultant. Steven Hall has
not provided any services to the Company prior to or subsequent
to being retained as compensation consultant to the committee.
The committee was solely responsible for the decision to retain
Steven Hall as its consultant. In fiscal 2011, Steven Hall
advised the committee on matters of NEO compensation, assisted
the committee with analysis and research, and updated the
committee on evolving best practices in compensation. While
Steven Hall may express an opinion on compensation matters, the
committee is solely responsible for setting the type and amount
of compensation for NEOs.
Management retains the services of The Burke Group (formerly
First Niagara Consulting) as a compensation consultant to advise
management on overall compensation strategy and plan design.
Generally, compensation plans are developed and proposed by
management, with analytical and research assistance by The Burke
Group. The committee’s consultant reviews reports from
management and The Burke Group and offers the committee their
opinions on the findings.
Our CEO and our Vice President of Human Resources and
Organizational Development provide recommendations to the
committee on design elements for compensation. These
individuals, and from time to time invited guests including
other officers, will be in attendance at the meetings of the
committee to present and respond to questions on current or
proposed plan design. Annually, our CEO reviews achievement of
the recently completed fiscal year’s plan and also presents
recommendations regarding: salary for each of the NEOs (other
than himself); the upcoming fiscal year’s annual incentive
program structure; and equity awards. Management is excluded
from executive sessions of the committee where final decisions
on compensation are made, particularly those on our CEO’s
performance and compensation. Executive sessions occur at each
meeting of the committee.
Elements
of Compensation
We use a combination of compensation elements, including base
salary, annual incentive program, and equity awards delivered
under our 2002 Plan. The committee compares our NEOs’
compensation plan with that of other NEOs at similar companies,
when such information is available. The committee reviews
compensation consultants’ reports to assess our cash
compensation elements of base salary and annual incentive
program. The committee strives for our NEOs’ compensation
to be competitive with our Peer Group, a group of companies with
comparable revenue and net income who are in a comparable
industry, or who are direct competitors of Paychex (as detailed
on the following page). The information provided by the
compensation consultant indicates whether our compensation
package, if target performance is achieved, is comparable to the
median compensation of our Peer Group, given current competitive
practices, overall best practices, and other compensation and
benefit trends. The committee continues to review each of the
elements annually to ensure that compensation is appropriate and
competitive to attract and retain a high-performing executive
team. The committee, in making its decisions, targets an
equitable mix of compensation.
Annually, management provides the committee a summary for the
upcoming fiscal year of total cash compensation and equity
awards (based on grant date fair value) for all officer levels,
from Vice President (“VP”) to CEO. The summary is used
to evaluate compensation recommendations and the impact to total
compensation for each individual.
Management also provides the committee on an annual basis a
three-year history of total compensation for all officers,
including cash, annual incentive program payout, and
equity-based compensation. This history provides a more complete
picture of the internal trend of compensation to executive
officers, both as a team and as individuals. This summary
facilitates discussion that more accurately details individual
officer compensation, noting differences that reflect officer
tenure, performance, and position in the management structure.
25
Table of Contents
The committee uses these management updates along with peer
information, where available, as tools to evaluate executive
compensation. This information is reviewed in a subjective
manner. There is no implied direct or formulaic linkage between
peer information and our compensation decisions.
Compensation for our officers is most closely compared to our
Peer Group, for positions where such information is available.
The committee assesses total compensation at the median of the
Peer Group, even though Paychex performs above the median of its
Peer Group for net income as shown in the following table. Peer
Group comparisons were available for the positions of CEO and
CFO, both of whom have total compensation that falls below the
median of the Peer Group. Peer Group benchmarking is not the
sole determining factor in the committee’s decisions on
compensation, and the committee reserves the discretion to
adjust compensation based on other factors as discussed above.
The Peer Group companies are not necessarily limited to the
markets in which Paychex does business. The Peer Group is
comprised of the following industries or segments: a direct
competitor in the payroll industry; financial transaction
management companies; and business services and outsourcing
companies.
Our current Peer Group consists of the following companies:
Paychex
Peer
Group(1)
|
Reported |
Net Income |
|||||||||||||||||
|
$ In Millions |
Fiscal Year |
as a % of |
||||||||||||||||
|
Company Name
|
Ticker | End | Revenue | Net Income | Revenue | |||||||||||||
|
Direct Competitor Payroll
|
||||||||||||||||||
|
Automatic Data Processing, Inc.
|
ADP | Jun-11 | $ | 9,880 | $ | 1,254 | 13 | % | ||||||||||
|
Financial Transaction Management
|
||||||||||||||||||
|
Fiserv, Inc.
|
FISV | Dec-10 | $ | 4,133 | $ | 496 | 12 | % | ||||||||||
|
The Western Union Company
|
WU | Dec-10 | $ | 5,193 | $ | 910 | 18 | % | ||||||||||
|
Total System Services, Inc.
|
TSS | Dec-10 | $ | 1,718 | $ | 194 | 11 | % | ||||||||||
|
Global Payments Inc.
|
GPN | May-11 | $ | 1,860 | $ | 209 | 11 | % | ||||||||||
|
The Brink’s Company
|
BCO | Dec-10 | $ | 3,122 | $ | 57 | 2 | % | ||||||||||
|
Business Services and Outsourcing
|
||||||||||||||||||
|
DST Systems, Inc.
|
DST | Dec-10 | $ | 2,329 | $ | 319 | 14 | % | ||||||||||
|
The Dun & Bradstreet Corporation
|
DNB | Dec-10 | $ | 1,677 | $ | 252 | 15 | % | ||||||||||
|
Equifax Inc.
|
EFX | Dec-10 | $ | 1,860 | $ | 267 | 14 | % | ||||||||||
|
Broadridge Financial Solutions, Inc.
|
BR | Jun-11 | $ | 2,167 | $ | 170 | 8 | % | ||||||||||
|
Robert Half International Inc.
|
RHI | Dec-10 | $ | 3,175 | $ | 66 | 2 | % | ||||||||||
|
Intuit Inc.
|
INTU | Jul-11 | $ | 3,851 | $ | 634 | 16 | % | ||||||||||
|
Iron Mountain Incorporated
|
IRM | Dec-10 | $ | 3,128 | $ | (54 | ) | (2 | )% | |||||||||
|
Moody’s Corporation
|
MCO | Dec-10 | $ | 2,032 | $ | 508 | 25 | % | ||||||||||
|
H&R Block, Inc.
|
HRB | Apr-11 | $ | 3,774 | $ | 406 | 11 | % | ||||||||||
|
TD AMERITRADE Holding Corporation
|
AMTD | Sep-10 | $ | 2,561 | $ | 592 | 23 | % | ||||||||||
|
Paychex, Inc.
|
PAYX | May-11 | $ | 2,084 | $ | 515 | 25 | % | ||||||||||
|
Paychex Percentile Rank
|
31 | % | 75 | % | 94 | % | ||||||||||||
| (1) | Information in the above table is obtained from Form 10-Ks as filed with the SEC, or from the entity’s fiscal year-end earnings release. |
The committee annually reviews and approves the selection of
Peer Group companies, adjusting the group from year to year
based upon our business and changes in the Peer Group
companies’ business or comparative metrics. The Peer Group
may also be adjusted in the event of mergers, acquisitions, or
other significant economic changes. During fiscal 2011, the
committee took action to adjust the Peer Group. Hewitt
Associates, Inc. was removed from our Peer Group, as it was
acquired by Aon Corporation.
26
Table of Contents
Base
Salary
Annually, base salaries are reviewed to determine what, if any,
increase is required. For fiscal 2011, the increase in base
salaries for NEOs were moderate, with the exception of
Mr. Gioja and Mr. McCarthy. Mr. Gioja received a
larger salary increase commensurate with the additional
responsibilities of overseeing development as well as product
management. Mr. McCarthy’s salary increase reflected
his strong leadership of the Major Market Services area during
the economic recession.
Annual
Officer Performance Incentive Program
The annual incentive program provides additional opportunity for
compensation in the form of
pay-for-performance.
The program was established to motivate NEOs to meet the
financial goals of the Company, while maintaining alignment with
stockholders’ interests.
In the first quarter of fiscal 2011, the committee set a goal
for net income for fiscal 2011 as the minimum performance hurdle
for the NEOs to be eligible for payout under the program. The
Company achieved the net income goal set by the committee for
fiscal 2011. This goal is the basis for the maximum allowable
payouts for each NEO. The annual incentive program is intended
to comply with section 162(m) of the Code for NEOs affected
by the $1 million limitation.
Upon achievement of the minimum eligible performance, payouts
under our annual incentive program are determined based upon the
satisfaction of certain quantitative and qualitative components.
The quantitative component consists of certain predetermined
performance targets, which are established at the beginning of
each fiscal year, typically based on the Board-approved fiscal
year financial plan. The CEO can potentially earn 80% of base
salary at target performance with up to 140% of base salary if
maximum performance is achieved under the quantitative component
of the program. Senior Vice Presidents (“SVP”s) can
potentially earn 65% of base salary at target performance with
up to 110% of base salary if maximum performance is achieved.
VPs potentially could earn 40% of base salary at target
performance with up to 70% of base salary if maximum performance
is achieved. For fiscal 2011, the quantitative component
provided our NEOs the opportunity for compensation based on
achievement, as calculated under the program, compared to the
following pre-established goals:
|
Performance Goal |
Performance Targets Established | |||||||||||||||
|
$ In Millions
|
Threshold | Target | Maximum | Achievement(1) | ||||||||||||
|
Annualized New Business
Revenue(2)
|
$ | 483 | $ | 508 | $ | 523 | $ | 456 | ||||||||
|
Service Revenue
|
$ | 1,958 | $ | 2,019 | $ | 2,045 | $ | 2,027 | ||||||||
|
Operating Income, Net of Certain
Items(3)
|
$ | 672 | $ | 700 | $ | 712 | $ | 741 | ||||||||
|
Operating Income, Net of Certain Items, as a Percentage of
Service Revenue
|
33.9 | % | 34.7 | % | 34.9 | % | 36.5 | % | ||||||||
| (1) | Achievement amounts differ from amounts disclosed in our fiscal 2011 Form 10-K due to calculations specified in the plan design. | |
| (2) | Annualized new business revenue is the approximate amount of revenue to be earned over the first twelve-month period, from the sale in the current fiscal year of certain Payroll, Human Resource Services, and Insurance Services to new clients and new product sales to existing clients. This measure is a leading indicator for the subsequent year’s service revenue growth. This measure is not directly calculated from our audited financial statements, as reported service revenue also includes recurring revenue from pre-existing clients. | |
| (3) | Historically, the sole exclusion from operating income, net of certain items, has been interest on funds held for clients. Operating income, net of certain items is considered a non-GAAP measure. At the discretion of the committee, they may adjust for items that are unusual and infrequent in nature. |
The targets for payout are established by the committee with
consultation of management. The performance targets of the
annual incentive program have both financial and strategic
objectives. Targets for the annual incentive program are set at
specific financial goals, which are in alignment with
stockholder interests. Once the target is determined, it is set
for the year and is normally not changed. For extraordinary
circumstances, the committee reserves the right to apply
discretion. The weighting of each performance target is
determined by the committee
27
Table of Contents
when the targets are established and this weighting varies for
each NEO based on the individual’s position. Each of the
performance targets applicable to a NEO’s annual incentive
program provide the NEO an opportunity to earn a percentage of
their annual base salary based on achievement at threshold,
target, and maximum. The program was established to motivate our
NEOs to meet the financial goals set by the Company as presented
to its stockholders.
