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:
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o Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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þ Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to §240.14a-12
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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):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which
transaction applies:
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Aggregate number of securities to which
transaction applies:
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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):
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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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.
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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August 31, 2007
Dear Paychex Stockholder:
The Board of Directors cordially invites you to attend our
Annual Meeting of Stockholders (the “Annual Meeting”)
on Wednesday, October 3, 2007 at
10:00 a.m. Eastern Time at the Rochester Riverside
Convention Center, 123 East Main Street, Rochester, New York.
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,
written proxy, 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.
Additionally, we encourage stockholder participation in the
householding program. We believe participation will benefit both
our stockholders and Paychex. Not only will it reduce the volume
of duplicate information that is received in a
stockholder’s household, but it will also reduce our
printing and mailing costs.
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 Secretary of the Company at
(800) 828-4411,
or write to Paychex, Inc., 911 Panorama Trail South, Rochester,
New York
14625-2396,
Attention: Corporate Secretary.
Sincerely,
Jonathan J. Judge
President and Chief Executive Officer
PAYCHEX,
INC.
911 Panorama Trail South • Rochester, New York
14625-2396
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
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Time: |
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10:00 a.m. Eastern Time on Wednesday, October 3,
2007. Continental breakfast will be available from
9:00 a.m. to 10:00 a.m. |
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Location: |
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Rochester Riverside Convention Center
123 East Main Street
Rochester, New York 14604 |
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Items of Business: |
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(1) To elect eight nominees to the Board of Directors for
one-year terms.
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(2) To ratify selection of the independent registered
public accounting firm.
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(3) To transact such other business as may properly come
before the Annual Meeting, or any adjournment thereof.
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Record Date: |
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Stockholders of record as of the close of business on
August 6, 2007, are entitled to notice of, and to vote at,
the Annual Meeting. |
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Proxy Voting: |
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Whether or not you plan to attend the Annual Meeting, it is
important that your shares be represented and voted at the
Annual Meeting. Please vote in one of these ways: |
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(1) Visit the website noted on your proxy card to
vote via the Internet;
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(2) Call the toll-free telephone number shown on the
proxy card; or
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(3) Mark, sign, date, and promptly return the
enclosed proxy card in the 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. |
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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. Any proxy can be revoked at any
time prior to its exercise at the Annual Meeting. |
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Annual Meeting Webcast: |
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The Annual Meeting will be simultaneously broadcast over the
Internet at 10:00 a.m. Eastern Time on October 3,
2007. It will then be archived and available for replay for
approximately one month. You can listen to the live Webcast or
the archived replay by visiting the Investor Relations page on
the Paychex, Inc. website at www.paychex.com. You are
encouraged to visit the website in advance of the broadcast to
ensure that your computer is properly configured. |
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August 31, 2007
By Order of the Board of Directors
John M. Morphy
Secretary |
TABLE OF
CONTENTS
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28
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PROXY
STATEMENT
2007
ANNUAL MEETING OF STOCKHOLDERS OF PAYCHEX, INC.
TO BE HELD ON OCTOBER 3, 2007
This Proxy Statement is being mailed to stockholders of Paychex,
Inc. (“Paychex” or the “Company”), a
Delaware corporation, on or about August 31, 2007, in
connection with the solicitation of proxies by the Board of
Directors of the Company (the “Board”) to be voted at
the 2007 Annual Meeting of Stockholders (the “Annual
Meeting”). The Annual Meeting will be held on Wednesday,
October 3, 2007 at 10:00 a.m. Eastern Time at the
Rochester Riverside Convention Center, 123 East Main Street,
Rochester, New York.
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 6, 2007 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,
382,952,112 shares of common stock were issued and
outstanding. A majority of the outstanding shares
(191,476,057 shares) present at the Annual Meeting in
person or by proxy will constitute a quorum. 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 in accordance with the
instructions on your proxy card, voting instruction form (from
your bank or broker), or the instructions that you received
through electronic mail. There are three convenient ways of
submitting your vote:
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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.
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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.
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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.
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The deadline for Internet or telephone voting is
11:59 p.m. Eastern Time on Tuesday, October 2,
2007. 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. If your
shares are held in the name of a bank, broker, 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.