The qualitative component of the annual incentive program
consists of individual-specific qualitative goals established at
the beginning of the fiscal year based on functions unique to
the individual. The CEO can potentially receive 20% of base
salary and all other NEOs can potentially receive 10% of base
salary, the same at threshold, target, and maximum for this
component of the program. These goals are highly subjective and
are not always based on quantifiable financial measurements. The
committee may determine, at its sole discretion, whether
satisfactory achievement has occurred, regardless of achievement
against the pre-established individual goals. For fiscal 2011,
the committee exercised its discretion and awarded the
qualitative component of the awards at the maximum percentage
for each NEO. The qualitative component of the annual incentive
program is not considered material to the overall compensation
for each NEO.
Equity-Based
Compensation
To align our NEOs interests with the long-term interests of our
stockholders, the Company grants equity awards under the 2002
Plan. Annual grants of equity awards to the NEOs are approved
during the regularly scheduled meeting of the Board in July. The
exercise price of the award is typically the closing market
price, but never less than 100% of fair market value, on the
date of the grant. Historically, the July Board meeting has been
scheduled to occur approximately two weeks after the release of
our fiscal year-end earnings and upcoming fiscal year financial
guidance. Our trading black-out period normally lifts on the
third business day following such release of information. The
committee anticipates continuing its granting practice. In
fiscal 2011, the Board also granted equity awards to individuals
upon hire or promotion to executive officer positions. These
equity awards were not granted during any trading black-out
periods. Recipients are notified shortly after Board approval of
their grant, noting the number of stock options, shares of
restricted stock, target performance shares and goals, the
vesting schedule, and exercise price. Any sales restrictions or
other terms of the award are also communicated at that time.
In July 2010, the committee granted a blend of stock options,
time-vested restricted stock, and performance shares. This is
the first year that the committee has utilized performance
shares. The quantity of awards was based on an estimated total
value, as determined by the committee, with that total value
split 30% to stock options, 50% to performance shares, and 20%
to restricted stock. A larger portion of the value of the equity
was shifted to at-risk, performance-based awards in the form of
performance shares and stock options. The balance of equity
awards in the form of time-vested restricted stock was granted
for retention purposes. The quantity delivered was adjusted by
the committee at its discretion for individual performance and
future potential considerations.
The following equity-based compensation was granted to the NEOs
in July 2010:
|
Time-Vested |
||||||||||||
|
Performance Shares |
Restricted Stock |
|||||||||||
| at Target | Option Awards | Awards | ||||||||||
|
Martin
Mucci(1)
|
12,411 | 29,786 | 4,964 | |||||||||
|
John M. Morphy
|
— | — | 21,931 | |||||||||
|
Michael E. Gioja
|
7,447 | 17,872 | 2,979 | |||||||||
|
William G. Kuchta
|
— | — | 10,966 | |||||||||
|
Michael A. McCarthy
|
— | — | 12,063 | |||||||||
|
Delbert M.
Humenik(2)
|
12,411 | 29,786 | 4,964 | |||||||||
| (1) | Mr. Mucci received these awards while he was in the position of Senior Vice President of Operations. Refer to the discussion under “CEO Compensation” for information on awards granted to him upon his appointment to President and CEO. | |
| (2) | Mr. Humenik resigned in October 2010 and, as a result, forfeited these awards. |
The stock options vest annually in 25% increments over four
years. The time-vested restricted shares lapse ratably over
three years. The number of performance shares to be received
will be based on achievement against
28
Table of Contents
targets over a two-year cumulative period. The performance
targets are service revenue and operating income, net of certain
items, as set by the Board. The NEO must be an employee of the
Company at the end of a one-year period following the
achievement of performance in order to receive the shares.
During that one year, dividends shall accrue to be paid when the
NEO receives the shares. As an incentive for retention as they
near retirement, in lieu of the above three types of equity
awards, Mr. Morphy, Mr. Kuchta, and Mr. McCarthy
received time-vested restricted stock awards that vest ratably
over three years.
In April 2011, the committee determined that with respect to
Mr. Morphy, upon his retirement, if such retirement is
after calendar year 2011, one additional year of vesting shall
be added to all equity awards under agreements outstanding as of
April 6, 2011. This recognizes Mr. Morphy’s
commitment to ensure a smooth transition for his successor.
Information regarding the equity-based awards granted to the
NEOs in fiscal 2011 and in prior years are detailed in the Named
Executive Officer Compensation tables included in this Proxy
Statement.
CEO
Compensation
Mr. Mucci was appointed as President and CEO effective
September 30, 2010. Upon this appointment, Mr. Mucci
was awarded an annual base salary of $800,000 and granted
additional equity awards as follows: 21,451 performance shares
at target; 154,591 non-qualified options with an exercise price
of $27.28; and 8,580 shares of time-vested restricted stock. The
terms of these awards are similar to the awards granted in July
2010, as previously described. The total value of these equity
awards is comparable to the lowest quartile in our Peer Group.
It is the responsibility of the committee to evaluate
Mr. Mucci’s performance annually and determine his
total compensation. Mr. Mucci receives compensation based
on his leadership role and the overall performance of the
Company. Mr. Mucci receives a base salary that is below the
median of salaries for CEOs in our Peer Group. His annual
incentive program, as described within the section of this
CD&A entitled “Annual Officer Performance Incentive
Program,” is below the median for CEOs in our Peer Group,
and is commensurate with his leadership role at the Company. For
fiscal 2011, his annual incentive program payout was pro-rated
between the CEO annual incentive program and the SVP annual
incentive program, based on the portion of the year he served in
the respective positions. Certain elements of
Mr. Mucci’s compensation are significantly higher than
those of the SVPs. However, Mr. Mucci’s compensation
remains below median when compared to that of the CEOs within
our Peer Group.
Stock
Ownership Guidelines
In July 2011, the committee increased stock ownership guidelines
for our CEO (three times base salary) and SVPs (two times base
salary), and established ownership guidelines for all other VPs
at one times base salary. The ownership guidelines were
established to provide long-term alignment with stockholder
interests. For the purposes of achieving the ownership
guideline, unvested restricted stock awarded to the executive
officers is included.
NEOs of the Company must also adhere to strict standards with
regards to trading in the Company’s stock. They may not,
among other things:
| • | speculatively trade in the Company’s stock; | |
| • | short sell any securities of the Company; or | |
| • | buy or sell puts or calls on the Company’s securities. |
Non-Compete
and Other Forfeiture Provisions
Our equity-based compensation agreements state that following
termination of employment, certain benefits (including
equity-based compensation) will be forfeited if the NEO engages
in activities adverse to the Company. These activities include
competition with the Company during a specified period after
termination of employment, solicitation of the Company’s
clients or employees during a specified period after termination
of employment, breach of confidentiality either during or after
employment, or engaging in conduct which is detrimental to the
Company during the NEO’s employment with the Company.
Should any of these activities occur, the Company may cancel all
or any outstanding portion of the equity awards subject to this
provision, and recover the gross value of
29
Table of Contents
any vested restricted shares, including all dividends. In the
case of non-qualified stock options, the Company may suspend the
NEO’s right to exercise the option
and/or may
declare the option forfeited. In addition, the Company may seek
to recover all profits from certain prior exercises as
liquidated damages and pursue other available legal remedies.
Perquisites
Our NEOs receive benefits in the form of vacation, health
insurance, life insurance, Company matching contributions to the
401(k) Plan when such contributions are in effect, and other
benefits, which are generally available to all our employees. We
do not provide our NEOs with pension arrangements,
post-retirement health coverage, or other similar benefits, with
the exception of access to a non-qualified and unfunded deferred
compensation plan.
Deferred
Compensation
We offer a non-qualified and unfunded deferred compensation plan
to our NEOs. The deferred compensation plan is intended to
supplement the NEO’s 401(k) Plan account. Due to the
limitations on 401(k) Plan accounts placed by the Internal
Revenue Service, this plan allows for further savings toward
retirement for the NEOs and functions similarly to the 401(k)
Plan account. Refer to the Non-Qualified Deferred Compensation
discussion included in the Named Executive Officer Compensation
section of this Proxy Statement for more information on how our
deferred compensation plan functions.
Change-In-Control
Plan
Effective April 6, 2011, the Board approved a
Change-in-Control
Plan covering the officers of the Company. Upon Involuntary
Termination within 12 months following a
Change-in-Control,
the officer becomes entitled to certain severance benefits.
Refer to the Potential Payments upon Termination or
Change-In-Control
table within the Named Executive Office Compensation section of
this Proxy for further discussion. A copy of the
Change-in-Control Plan has been filed as exhibit 10.24 to
our fiscal 2011
Form 10-K.
Separation
Agreements
On July 12, 2010, Paychex announced Mr. Judge’s
resignation from his position as President and CEO effective
July 31, 2010. In connection with his resignation,
Mr. Judge signed a separation agreement. The following is a
summary of terms and conditions of that agreement.
| • | Mr. Judge received a separation payment of $1.9 million, immediate acceleration on July 31, 2010 of unvested equity awards granted prior to July 1, 2007, and COBRA premiums for health insurance for twelve months. | |
| • | An additional 11,111 shares of restricted stock and an additional 30,000 stock options from the July 17, 2007 awards vested immediately on July 31, 2010. | |
| • | All vested and exercisable equity awards continue to be governed by applicable plan documents. | |
| • | In consideration of the Company entering into the agreement, Mr. Judge agreed to certain non-compete, non-disparagement, confidentiality, and non-solicitation provisions. In addition to the agreement and in consideration of benefits received as indicated above, Mr. Judge entered into a general release of all claims with the Company. | |
| • | Certain terms of Mr. Judge’s employment agreement dated November 30, 2007 survive the separation and remain in full force as do the non-competition, non-solicitation, confidentiality, and detrimental conduct provisions of Mr. Judge’s July 2008 and July 2009 equity compensation agreements with the Company. |
Mr. Humenik resigned from his position as Senior Vice
President of Sales and Marketing effective October 15,
2010. As part of his separation and release, he received a
lump-sum payment equal to six months salary and health insurance
premiums.
30
Table of Contents
Subsequent
Events
In July 2011, the following equity-based compensation was
granted to the NEOs.
|
Time-Vested |
Performance |
|||||||||||||||
|
Performance |
Restricted Stock |
Options at |
||||||||||||||
| Shares at Target | Option Awards | Awards | Target | |||||||||||||
|
Martin Mucci
|
54,455 | 206,422 | 19,822 | 500,000 | ||||||||||||
|
Michael E. Gioja
|
11,708 | 44,381 | 4,262 | 250,000 | ||||||||||||
The award quantities granted were determined based on a total
estimated value, split between stock options, time-vested
restricted stock, and performance shares. The terms of the
awards were similar to those granted in July 2010. The total
estimated value for each NEO may have been adjusted for
individual performance and retention considerations.
Mr. Morphy, Mr. Kuchta, and Mr. McCarthy did not
receive equity awards due to their plans to retire.
The Board also granted a special award of performance stock
options to focus the leadership team on the strategic plan
related to the
long-term
growth of the Company. The performance stock options may vest
based on achievement against targets during a five-year period
with potential earlier vesting after three years. The Board set
performance targets using service revenue and operating income,
net of certain items.
In July 2011, the restrictions lapsed on one-sixth of the
July 9, 2009 restricted stock award. This acceleration of
lapsing was based upon the achievement of the target for
operating income, net of certain items, as defined by the 2002
Plan. Actual operating income, net of certain items, for the
purposes of acceleration was $740.6 million. The target for
service revenue was not achieved. The targets to accelerate the
lapsing of the outstanding restricted stock awards granted in
July 2008 and 2007 were not achieved, and therefore no lapse
occurred. The time-based period for the outstanding restricted
stock awards granted in July 2006 expired, and therefore those
shares lapsed in July 2011.
Mr. McCarthy announced his retirement from the Company
effective August 1, 2011. Christian A. Timol will succeed
Mr. McCarthy as Vice President of Major Market Services
Sales.
Impact of
the Internal Revenue Code
Section 162(m) of the Code generally limits the tax
deductibility of annual compensation paid to certain officers to
$1 million, unless specified requirements are met. The
committee has carefully considered the impact of this provision
as one factor among others in structuring NEO compensation. At
this time, it is the committee’s intention to continue to
compensate all NEOs based on overall performance. The committee
expects that most compensation paid to NEOs will qualify as a
tax-deductible expense.
THE
GOVERNANCE AND COMPENSATION COMMITTEE REPORT
The Governance and Compensation Committee has reviewed and
discussed the Compensation Discussion and Analysis included in
the Proxy Statement with management. Based on such review and
discussion, the committee recommends to the Board that the
Compensation Discussion and Analysis be included in the Proxy
Statement and the Company’s
Form 10-K
for fiscal 2011.
The Governance and Compensation Committee:
Joseph M. Tucci, Chairman
David J. S. Flaschen
Grant M. Inman
Joseph M. Velli
David J. S. Flaschen
Grant M. Inman
Joseph M. Velli
31
Table of Contents
NAMED
EXECUTIVE OFFICER COMPENSATION
FISCAL
2011 SUMMARY COMPENSATION TABLE
The table below presents the total compensation paid or earned
by each of the NEOs.
|
Non-Equity |
||||||||||||||||||||||||||||||||
|
Name and Principal |
Fiscal |
Stock |
Option |
Incentive Plan |
All Other |
|||||||||||||||||||||||||||
|
Position
|
Year | Salary | Bonus | Awards(1),(2) | Awards(3) | Compensation(4) | Compensation(5) | Total | ||||||||||||||||||||||||
|
Martin Mucci
|
2011 | $ | 666,237 | $ | — | $ | 1,194,353 | $ | 726,983 | $ | 736,915 | $ | 4,900 | $ | 3,329,388 | |||||||||||||||||
|
President and CEO
|
2010 | $ | 428,003 | $ | — | $ | 232,513 | $ | 316,114 | $ | 282,482 | $ | — | $ | 1,259,112 | |||||||||||||||||
| 2009 | $ | 423,911 | $ | — | $ | 319,500 | $ | 291,600 | $ | 85,601 | $ | 7,254 | $ | 1,127,866 | ||||||||||||||||||
|
John M. Morphy
|
2011 | $ | 458,166 | $ | — | $ | 570,645 | $ | — | $ | 386,722 | $ | 3,548 | $ | 1,419,081 | |||||||||||||||||
|
Senior Vice President,
|
2010 | $ | 439,245 | $ | — | $ | 232,513 | $ | 313,493 | $ | 289,902 | $ | — | $ | 1,275,153 | |||||||||||||||||
|
CFO, and Secretary
|
2009 | $ | 435,611 | $ | — | $ | 292,279 | $ | 268,133 | $ | 87,849 | $ | 8,941 | $ | 1,092,813 | |||||||||||||||||
|
Michael E. Gioja
|
2011 | $ | 271,692 | $ | — | $ | 252,891 | $ | 71,016 | $ | 158,536 | $ | 1,077 | $ | 755,212 | |||||||||||||||||
|
Vice President,
|
||||||||||||||||||||||||||||||||
|
Product Development
|
||||||||||||||||||||||||||||||||
|
William G. Kuchta
|
2011 | $ | 318,674 | $ | — | $ | 285,335 | $ | — | $ | 181,631 | $ | 2,468 | $ | 788,108 | |||||||||||||||||
|
Vice President,
|
2010 | $ | 305,513 | $ | — | $ | 116,256 | $ | 156,757 | $ | 135,902 | $ | — | $ | 714,428 | |||||||||||||||||
|
Government Affairs
|
2009 | $ | 303,796 | $ | — | $ | 146,171 | $ | 134,070 | $ | 53,465 | $ | 10,169 | $ | 647,671 | |||||||||||||||||
|
Michael A. McCarthy
|
2011 | $ | 300,402 | $ | — | $ | 313,879 | $ | — | $ | 136,904 | $ | 1,646 | $ | 752,831 | |||||||||||||||||
|
Vice President, Major
|
2010 | $ | 276,574 | $ | — | $ | 116,256 | $ | 156,801 | $ | 99,106 | $ | — | $ | 648,737 | |||||||||||||||||
|
Market Services Sales
|
2009 | $ | 274,649 | $ | — | $ | 146,171 | $ | 134,001 | $ | 97,631 | $ | 8,159 | $ | 660,611 | |||||||||||||||||
|
Jonathan J.
Judge(6)
|
2011 | $ | 193,558 | $ | — | $ | — | $ | — | $ | — | $ | 1,904,288 | $ | 2,097,846 | |||||||||||||||||
|
Former President and CEO
|
2010 | $ | 915,000 | $ | 50,000 | $ | 1,162,516 | $ | 1,567,449 | $ | 934,825 | $ | 27,613 | $ | 4,657,403 | |||||||||||||||||
| 2009 | $ | 915,000 | $ | — | $ | 1,461,393 | $ | 1,340,675 | $ | 320,250 | $ | 30,221 | $ | 4,067,539 | ||||||||||||||||||
|
Delbert M.