Revoking
Your Proxy
You can revoke your proxy at any time prior to it being voted at
the Annual Meeting by:
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Providing written notice of revocation to the Secretary of the
Company;
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Submitting a later-dated proxy via the Internet, telephone, or
mail; or
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Voting in person at the Annual Meeting.
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1
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 FOR the eight nominees for
election to the Board of the Company, and FOR the
ratification of the selection of independent registered public
accounting firm.
Abstentions are counted for the purpose of establishing a quorum
and will have the same effect as a vote against a proposal
(other than the election of directors). Broker non-votes (i.e.,
shares held by a broker or nominee who does not have the
authority, either express or discretionary, to vote on the
matter) will be counted for the purpose of determining the
presence or absence of a quorum, but will not be counted for the
purpose of determining the number of shares entitled to vote on
a specific proposal and thus will not affect the outcome of the
vote.
The Company’s By-laws provide that each director shall be
elected by the vote of a majority of the votes cast with respect
to the director at any meeting for the election of directors at
which a quorum is present, provided that if the number of
nominees exceeds the number of directors to be elected, the
directors shall be elected by the vote of a plurality of the
shares represented in person or by proxy at any such meeting and
entitled to vote on the election of directors. A majority of the
votes cast means that the number of shares voted “for”
the election of a director nominee must exceed the number of
votes cast “against” the nominee. 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 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.
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Proposal Number
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Proposal Description
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Vote Required
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Proposal One
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Election of eight nominees to the
Board of Directors
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Majority of the votes duly cast*
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Proposal Two
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Ratification of selection of
independent registered public accounting firm
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Majority of the votes duly cast*
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without regard to broker non-votes |
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 proxy card also will serve
as a voting instruction for Fidelity Management
Trust Company (the “Trustee”), where all accounts
are 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 September 28, 2007.
The Trustee will then vote all shares of common stock held in
the ESOP by the established deadline.
2
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, 2007, 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) 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 (“NEOs”) of the Company named in the Fiscal
2007 Summary Compensation Table on page 22 of this Proxy
Statement, and (iv) all directors, NEOs, and executive
officers of the Company as a group.
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Amount of Beneficial
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Ownership of
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Percent of
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Name
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Common
Stock(1)
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Class(1)
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More than 5% owners:
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B. Thomas
Golisano(2),(3)
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38,116,815
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9.9
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1 Fishers Road
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Pittsford, NY 14534
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Directors:
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B. Thomas
Golisano(2),(3)
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38,116,815
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9.9
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David J. S.
Flaschen(5),(6)
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67,752
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**
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Phillip
Horsley(5),(6)
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272,652
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**
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Grant M.
Inman(5),(6)
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215,567
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**
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Pamela A.
Joseph(5),(6)
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7,168
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**
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Jonathan J.
Judge(5),(6)
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418,095
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**
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Joseph M.
Tucci(5),(6)
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65,502
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**
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Joseph M.
Velli(5)
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7,001
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**
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Named Executive
Officers:
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Jonathan J.
Judge(5),(6)
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418,095
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**
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John M.
Morphy(5),(6)
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127,631
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**
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Walter
Turek(4),(5),(6)
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497,736
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**
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Martin
Mucci(5),(6)
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101,732
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**
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Daniel A.