Humenik(7)
|
2011 | $ | 174,923 | $ | — | $ | 421,442 | $ | 118,358 | $ | — | $ | 241,379 | $ | 956,102 | |||||||||||||||||
|
Former Senior Vice
|
2010 | $ | 275,385 | $ | — | $ | 224,976 | $ | 274,439 | $ | 225,000 | $ | 18,648 | $ | 1,018,448 | |||||||||||||||||
|
President, Sales and Marketing
|
||||||||||||||||||||||||||||||||
| (1) | The amounts in this column include the grant date fair value of restricted stock awards granted during the respective fiscal year and do not reflect whether the recipient has actually realized a financial gain from such awards (such as a lapse in a restricted stock award). The fair value of restricted stock awards is determined based on the closing price of the underlying common stock on the date of grant. The resulting fair values were $26.02 per share, $24.21 per share, and $31.95 per share for the restricted stock awards granted in July of fiscal years 2011, 2010, and the year ended May 31, 2009 (“fiscal 2009”), respectively. Mr. Mucci also received an award on October 12, 2010 at a fair value of $27.28 per share. Refer to the Grants of Plan-Based Awards For Fiscal 2011 table included in this Proxy Statement for further information on restricted stock awards granted in fiscal 2011. | |
| (2) | Also included in this column for fiscal 2011 is the fair value of performance share awards assuming target achievement in the following amounts: Mr. Mucci — $831,128; Mr. Gioja — $175,377; and Mr. Humenik — $292,279. These awards have a two-year performance period, followed by an additional year of service required. The fair value of these awards is determined based on the closing price of the underlying common stock on the date of grant, adjusted for the present value of expected dividends over the performance period. The resulting fair values were $23.55 per share for awards granted on July 7, 2010 and $25.12 per share for Mr. Mucci’s additional award on October 12, 2010. If the maximum performance condition were to be achieved, then the value of the performance shares would be as follows: Mr. Mucci — $1,246,668; Mr. Gioja — $263,054; and Mr. Humenik — $438,407. Mr. Humenik subsequently forfeited his award. Refer to note 7 for more information. | |
| (3) | The amounts in this column reflect the grant date fair value for stock option awards granted during the respective fiscal year and do not reflect whether the recipient has actually realized a financial gain from such awards (such as by exercising stock options). The fair value for the stock option awards was determined using a |
32
Table of Contents
| Black-Scholes option pricing model. The assumptions and resulting per share fair value for option grants included in the amounts disclosed are as follows: |
|
July |
||||||||||||||||||||||||
|
October |
July |
September |
2009 |
July |
July |
|||||||||||||||||||
| 2010 | 2010 | 2009 | (Special Award) | 2009 | 2008 | |||||||||||||||||||
|
Risk-Free Interest Rate
|
1.7 | % | 2.5 | % | 3.1 | % | 2.7 | % | 3.0 | % | 3.5 | % | ||||||||||||
|
Dividend Yield
|
4.3 | % | 4.2 | % | 4.7 | % | 4.5 | % | 4.5 | % | 3.3 | % | ||||||||||||
|
Volatility Factor
|
.25 | .24 | .27 | .28 | .28 | .28 | ||||||||||||||||||
|
Expected Option Term Life in Years
|
6.5 | 6.5 | 6.5 | 5.5 | 6.5 | 6.5 | ||||||||||||||||||
|
Fair Value
|
$ | 3.94 | $ | 3.97 | $ | 4.90 | $ | 2.57 | $ | 4.48 | $ | 7.29 | ||||||||||||
| (4) | The amounts in this column are the amounts earned under the annual incentive program. These amounts were paid in July following the applicable fiscal year end. | |
| (5) | The amounts in this column include the Company’s matching contributions under the 401(k) Plan. Beginning in January 2011, a Company matching contribution was reinstated after a suspension of the employer match in April 2009. The amounts for Mr. Judge and Mr. Humenik for fiscal 2011 include costs related to their respective separation agreements as described in the “Separation Agreement” discussion included in the CD&A. Mr. Humenik also includes $21,260 for a temporary living allowance. There are no tax gross-ups included in these amounts for fiscal 2011. The amounts for Mr. Judge and Mr. Humenik for fiscal 2010 and 2009 reflect costs to attend certain sales events to recognize top performers in sales, not to exceed 2% of the sales force. Within those costs are tax gross-ups of $9,204, and $6,017 for fiscal 2010 and 2009, respectively, for Mr. Judge and tax gross-up of $6,216 for Mr. Humenik for fiscal 2010. | |
| (6) | Mr. Judge resigned from his position as President and CEO effective July 31, 2010. | |
| (7) | Mr. Humenik resigned from his position as Senior Vice President of Sales and Marketing effective October 15, 2010. |
33
Table of Contents
GRANTS OF
PLAN-BASED AWARDS FOR FISCAL 2011
The table below presents estimated possible payouts under the
Company’s annual incentive program for fiscal 2011 based on
achievement of performance objectives at various levels for the
Company and individual NEOs. It also summarizes equity awards
granted in fiscal 2011 to each of the NEOs. This information
does not set forth the actual payout awarded to the NEOs for
fiscal 2011.
|
All |
All Other |
|||||||||||||||||||||||||||||||||||||||||||||
|
Other |
Option |
Grant |
||||||||||||||||||||||||||||||||||||||||||||
|
Stock |
Awards: |
Exercise |
Date |
|||||||||||||||||||||||||||||||||||||||||||
|
Awards: |
Number |
or |
Fair |
|||||||||||||||||||||||||||||||||||||||||||
|
Number |
of |
Base |
Value |
|||||||||||||||||||||||||||||||||||||||||||
|
Estimated Future Payouts Under |
Estimated Future Payouts |
of |
Securities |
Price |
of Stock |
|||||||||||||||||||||||||||||||||||||||||
|
Non-Equity Incentive Plan |
Under Equity Incentive |
Shares |
Under- |
of |
and |
|||||||||||||||||||||||||||||||||||||||||
| Awards(1) | Plan Awards(2) |
of Stock |
lying |
Option |
Option |
|||||||||||||||||||||||||||||||||||||||||
|
Grant |
Grant |
Threshold |
Target |
Maximum |
Threshold |
Target |
Maximum |
or Units |
Options |
Awards |
Awards |
|||||||||||||||||||||||||||||||||||
|
Name
|
Type | Date | ($) | ($) | ($) | (#) | (#) | (#) | (#)(3) | (#)(4) | ($/Sh) | ($)(5) | ||||||||||||||||||||||||||||||||||
|
Martin Mucci
|
Annual Incentive
Program(6) |
7/7/2010 | $ | 44,940 | $ | 112,351 | $ | 179,761 | ||||||||||||||||||||||||||||||||||||||
|
Annual Incentive
Program(6) |
10/12/2010 | $ | 213,333 | $ | 533,333 | $ | 853,333 | |||||||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
7/7/2010 | 4,964 | $ | 129,163 | ||||||||||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
10/12/2010 | 8,580 | $ | 234,062 | ||||||||||||||||||||||||||||||||||||||||||
|
Performance Shares
|
7/7/2010 | 6,205 | 12,411 | 18,616 | $ | 292,279 | ||||||||||||||||||||||||||||||||||||||||
|
Performance Shares
|
10/12/2010 | 10,725 | 21,451 | 32,176 | $ | 538,849 | ||||||||||||||||||||||||||||||||||||||||
|
Stock Option
|
7/7/2010 | 29,786 | $ | 26.02 | $ | 118,358 | ||||||||||||||||||||||||||||||||||||||||
|
Stock Option
|
10/12/2010 | 154,591 | $ | 27.28 | $ | 608,625 | ||||||||||||||||||||||||||||||||||||||||
|
John M. Morphy
|
Annual Incentive
Program |
7/7/2010 | $ | 138,362 | $ | 345,905 | $ | 553,448 | ||||||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
7/7/2010 | 21,931 | $ | 570,645 | ||||||||||||||||||||||||||||||||||||||||||
|
Michael E. Gioja
|
Annual Inventive
Program |
7/7/2010 | $ | 56,000 | $ | 140,000 | $ | 224,000 | ||||||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
7/7/2010 | 2,979 | $ | 77,514 | ||||||||||||||||||||||||||||||||||||||||||
|
Performance Shares
|
7/7/2010 | 3,723 | 7,447 | 11,170 | $ | 175,377 | ||||||||||||||||||||||||||||||||||||||||
|
Stock Option
|
7/7/2010 | 17,872 | $ | 26.02 | $ | 71,016 | ||||||||||||||||||||||||||||||||||||||||
|
William G. Kuchta
|
Annual Incentive
Program |
7/7/2010 | $ | 64,158 | $ | 160,395 | $ | 256,631 | ||||||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
7/7/2010 | 10,966 | $ | 285,335 | ||||||||||||||||||||||||||||||||||||||||||
|
Michael A. McCarthy
|
Annual Inventive
Program |
7/7/2010 | $ | 60,846 | $ | 152,116 | $ | 243,386 | ||||||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
7/7/2010 | 12,063 | $ | 313,879 | ||||||||||||||||||||||||||||||||||||||||||
|
Delbert M.
Humenik(7)
|
Annual Inventive
Program |
7/7/2010 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||
|
Restricted Stock
|
7/7/2010 | 4,964 | $ | 129,163 | ||||||||||||||||||||||||||||||||||||||||||
|
Performance Shares
|
7/7/2010 | 6,205 | 12,411 | 18,616 | $ | 292,279 | ||||||||||||||||||||||||||||||||||||||||
|
Stock Option
|
7/7/2010 | 29,786 | $ | 26.02 | $ | 118,358 | ||||||||||||||||||||||||||||||||||||||||
Note: Mr. Judge did not receive any grants of plan-based
awards in fiscal 2011.
| (1) | The amounts in these columns consist of possible annual incentive payouts under our annual incentive program for fiscal 2011. The amounts actually earned by each NEO for fiscal 2011 are reported as Non-Equity Incentive Plan Compensation in the Fiscal 2011 Summary Compensation Table. | |
| (2) | The amounts in this column consist of performance share awards granted in fiscal 2011 under the 2002 Plan. The performance targets are over a two-year period. At the end of the performance period, actual shares earned will be determined and will be restricted with a one-year service requirement for the restrictions to lapse. Once the performance period is completed, the NEOs will have voting rights and earn dividends on the underlying restricted shares earned. Dividends are paid at the time of vesting. Upon death or disability, a pro-rata portion of actual performance shares earned for the performance period will be received based on number of days from the beginning of the performance period until the date of death or disability out of the total number of days in the performance period. | |
| (3) | The amounts in this column consist of restricted stock awards granted in fiscal 2011 under the 2002 Plan. All shares underlying these awards are restricted in that they are not transferable until they vest. One-third of these shares vest annually over a three-year period from the date of grant, provided the NEO is an employee of the Company on the vest date. Upon death or disability, these shares fully vest. The NEOs have voting rights and earn dividends on the underlying shares. Dividends are paid at the time of vesting. |
34
Table of Contents
| (4) | The amounts in this column consist of stock option awards granted in fiscal 2011 under the 2002 Plan. These stock option awards have an exercise price equal to the closing stock price on the date of grant, have a term of ten years, and vest 25% per annum over a four-year period. Upon death or disability, all unvested options fully vest. | |
| (5) | The amounts in this column represent the aggregate grant date fair value of restricted stock, performance share, and stock option awards granted in fiscal 2011 under the 2002 Plan. The fair values of the restricted stock awards were $26.02 per share for the July 2010 awards and $27.28 per share for Mr. Mucci’s October 2010 award, and were equal to the price of the underlying common stock on the date of grant. The fair values of the performance shares were based on achievement at target and were $23.55 per share for the July 2010 awards and $25.12 per share for Mr. Mucci’s October 2010 award, and were equal to the price of the underlying common stock on the date of grant less the present value of expected dividends over the performance period. The fair values of the July 2010 annual stock option awards and Mr. Mucci’s October 2010 stock option award were $3.97 per share and $3.94 per share, respectively, and were determined using a Black-Scholes option pricing model. | |
| (6) | Mr. Mucci’s annual incentive award was pro-rated between his SVP award granted July 7, 2010 and his award for CEO granted October 12, 2010. | |
| (7) | Mr. Humenik resigned effective October 15, 2010. As a result, he became ineligible for his annual incentive award and forfeited his equity awards. |
OPTION
EXERCISES AND STOCK VESTED IN FISCAL 2011
The following table provides information about the value
realized by the NEOs upon the exercise of options and the
lapsing of restricted stock awards during fiscal 2011. Certain
columns in this table and the presentation of information on an
award-by-award
basis are not required by the rules relating to executive
compensation disclosures and are not a substitute for the
information required by Item 402 of SEC
Regulation S-K,
but rather are intended to provide additional information that
stockholders may find useful.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||
|
Number of |
Number of |
|||||||||||||||||||||||||||
|
Shares |
Value Realized |
Shares |
Value |
|||||||||||||||||||||||||
|
Date of |
Acquired on |
Exercise |
on Exercise |
Date of |
Acquired on |
Realized on |
||||||||||||||||||||||
|
Name
|
Grant | Exercise (#) | Price ($) | ($)(1) | Grant | Lapsing (#) | Lapse ($)(2) | |||||||||||||||||||||
|
Martin Mucci
|
— | — | — | — | 7/9/2009 | 1,601 | $ | 40,281 | ||||||||||||||||||||
|
John M. Morphy
|
7/9/2009 | 12,039 | $ | 24.21 | $ | 100,164 | 7/17/2007 | 10,000 | $ | 272,600 | ||||||||||||||||||
| 7/9/2009 | 1,601 | $ | 40,281 | |||||||||||||||||||||||||
|
Michael E. Gioja
|
7/9/2009 | 7,839 | $ | 24.21 | $ | 53,227 | 7/9/2009 | 991 | $ | 24,934 | ||||||||||||||||||
|
William G. Kuchta
|
— | — | — | — | 7/9/2009 | 800 | $ | 20,128 | ||||||||||||||||||||
|
Michael A. McCarthy
|
— | — | — | — | 7/9/2009 | 800 | $ | 20,128 | ||||||||||||||||||||
|
Jonathan J. Judge
|
10/1/2004 | 100,000 | $ | 30.68 | $ | 309,840 | 7/13/2006 | 11,112 | $ | 290,245 | ||||||||||||||||||
| 7/9/2009 | 63,289 | $ | 24.21 | $ | 605,574 | 7/17/2007 | 11,111 | $ | 290,220 | |||||||||||||||||||
| 7/9/2009 | 8,003 | $ | 201,355 | |||||||||||||||||||||||||
|
Delbert M. Humenik
|
9/28/2009 | 11,201 | $ | 29.29 | $ | 13,553 | 9/28/2009 | 1,280 | $ | 34,778 | ||||||||||||||||||
| (1) | Amounts in this column represent the difference between the market price of a share of the Company’s common stock and the exercise price of the option as of the date of exercise for all options exercised. | |
| (2) | Amounts in this column are based on the closing stock price of the Company’s common stock on the date of lapse. For the July 9, 2009 grant and Mr. Humenik’s September 28, 2009 grant, one-sixth of the awards lapsed based on achievement of pre-set performance targets at a closing stock price of $25.16 per share as of July 6, 2010 and $27.17 per share as of September 28, 2010, respectively. Mr. Morphy’s July 17, 2007 time-vested restricted stock lapsed at a closing stock price of $27.26 per share as of October 1, 2010. As part of Mr. Judge’s separation agreement, one-third of the July 13, 2006 grant and one-third of the July 17, 2007 grant lapsed at a closing stock price of $26.12 per share as of August 2, 2010. |
35
Table of Contents
OUTSTANDING
EQUITY AWARDS AS OF MAY 31, 2011
The following table presents the equity awards made to NEOs
which are outstanding as of May 31, 2011.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||
|
Equity |
Equity |
|||||||||||||||||||||||||||||||||||||||
|
Incentive |
Incentive Plan |
|||||||||||||||||||||||||||||||||||||||
|
Plan |
Awards: |
|||||||||||||||||||||||||||||||||||||||
|
Awards: |
Market or |
|||||||||||||||||||||||||||||||||||||||
|
Number |
Number of |
Payout Value |
||||||||||||||||||||||||||||||||||||||
|
Number of |
Number of |
of Shares |
Unearned |
of Unearned |
||||||||||||||||||||||||||||||||||||
|
Securities |
Securities |
Total |
or Units |
Market Value |
Shares, |
Shares, Units |
||||||||||||||||||||||||||||||||||
|
Underlying |
Underlying |
Potential |
of Stock |
of Shares or |
Units or |
or Other |
||||||||||||||||||||||||||||||||||
|
Unexercised |
Unexercised |
Current |
That Have |
Units of Stock |
Other Rights |
Rights That |
||||||||||||||||||||||||||||||||||
|
Option |
Options |
Options |
Option |
Option |
Value of |
Not |
That Have Not |
That Have |
Have Not |
|||||||||||||||||||||||||||||||
|
Grant |
(Exercisable) |
(Unexercisable) |
Exercise |
Expiration |
Outstanding |
Vested |
Vested |
Not Vested |
Vested |
|||||||||||||||||||||||||||||||
|
Name
|
Date | (#) | (#)(1) | Price ($) | Date | Options(2) | (#)(3),(4) | ($)(3),(4),(5) | (#)(6) | ($)(6) | ||||||||||||||||||||||||||||||
|
Martin Mucci
|
10/12/2010 | — | 154,591 | $ | 27.28 | 10/10/2020 | ||||||||||||||||||||||||||||||||||
| 07/07/2010 | — | 29,786 | $ | 26.02 | 07/06/2020 | |||||||||||||||||||||||||||||||||||
| 07/09/2009 | 12,658 | 50,632 | $ | 24.21 | 07/08/2019 | |||||||||||||||||||||||||||||||||||
| 07/09/2009 | (7) | 5,070 | 7,605 | $ | 31.95 | 07/09/2018 | ||||||||||||||||||||||||||||||||||
| 07/10/2008 | 16,000 | 24,000 | $ | 31.95 | 07/09/2018 | |||||||||||||||||||||||||||||||||||
| 07/17/2007 | 18,000 | 12,000 | $ | 43.91 | 07/17/2017 | |||||||||||||||||||||||||||||||||||
| 07/13/2006 | 24,000 | 6,000 | $ | 36.87 | 07/13/2016 | |||||||||||||||||||||||||||||||||||
| 07/07/2005 | 50,000 | — | $ | 33.68 | 07/07/2015 | |||||||||||||||||||||||||||||||||||
| 07/08/2004 | 30,000 | — | $ | 31.79 | 07/08/2014 | |||||||||||||||||||||||||||||||||||
| 07/10/2003 | 25,000 | — | $ | 29.55 | 07/10/2013 | |||||||||||||||||||||||||||||||||||
| 07/11/2002 | 15,000 | — | $ | 28.14 | 07/11/2012 | $ | 1,640,005 | |||||||||||||||||||||||||||||||||
| 38,215 | $ | 1,234,345 | 16,930 | $ | 546,839 | |||||||||||||||||||||||||||||||||||
|
John M. Morphy
|
07/09/2009 | 619 | 50,632 | $ | 24.21 | 07/08/2019 | ||||||||||||||||||||||||||||||||||
| 07/09/2009 | (7) | 4,662 | 6,993 | $ | 31.95 | 07/09/2018 | ||||||||||||||||||||||||||||||||||
| 07/10/2008 | 14,712 | 22,069 | $ | 31.95 | 07/09/2018 | |||||||||||||||||||||||||||||||||||
| 07/17/2007 | 18,000 | 12,000 | $ | 43.91 | 07/17/2017 | |||||||||||||||||||||||||||||||||||
| 07/13/2006 | 24,000 | 6,000 | $ | 36.87 | 07/13/2016 | |||||||||||||||||||||||||||||||||||
| 07/07/2005 | 50,000 | — | $ | 33.68 | 07/07/2015 | |||||||||||||||||||||||||||||||||||
| 07/08/2004 | 30,000 | — | $ | 31.79 | 07/08/2014 | |||||||||||||||||||||||||||||||||||
| 07/12/2001 | 15,000 | — | $ | 40.86 | 07/12/2011 | $ | 446,873 | |||||||||||||||||||||||||||||||||
| 65,750 | $ | 2,123,725 | ||||||||||||||||||||||||||||||||||||||
|
Michael E. Gioja
|
07/07/2010 | — | 17,872 | $ | 26.02 | 07/06/2020 | ||||||||||||||||||||||||||||||||||
| 07/09/2009 | — | 31,359 | $ | 24.21 | 07/08/2019 | |||||||||||||||||||||||||||||||||||
| 11/10/2008 | 4,800 | 7,200 | $ | 26.77 | 11/09/2018 | $ | 432,290 | |||||||||||||||||||||||||||||||||
| 10,436 | $ | 337,083 | 3,723 | $ | 120,253 | |||||||||||||||||||||||||||||||||||
|
William G. Kuchta
|
07/09/2009 | 6,329 | 25,318 | $ | 24.21 | 07/08/2019 | ||||||||||||||||||||||||||||||||||
| 07/09/2009 | (7) | 2,331 | 3,497 | $ | 31.95 | 07/09/2018 | ||||||||||||||||||||||||||||||||||
| 07/10/2008 | 7,356 | 11,035 | $ | 31.95 | 07/09/2018 | |||||||||||||||||||||||||||||||||||
| 07/17/2007 | 9,000 | 6,000 | $ | 43.91 | 07/17/2017 | |||||||||||||||||||||||||||||||||||
| 07/13/2006 | 12,000 | 3,000 | $ | 36.87 | 07/13/2016 | |||||||||||||||||||||||||||||||||||
| 07/07/2005 | 25,000 | — | $ | 33.68 | 07/07/2015 | |||||||||||||||||||||||||||||||||||
| 07/08/2004 | 12,000 | — | $ | 31.79 | 07/08/2014 | |||||||||||||||||||||||||||||||||||
| 07/10/2003 | 8,000 | — | $ | 29.55 | 07/10/2013 | |||||||||||||||||||||||||||||||||||
| 07/11/2002 | 15,000 | — | $ | 28.14 | 07/11/2012 | |||||||||||||||||||||||||||||||||||
| 07/12/2001 | 8,000 | — | $ | 40.86 | 07/12/2011 | $ | 355,021 | |||||||||||||||||||||||||||||||||
| 22,878 | $ | 738,959 | ||||||||||||||||||||||||||||||||||||||
|
Michael A. McCarthy
|
07/09/2009 | 6,329 | 25,318 | $ | 24.21 | 07/08/2019 | ||||||||||||||||||||||||||||||||||
| 07/09/2009 | (7) | 2,331 | 3,497 | $ | 31.95 | 07/09/2018 | ||||||||||||||||||||||||||||||||||
| 07/10/2008 | 7,356 | 11,035 | $ | 31.95 | 07/09/2018 | |||||||||||||||||||||||||||||||||||
| 07/17/2007 | 9,000 | 6,000 | $ | 43.91 | 07/17/2017 | |||||||||||||||||||||||||||||||||||
| 07/13/2006 | 9,000 | 3,000 | $ | 36.87 | 07/13/2016 | |||||||||||||||||||||||||||||||||||
| 07/07/2005 | 12,000 | — | $ | 33.68 | 07/07/2015 | |||||||||||||||||||||||||||||||||||
| 07/08/2004 | 5,000 | — | $ | 31.79 | 07/08/2014 | $ | 267,051 | |||||||||||||||||||||||||||||||||
| 23,975 | $ | 774,393 | ||||||||||||||||||||||||||||||||||||||
|
Jonathan J. Judge
|
07/09/2009 | (7) | 23,310 | — | $ | 31.95 | 08/02/2011 | |||||||||||||||||||||||||||||||||
| 07/10/2008 | 73,562 | — | $ | 31.95 | 08/02/2011 | |||||||||||||||||||||||||||||||||||
| 07/17/2007 | 120,000 | — | $ | 43.91 | 08/02/2011 | |||||||||||||||||||||||||||||||||||
| 07/13/2006 | 150,000 | — | $ | 36.87 | 08/02/2011 | |||||||||||||||||||||||||||||||||||
| 07/07/2005 | 250,000 | — | $ | 33.68 | 08/02/2011 | |||||||||||||||||||||||||||||||||||
| 10/01/2004 | 550,000 | — | $ | 30.68 | 08/02/2011 | $ | 924,905 | |||||||||||||||||||||||||||||||||
Note: Mr. Humenik did not have any outstanding equity
awards as of May 31, 2011.