Canzano(5),(6)
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86,461
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**
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All Directors, NEOs, and
Executive Officers of the Company as a Group
(14 persons)(5),(6)
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40,108,305
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10.4
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** |
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Indicated percentage is less than 1%. |
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Based upon the number of shares of common stock outstanding and
deemed outstanding as of July 31, 2007. 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. |
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Included in shares beneficially owned for Mr. Golisano are
507,568 shares owned by the B. Thomas Golisano Foundation
for which Mr. Golisano is a member of the foundation’s
six-member board of trustees. |
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Mr. Golisano has 3,000,133 shares pledged as security. |
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Included in shares beneficially owned for Mr. Turek are
1,670 shares held in the names of family members or other
entities. |
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Included in shares beneficially owned are unvested restricted
stock: Mr. Flaschen — 2,668 shares;
Mr. Horsley — 2,668 shares;
Mr. Inman — 2,668 shares;
Ms. Joseph — 2,668 shares;
Mr. Judge — 55,557 shares;
Mr. Tucci — 2,668 shares;
Mr. Velli — 2,001 shares;
Mr. Morphy — 41,112 shares;
Mr. Turek — 11,112 shares;
Mr. Mucci — 11,112 shares;
Mr. Canzano — 4,445 shares; and all
directors, NEOs, and executive officers as a group —
149,793 shares. |
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Included in shares beneficially owned are shares that may be
acquired upon exercise of stock options, which are exercisable
on or prior to September 28, 2007:
Mr. Flaschen — 52,834 shares;
Mr. Horsley — 40,334 shares;
Mr. Inman — 40,334 shares;
Ms. Joseph — 2,000 shares;
Mr. Judge — 346,668 shares;
Mr. Tucci — 62,834 shares;
Mr. Morphy — 76,000 shares;
Mr. Turek — 162,542 shares;
Mr. Mucci — 86,000 shares;
Mr. Canzano — 52,733 shares; and all
directors, NEOs, and executive officers as a group —
1,028,029 shares. |
3
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 eight 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. Six of the eight nominees are neither employees nor
former employees of the Company. If elected, each nominee will
hold office until the 2008 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, the persons named in the enclosed proxy may
exercise discretionary authority to vote for substitutes
proposed by the Board.
Joseph M. Velli was recommended to the Board by a third-party
search firm. He was approved for nomination by the Board for
inclusion in this year’s election.
Biographies are provided below setting forth certain information
with respect to the nominees for election as directors of the
Company, none of whom is related to any other nominee or
executive officer.
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Director
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Position, Principal Occupation, Business
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Name
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Age
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Since
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Experience, and Directorships
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B. Thomas Golisano
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65
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1979
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Mr. Golisano founded Paychex, Inc.
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. Mr. Golisano is a member of the board of
directors of several private companies. He serves on the board
of trustees of the Rochester Institute of Technology. He owns
the Buffalo Sabres of the National Hockey League. Mr. Golisano
is former chairman of Greater Rochester Fights Back (a coalition
to combat illegal drugs and alcohol abuse), has served as a
member of the board of directors of numerous non-profit
organizations, and is founder of the B. Thomas Golisano
Foundation.
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David J. S. Flaschen
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51
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1999
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Mr. Flaschen has been an Operating
Partner of Castanea Partners since 2005. Castanea Partners is a
private equity investment firm targeting small- to mid-market
companies in the publishing and information, human resource and
business services, and the consumer product and specialty retail
sectors. From 2000 to 2005, he was Managing Director of
Flagship Ventures, a venture capital firm that focuses on life
science, information technology, and communications companies.
From 1997 to 1999, he was the President and Chief Executive
Officer of Thomson Financial, an information services company
focused on the financial industry. Mr. Flaschen is a
member of the board of directors of various private companies.
|
|
Phillip Horsley
|
|
|
68
|
|
|
|
1982
|
|
|
Mr. Horsley has been a Managing
Director of Horsley Bridge Partners since 1982. Horsley Bridge
Partners is a leading manager of private equity investments and
venture capital investments for institutional clients.
|
|
Grant M. Inman
|
|
|
65
|
|
|
|
1983
|
|
|
Mr. Inman is the founder and
General Partner of Inman Investment Management, a private
investment company formed in 1998. He is a member of the board
of directors of Lam Research Corporation, Wind River Systems,
Inc., and several private companies. Mr. Inman is a trustee of
the University of California, Berkeley Foundation.
|
4
| |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
Position, Principal Occupation, Business
|
|
Name
|
|
Age
|
|
|
Since
|
|
|
Experience, and Directorships
|
|
|
|
Pamela A. Joseph
|
|
|
48
|
|
|
|
2005
|
|
|
Ms. Joseph is Chairman of U.S.