| (1) | The option awards displayed in this column issued prior to July 2010 vest 20% per annum over a five-year period from the date of grant, except for the July 2009 special award discussed in note 7. Awards issued during |
36
Table of Contents
| and subsequent to July 2010 vest 25% per annum over a four-year period from the date of grant. The following table provides information with respect to the future vesting of each NEO’s outstanding options: |
| Number of Securities Vesting (#) | ||||||||||||||||||||||||||||||||
|
October/ |
October/ |
October/ |
||||||||||||||||||||||||||||||
|
July |
November |
July |
November |
July |
November |
July |
October |
|||||||||||||||||||||||||
| 2011 | 2011 | 2012 | 2012 | 2013 | 2013 | 2014 | 2014 | |||||||||||||||||||||||||
|
Martin Mucci
|
42,639 | 38,647 | 36,640 | 38,648 | 30,639 | 38,648 | 20,105 | 38,648 | ||||||||||||||||||||||||
|
John M. Morphy
|
34,345 | — | 28,345 | — | 22,346 | — | 12,658 | — | ||||||||||||||||||||||||
|
Michael E. Gioja
|
12,308 | 2,400 | 12,307 | 2,400 | 12,308 | 2,400 | 12,308 | — | ||||||||||||||||||||||||
|
Michael A. McCarthy
|
17,172 | — | 14,174 | — | 11,174 | — | 6,330 | — | ||||||||||||||||||||||||
|
William G. Kuchta
|
17,172 | — | 14,174 | — | 11,174 | — | 6,330 | — | ||||||||||||||||||||||||
| (2) | The total potential current value of options outstanding is based on the difference between $32.30, the closing price of the Company’s common stock on May 31, 2011, and the option price multiplied by all outstanding options, whether exercisable or unexercisable. In those instances when the outstanding options are out of the money (the option exercise price is greater than the closing price), no value is provided. This column is not required by the rules relating to executive compensation disclosures and is not a substitute for information required by Item 402 of SEC Regulation S-K, but rather is intended to provide additional information that stockholders may find useful. | |
| (3) | Total dividends and interest accrued on the restricted stock awards that have not vested as of May 31, 2011 were as follows: Mr. Mucci — $106,199; Mr. Morphy — $215,238; Mr. Gioja — $23,760; Mr. Kuchta — $58,056; and Mr. McCarthy — $59,417. | |
| (4) | The stock awards in these columns include awards on July 7, 2010 and October 12, 2010 that are subject to time-based vesting pro rata over three years. In addition, these columns include grants on July 13, 2006, July 17, 2007, July 10, 2008, and July 9, 2009, which were subject to early vesting for attainment of performance goals. In July 2011, the Board approved the vesting of one-sixth of the July 9, 2009 award based upon achievement against pre-established performance goals. Pursuant to the terms of these awards, the remaining unvested shares will vest on the fifth anniversary of the respective grant dates, assuming the NEO is an employee of the Company on those dates. The following table provides information with respect to the future vesting of each NEO’s outstanding restricted stock awards: |
| Number of Securities Vesting (#) | ||||||||||||||||||||||||||||||||
|
July |
October |
July |
October |
July |
October |
November |
July |
|||||||||||||||||||||||||
| 2011 | 2011 | 2012 | 2012 | 2013 | 2013 | 2013 | 2014 | |||||||||||||||||||||||||
|
Martin Mucci
|
5,479 | 2,860 | 6,099 | 2,860 | 11,655 | 2,860 | — | 6,402 | ||||||||||||||||||||||||
|
John M. Morphy
|
11,135 | 10,000 | 11,755 | 10,000 | 16,458 | — | — | 6,402 | ||||||||||||||||||||||||
|
Michael E. Gioja
|
1,984 | — | 993 | — | 993 | — | 2,500 | 3,966 | ||||||||||||||||||||||||
|
Michael A. McCarthy
|
5,933 | — | 6,244 | — | 8,596 | — | — | 3,202 | ||||||||||||||||||||||||
|
William G. Kuchta
|
5,568 | — | 5,878 | — | 8,230 | — | — | 3,202 | ||||||||||||||||||||||||
| In July 2007, Mr. Morphy received a one-time grant to provide incentive for long-term retention. The award vests one-third per year beginning in October 2010. | ||
| (5) | The market value displayed is based on the number of shares that have not vested multiplied by $32.30, the closing price of the Company’s common stock as of May 31, 2011. | |
| (6) | The stock awards in these columns represent performance shares granted on July 7, 2010 and an additional grant on October 12, 2010 for Mr. Mucci. These awards have pre-established performance goals that can be achieved over a two-year period. Shares earned will be determined at the end of the performance period, and then will be restricted with a one-year service requirement before the restrictions lapse. These awards are presented at threshold performance as of May 31, 2011. The market value displayed is based on the number of shares at threshold multiplied by $32.30, the closing price of the Company’s common stock as of May 31, 2011. | |
| (7) | This one-time special option award vested 20% immediately and 20% per annum over a four-year period from the date of grant. |
37
Table of Contents
POTENTIAL
PAYMENTS UPON TERMINATION OR
CHANGE-IN-CONTROL
FISCAL
2011
2011
Separation Agreements
On July 12, 2010, the Company announced
Mr. Judge’s resignation from his position as President
and CEO effective July 31, 2010. Mr. Humenik resigned
from his position as Senior Vice President of Sales and
Marketing effective October 15, 2010. In connection with
their respective resignations, both Mr. Judge and
Mr. Humenik signed separation agreements. For further
discussion on the terms of these agreements, refer to the
section entitled “Separation Agreements” within the
CD&A.
Change-In-Control
Plan
Effective April 6, 2011, the Board approved a
Change-in-Control
Plan covering the officers of the Company. Upon Involuntary
Termination within 12 months following a Change in Control,
the officer becomes entitled to certain severance benefits.
These benefits are as follows:
| • | Cash compensation in the form of a lump-sum payment equal to a multiple of Annual Cash Compensation (Base Salary and Bonus at target) as determined by position within the Company (CEO — 2.0; SVP — 1.5; VP — 1.0); | |
| • | Lump-sum cash payment for prorated portion of current year annual cash performance incentive award at target; | |
| • | Immediate vesting of all outstanding time-based equity awards. Performance-based equity awards will vest at target performance levels on a prorated basis; and | |
| • | Lump-sum payment for the cost to continue basic life insurance, medical, dental, vision and hospitalization benefits for the applicable Continuation Period. |
The plan does not provide for tax
gross-ups.
The summary of the terms of the foregoing agreement is qualified
in its entirety by reference to the text of the Plan document.
Refer to the plan document for definition of capitalized terms.
A copy of the
Change-In-Control
plan document has been filed as Exhibit 10.24 to our fiscal
2011
Form 10-K.
All Other
NEOs
With the exception of the
Change-in-Control
Plan approved in April 2011, NEOs do not have employment
arrangements. However, for all NEOs, upon death or disability
all unvested stock options and restricted stock awards become
fully vested under the terms of the award agreements under the
2002 Plan. Upon death or disability an NEO shall be entitled to
a pro-rata portion of actual shares earned under a performance
share award, based on number of days in performance period until
the date of death or disability as a percentage of the total
number of days in the performance period.
Upon death, disability, or retirement, NEOs may be eligible to
receive a pro-rated portion of the annual incentive based on
actual fiscal year results for the performance period. In
addition, all NEOs hired prior to October 2004 will receive a
payout of any earned, but unused vacation time if their
employment terminates for any reason.
38
Table of Contents
Potential
Benefits Upon Separation from Company
The following table presents, as of May 31, 2011, the
compensation and benefits to the NEOs upon separation from
employment with the Company for the various reasons specified.
|
Termination Other |
||||||||||||||||
|
Than For Cause/ |
||||||||||||||||
|
Resignation For |
||||||||||||||||
|
Voluntary |
Good Reason within |
|||||||||||||||
|
Resignation/ |
Death or |
One Year of Change |
||||||||||||||
| Termination | Disability | Retirement | of Control | |||||||||||||
|
Martin Mucci
|
||||||||||||||||
|
Base
Salary(1)
|
$ | — | $ | — | $ | — | $ | 1,600,000 | ||||||||
|
Annual Incentive
|
— | 736,915 | 736,915 | 1,600,000 | ||||||||||||
|
Options
Awards(2)
|
— | 1,383,778 | — | 1,383,778 | ||||||||||||
|
Restricted Stock
Awards(3)
|
— | 1,234,345 | — | 1,234,345 | ||||||||||||
|
Performance Share
Awards(4)
|
— | 546,871 | — | 546,871 | ||||||||||||
|
Earned and Unused Vacation
|
59,475 | 59,475 | 59,475 | 59,475 | ||||||||||||
|
Benefits(5)
|
— | — | — | 27,430 | ||||||||||||
|
Total
|
$ | 59,475 | $ | 3,961,384 | $ | 796,390 | $ | 6,451,899 | ||||||||
|
John M. Morphy
|
||||||||||||||||
|
Base
Salary(1)
|
$ | — | $ | — | $ | — | $ | 691,811 | ||||||||
|
Annual Incentive
|
— | 386,722 | 386,722 | 518,858 | ||||||||||||
|
Options
Awards(2)
|
— | 419,785 | — | 419,785 | ||||||||||||
|
Restricted Stock
Awards(3)
|
— | 2,123,725 | — | 2,123,725 | ||||||||||||
|
Performance Share
Awards(4)
|
— | — | — | — | ||||||||||||
|
Earned and Unused Vacation
|
44,280 | 44,280 | 44,280 | 44,280 | ||||||||||||
|
Benefits(5)
|
— | — | — | 6,801 | ||||||||||||
|
Total
|
$ | 44,280 | $ | 2,974,512 | $ | 431,002 | $ | 3,805,260 | ||||||||
|
Michael E. Gioja
|
||||||||||||||||
|
Base
Salary(1)
|
$ | — | $ | — | $ | — | $ | 280,000 | ||||||||
|
Annual Incentive
|
— | 158,536 | 158,536 | 140,000 | ||||||||||||
|
Options
Awards(2)
|
— | 405,746 | — | 405,746 | ||||||||||||
|
Restricted Stock
Awards(3)
|
— | 337,083 | — | 337,083 | ||||||||||||
|
Performance Share
Awards(4)
|
— | 120,269 | — | 120,269 | ||||||||||||
|
Earned and Unused Vacation
|
— | — | — | — | ||||||||||||
|
Benefits(5)
|
— | — | — | 14,854 | ||||||||||||
|
Total
|
$ | — | $ | 1,021,634 | $ | 158,536 | $ | 1,297,952 | ||||||||
|
William G. Kuchta
|
||||||||||||||||
|
Base
Salary(1)
|
$ | — | $ | — | $ | — | $ | 320,789 | ||||||||
|
Annual Incentive
|
— | 181,631 | 181,631 | 160,395 | ||||||||||||
|
Options
Awards(2)
|
— | 209,909 | — | 209,909 | ||||||||||||
|
Restricted Stock
Awards(3)
|
— | 738,959 | — | 738,959 | ||||||||||||
|
Performance Share
Awards(4)
|
— | — | — | — | ||||||||||||
|
Earned and Unused Vacation
|
30,846 | 30,846 | 30,846 | 30,846 | ||||||||||||
|
Benefits(5)
|
— | — | — | 8,893 | ||||||||||||
|
Total
|
$ | 30,846 | $ | 1,161,345 | $ | 212,477 | $ | 1,469,791 | ||||||||
39
Table of Contents
|
Termination Other |
||||||||||||||||
|
Than For Cause/ |
||||||||||||||||
|
Resignation For |
||||||||||||||||
|
Voluntary |
Good Reason within |
|||||||||||||||
|
Resignation/ |
Death or |
One Year of Change |
||||||||||||||
| Termination | Disability | Retirement | of Control | |||||||||||||
|
Michael A. McCarthy
|
||||||||||||||||
|
Base
Salary(1)
|
$ | — | $ | — | $ | — | $ | 304,232 | ||||||||
|
Annual Incentive
|
— | 136,904 | 136,904 | 152,116 | ||||||||||||
|
Options
Awards(2)
|
— | 209,909 | — | 209,909 | ||||||||||||
|
Restricted Stock
Awards(3)
|
— | 774,393 | — | 774,393 | ||||||||||||
|
Performance Share
Awards(4)
|
— | — | — | — | ||||||||||||
|
Earned and Unused Vacation
|
35,105 | 35,105 | 35,105 | 35,105 | ||||||||||||
|
Benefits(5)
|
— | — | — | 12,789 | ||||||||||||
|
Total
|
$ | 35,105 | $ | 1,156,311 | $ | 172,009 | $ | 1,488,544 | ||||||||
|
Total for all NEOs
|
$ | 169,706 | $ | 10,275,186 | $ | 1,770,414 | $ | 14,513,446 | ||||||||
| (1) | Base Salary is the annual salary at a multiple as outlined in the Change in Control Plan: 2.0 for CEO; 1.5 for SVPs; and 1.0 for VPs. | |
| (2) | The value of the unvested options is determined by the difference in the closing price of the Company’s common stock of $32.30 on May 31, 2011 and the exercise price multiplied by the number of unvested options. In those instances when the outstanding options are out of the money (the option exercise price is greater than the closing price), no value is provided. | |
| (3) | The value of the unvested stock is based upon the closing price of the Company’s common stock of $32.30 on May 31, 2011. | |
| (4) | The value of the performance shares is based upon the closing price of the Company’s common stock of $32.30 on May 31, 2011, assuming achievement at target, and pro rated for one-half of the performance period completed as of May 31, 2011. | |
| (5) | The value of the cost to continue basic life insurance, medical, dental, vision and hospitalization benefits for the applicable Continuation Period, which is equal to the number of years as outlined in the Change in Control Plan: 2.0 for CEO; 1.5 for SVPs; and 1.0 for VPs. |
40
Table of Contents
NON-QUALIFIED
DEFERRED COMPENSATION
FISCAL
2011
We offer a non-qualified and unfunded deferred compensation plan
to our NEOs. The plan has been designed to comply with the
current guidelines of Section 409A of the Code. Eligible
employees are able to defer up to 50% of their base salary and
annual incentive program award. Gains and losses are credited
based on the participant’s selection of a variety of
designated investment choices. The NEO has sole control as to
which of the designated funds to invest in, and earns the
resulting return on such investment. We do not match any
participant deferral or guarantee a certain rate of return.
Distributions are paid at one of the following dates selected by
the participant: the participant’s termination date; the
date the participant retires from any active employment; or a
designated specific date. Payments can be either in a lump sum
or in annual installments over a period not to exceed ten years.
The following table summarizes our NEOs’ benefits under the
plan:
| Fiscal 2011 |
Aggregate |
|||||||||||
|
Executive |
Aggregate Earnings, |
Balance as of May 31, |
||||||||||
|
Contributions |
Net |
2011 |
||||||||||
|
Name
|
($)(1) | ($)(2) | ($)(3),(4) | |||||||||
|
Martin Mucci
|
$ | 102,866 | $ | 28,067 | $ | 584,733 | ||||||
|
John M. Morphy
|
$ | 33,504 | $ | 8,131 | $ | 154,640 | ||||||
|
Michael E. Gioja
|
$ | — | $ | — | $ | — | ||||||
|
William G. Kuchta
|
$ | — | $ | 62,646 | $ | 322,369 | ||||||
|
Michael A. McCarthy
|
$ | 138,681 | $ | 43,727 | $ | 803,833 | ||||||
|
Jonathan J. Judge
|
$ | — | $ | — | $ | — | ||||||
|
Delbert M. Humenik
|
$ | — | $ | — | $ | — | ||||||
| (1) | Amounts in this column are reflected in the Fiscal 2011 Summary Compensation Table for the fiscal year in which the amounts were received. | |
| (2) | Amounts in this column include both net realized gains/losses and net unrealized gains/losses. They are not included in the Fiscal 2011 Summary Compensation Table as the earnings on these investments are not considered to be “above-market” earnings. | |
| (3) | Amounts in this column are included in the “Salary” and “Non-Equity Incentive Plan Compensation” amounts reported in current and previous years in the Fiscal 2011 Summary Compensation Table. | |
| (4) | The investment funds managed at Wilmington Trust Company available to NEOs, and the respective one-year rates of return as of May 31, 2011, are as follows: |
|
Rate of |
Rate of |
|||||||||
|
Name of Fund
|
Return |
Name of Fund
|
Return | |||||||
|
American Europacific Growth Fund Class C
|
30.29% | T. Rowe Price Growth Stock Fund | 27.44% | |||||||
|
BlackRock Global Allocation Fund Class A
|
19.34% | T. Rowe Price New Income Fund | 6.24% | |||||||
|
Columbia Acorn Fund Class Z
|
31.95% | T. Rowe Price Small Cap Value Fund | 26.36% | |||||||
|
Eaton Vance Large Cap Value Fund Class I
|
18.40% | Vanguard Prime Money Market Fund | 0.08% | |||||||
|
Oppenheimer Developing Markets Fund Class A
|
31.56% | Vanguard Total International Stock Index Fund | 31.38% | |||||||
|
Fidelity Spartan Extended Market Index Fund
|
32.57% | |||||||||
41
Table of Contents
OTHER
MATTERS AND INFORMATION
Stockholder
Proposals for Next Year’s Annual Meeting
Stockholder proposals, which are intended to be presented at the
2012 Annual Meeting of Stockholders, for inclusion in the
Company’s Proxy Statement pursuant to SEC
Rule 14a-8,
must be received by the Company at its executive offices on or
before May 4, 2012. Any such proposals, including
stockholder proposals for candidates for nomination for election
to the Board, must be submitted in accordance with applicable
SEC rules and regulations, and follow the Company’s
procedures under “Communications with the Board of
Directors.”
Stockholder proposals, which are intended to be presented at the
2012 Annual Meeting of Stockholders but not included in the
Company’s Proxy Statement must be received by the
Company’s Corporate Secretary at our executive offices on
or before July 18, 2012. We will not permit stockholder
proposals that do not comply with the foregoing notice
requirement to be brought before the 2012 Annual Meeting of
Stockholders.
Other
Actions at the Annual Meeting
As of the date of this Proxy Statement, management does not
intend to present, and has not been informed that any other
person intends to present, any matter for action at the Annual
Meeting other than those described in this Proxy Statement. If
any other matters properly come before the Annual Meeting, the
persons named in the enclosed proxy will vote on such matters in
accordance with their judgment.
Cost of
Solicitation of Proxies
Solicitation of proxies is made on behalf of the Company and the
Company will pay the cost of solicitation of proxies. The
Company will reimburse any banks, brokers and other custodians,
nominees, and fiduciaries for their expenses in forwarding
proxies and proxy solicitation material to the beneficial owners
of the shares held by them. In addition to solicitation by use
of the mail or via the Internet, directors, officers, and
regular employees of the Company, without extra compensation,
may solicit proxies personally or by telephone or other
communication means.
Electronic
Access to Proxy Materials and Annual Report
The Notice of Annual Meeting of Stockholders, Proxy Statement,
and Annual Report are also available on the Company’s
website at www.paychex.com at the Investor Relations
section under “Annual Reports and Proxy Statements.”
As an alternative to receiving paper copies of the Proxy
Statement and Annual Report in the mail, stockholders can elect
to receive an
e-mail
message, which will provide a link to these documents on the
Internet. Opting to receive your proxy materials online saves
the Company the cost of producing and mailing bulky documents
and reduces the volume of duplicate information received by you.
To give your consent to receive future documents via electronic
delivery, please vote your proxy via the Internet and follow the
instructions to register for electronic delivery.
Delivery
of Proxy Materials and Annual Report
The Notice of Annual Meeting of Stockholders, Proxy Statement,
Proxy Card, and Annual Report are being mailed to stockholders
on or about August 31, 2011. You may also obtain a copy of
our
Form 10-K
filed with the SEC, without charge, upon written request
submitted to Paychex, Inc., 911 Panorama Trail South, Rochester,
New York
14625-2396,
Attention: Investor Relations.
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
revoke their consent to the program known as
“householding.” Householding is intended to reduce the
Company’s printing and postage costs.
You may revoke your consent at any time by calling toll-free
(800) 542-1061
or by writing to Broadridge Investor Communications Services,
Attention: Broadridge Householding Department, 51 Mercedes Way,
Edgewood, New York, 11717. If you revoke your consent, you will
be removed from the householding
42
Table of Contents
program within 30 days of receipt of your revocation, and
each stockholder at your address will receive individual copies
of the Company’s disclosure documents.
The Company hereby undertakes to deliver upon oral or written
request a separate copy of its Proxy Statement and Annual Report
to a security holder at a shared address to which a single copy
was delivered. If such stockholder wishes to receive a separate
copy of such documents, please contact Terri Allen, Investor
Relations, either by calling toll-free
(800) 828-4411
or by writing to Paychex, Inc., 911 Panorama Trail South,
Rochester, New York
14625-2396,
Attention: Investor Relations.
If you own Paychex stock beneficially through a bank, broker, or
other holder of record, you may already be subject to
householding if you meet the criteria. If you wish to receive a
separate Proxy Statement and Annual Report in future mailings,
you should contact your bank, broker, or other holder of record.
43
Table of Contents
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information 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 access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
Use the Internet to transmit your voting instructions and for electronic delivery of information 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 access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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 and then follow the instructions.
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 and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| The Board of Directors recommends a vote FOR each of the nominees listed in Proposal 1. | ||||||||||||||||||||||
1.
|
Election of Directors | For | Against | Abstain | ||||||||||||||||||
1a.
|
B. Thomas Golisano | o | o | o | ||||||||||||||||||
| 1b. | Joseph G. Doody | o | o | o | The Board of Directors recommends you vote 1 YEAR on Proposal 3. | 1 year | 2 years | 3 years | Abstain | |||||||||||||
1c.
|
David J. S. Flaschen | o | o | o | 3. | ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION. | o | o | o | o | ||||||||||||
1d.
|
Phillip Horsley | o | o | o | ||||||||||||||||||
| 1e. | Grant M. Inman | o | o | o | The Board of Directors recommends you vote FOR Proposal 4. | For | Against | Abstain | ||||||||||||||
1f.
|
Pamela A. Joseph | o | o | o | 4. | RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. | o | o | o | |||||||||||||
1g.
|
Martin Mucci | o | o | o | ||||||||||||||||||
| 1h. | Joseph M. Tucci | o | o | o | NOTE: SHARES ISSUED TO OR HELD FOR THE ACCOUNT OF THE UNDERSIGNED UNDER THE ESOP WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IF THE CARD IS NOT SIGNED, OR IF THE CARD IS NOT RECEIVED BY OCTOBER 6, 2011, THE SHARES ISSUED TO OR HELD FOR THE ACCOUNT OF THE PARTICIPANT WILL BE VOTED BY THE ESOP TRUSTEE IN THE SAME PROPORTION AS ESOP SHARES FOR WHICH INSTRUCTIONS HAVE BEEN RECEIVED. | |||||||||||||||||
| 1i. | Joseph M. Velli | o | o | o | ||||||||||||||||||
| The Board of Directors recommends a vote FOR Proposal 2. | For | Against | Abstain | |||||||||||||||||||
2.
|
ADVISORY VOTE ON EXECUTIVE COMPENSATION. | o | o | o | ||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor,
administrator, or other fiduciary, please give full title as such. Joint owners should each sign
personally. All holders must sign. If a corporation or partnership, please sign in full corporate
or partnership name, by authorized officer.
| |
|
|||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||||||
Table of Contents
August 31, 2011
Dear Paychex Stockholder:
The Board of Directors cordially invites you to attend our Annual Meeting of Stockholders (the
“Annual Meeting”) on Tuesday, October 11, 2011 at 10:00 a.m. Eastern Time at The Strong, One
Manhattan Square, Rochester, New York 14607. Please note this is a change in venue from the prior
year.
The accompanying booklet includes the formal Notice of Annual Meeting of Stockholders and the Proxy
Statement. The Proxy Statement tells you about the agenda items and the procedures for the Annual
Meeting. It also provides certain information about Paychex, Inc., its Board of Directors, and its
named executive officers.
It is important that your shares be represented at the Annual Meeting. Whether or not you plan to
attend the Annual Meeting, you are encouraged to vote. You may vote by Internet, telephone, proxy
card, or written ballot at the Annual Meeting. We encourage you to use the Internet as it is the
most cost-effective way to vote. If you elected to electronically access the Proxy Statement and
Annual Report, you will not be receiving a proxy card and must vote
via the Internet.
We hope you will be able to attend the Annual Meeting and would like to take this opportunity to
remind you that your vote is important. If you need special assistance at the Annual Meeting, please
contact the Corporate Secretary at (800) 828-4411, or write to Paychex Inc., 911 Panorama Trail
South, Rochester, New York 14625-2396, Attention: Corporate Secretary.
Sincerely,
Martin Mucci
President and Chief Executive Officer
President and Chief Executive Officer
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice &
Proxy Statement, Annual Report is/are available at www.proxyvote.com.
PAYCHEX, INC.
Proxy Solicited on Behalf of the Board of Directors
of Paychex, Inc. for the Annual Meeting, October 11, 2011
Proxy Solicited on Behalf of the Board of Directors
of Paychex, Inc. for the Annual Meeting, October 11, 2011
PROXY
The undersigned hereby appoints MARTIN MUCCI and EFRAIN RIVERA, or either of them, with full power
of substitution, attorneys and proxies to represent the undersigned at the Annual Meeting of
Stockholders to be held on October 11, 2011 (“Annual Meeting”), and at any adjournment thereof,
with all the powers which the undersigned would possess if personally present to vote all shares of
stock which the undersigned may be entitled to vote at said Annual Meeting. The shares represented
by this proxy will be voted as instructed by you and in the discretion of the proxy on all other
matters. If not otherwise specified in this proxy card, shares will be voted in accordance with the
recommendations of the Board of Directors.
If shares of Paychex, Inc. Common Stock are issued to or held for the account of the undersigned
under the Paychex Employee Stock Ownership Plan Stock Fund (“ESOP”) of the Paychex, Inc. 401(k)
Incentive Retirement Plan, then the undersigned hereby directs the trustee of the ESOP to vote all
shares of Paychex, Inc. Common Stock in the undersigned’s name and/or account under such plan in
accordance with the instructions given herein, at the Annual Meeting and at any adjournment
thereof, on all matters properly coming before the Annual Meeting, including but not limited to the
matters set forth on the reverse side.
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY’S BOARD OF DIRECTORS. PLEASE MARK, SIGN, DATE AND
RETURN IT IN THE ENCLOSED ENVELOPE. IF NOT OTHERWISE MARKED, THE SHARES REPRESENTED BY THIS PROXY
SHALL BE VOTED “FOR” EACH OF THE NOMINEES IN PROPOSAL 1, “FOR” PROPOSAL 2, “1 YEAR” IN PROPOSAL 3,
AND “FOR” PROPOSAL 4.
Continued and to be signed on reverse side
TABLE OF CONTENTS
Proxy StatementStockholders Entitled to Vote; Outstanding Shares; QuorumHow to VoteRevoking Your ProxyGeneral Information on VotingVote RequiredSecurity Ownership of Certain Beneficial Owners and ManagementProposal 1 Election of Directors For A One-Year TermDirector Compensation for the Fiscal Year Ended May 31, 2011Cash CompensationEquity-Based CompensationDeferred Compensation PlanBenefitsStock Ownership GuidelinesFiscal 2011 Director CompensationProposal 2 Advisory Vote on Executive CompensationProposal 3 Advisory Vote on the Frequency of Future Advisory Votes on Executive CompensationProposal 4 Ratification of Selection of Independent Registered Public Accounting FirmFees for Professional ServicesAudit Committee Policy on Pre-Approval of Services of Independent AccountantsReport of The Audit CommitteeCorporate GovernanceInformation About the Board of Directors and Corporate GovernanceRisk OversightBoard of Directors CommitteesNomination ProcessPolicy on Transactions with Related PersonsGovernance and Compensation Committee Interlocks and Insider ParticipationCommunications with the Board of DirectorsSection 16(a) Beneficial Ownership Reporting ComplianceCode of Business Ethics and ConductCompensation Discussion and AnalysisExecutive SummaryObjectives of Compensation ProgramRole of Governance and Compensation CommitteeElements of CompensationBase SalaryAnnual Officer Performance Incentive ProgramEquity-Based CompensationCEO CompensationStock Ownership GuidelinesNon-Compete and Other Forfeiture ProvisionsPerquisitesDeferred CompensationChange-In-Control PlanSeparation AgreementsSubsequent EventsImpact of the Internal Revenue CodeThe Governance and Compensation Committee ReportNamed Executive Officer CompensationFiscal 2011 Summary Compensation TableGrants of Plan-Based Awards For Fiscal 2011Option Exercises and Stock Vested In Fiscal 2011Outstanding Equity Awards as of May 31, 2011Potential Payments upon Termination or Change-In-Control Fiscal 2011Non-Qualified Deferred Compensation Fiscal 2011Other Matters and Information