Bancorp Payment Services and Chairman and Chief Executive
Officer of NOVA Information Systems, Inc., a wholly owned
subsidiary of U.S. Bancorp. NOVA Information Systems, Inc.
manages and facilitates payment processing on behalf of
retailers, financial institutions, associations, government
agencies, and merchant services providers. Ms. Joseph has been
Vice Chairman of U.S. Bancorp since December 2004 and serves on
its 13-member managing committee. From February 2000 to
November 2004, she was President and Chief Operating Officer of
NOVA Information Systems, Inc. She served as its Chief
Operating Officer from 1999 to 2000. Ms. Joseph is honorary
chairman of Gift for a Child, a non-profit organization that
assists adopted children with finding permanent homes. She is
also an advisory board member of VISA International.
|
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Jonathan J. Judge
|
|
|
53
|
|
|
|
2004
|
|
|
Mr. Judge has been President and
Chief Executive Officer of the Company since October 2004. From
October 2002 through December 2003, he served as President and
Chief Executive Officer of Crystal Decisions, Inc., an
information management software company. From 2001 to 2002, Mr.
Judge was General Manager of IBM’s Personal Computing
Division, a $10 billion business unit offering a broad range of
products, services, and solutions, including IBM’s ThinkPad
brand of mobile computers. From 1998 to 2001, he was responsible
for the worldwide sales, service, and support functions of
IBM’s Personal Computing Division and was a member of the
worldwide management committee of IBM. Mr. Judge serves on
the board of directors of
PMC-Sierra,
Inc.
|
|
Joseph M. Tucci
|
|
|
60
|
|
|
|
2000
|
|
|
Mr. Tucci has been the Chairman,
President, and Chief Executive Officer of EMC Corporation, a
leading provider of intelligent enterprise information storage
systems, software, networks, and services since January 2006.
From January 2001 to January 2006, he was the President and
Chief Executive Officer of EMC Corporation. From January 2000
to January 2001, he was President and Chief Operating Officer of
EMC Corporation. Prior to joining EMC, Mr. Tucci served as
Deputy Chief Executive Officer of Getronics NV, an information
technology services company, from June 1999 through December
1999.
|
5
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|
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|
|
|
|
|
|
|
|
|
Director
|
|
|
Position, Principal Occupation, Business
|
|
Name
|
|
Age
|
|
|
Since
|
|
|
Experience, and Directorships
|
|
|
|
Joseph M. Velli
|
|
|
49
|
|
|
|
2007
|
|
|
Mr. Velli became a director in
January 2007. He 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
execution, clearing, and investment technology services, since
October 2006. Prior to the formation of BNY CovergEx 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. Mr.
Velli joined the bank in 1984, establishing its Depositary
Receipt business, and in 1997, its institutional brokerage
business. During his tenure with the bank, his responsibilities
also included heading Global Issuer Services, Global Custody and
related Investor Services, Consumer Banking, and Global
Marketing and Sales, as well as serving as a member of the
bank’s Senior Policy Committee.
|
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 eight nominees.
6
DIRECTOR
COMPENSATION
Fiscal
Year Ended May 31, 2007
Director compensation is set by the Governance and Compensation
Committee of the Board. The Company compensates the outside
directors of the Board using a combination of cash and
equity-based compensation. Jonathan J. Judge, President and
Chief Executive Officer (“CEO”) of the Company,
receives no compensation for his services as a director. The
compensation received by Mr. Judge is shown on the Fiscal
2007 Summary Compensation Table on page 22 of this Proxy
Statement.
Cash
Compensation
During the year ended May 31, 2007 (“fiscal
2007”), outside directors received an annual retainer of
$25,000, paid in quarterly installments, plus $2,500 for each
Board meeting attended. In addition, outside directors who
served on a committee of the Board received $1,000 for each
committee meeting attended. The Chairman of the Audit Committee,
currently Mr. Flaschen, was paid an additional $1,000 for
each Audit Committee meeting chaired.
In fiscal 2007, Mr. Golisano received an annual salary of
$140,000 for his services as Chairman of the Board. The Chairman
does not receive any other director fees or equity-based
compensation.
Equity-Based
Compensation
As the Company matures, the market for its common stock has
matured and therefore, the Governance and Compensation Committee
determined it would be more appropriate to shift equity awards
from 100% of stock options to a blend of stock options and
restricted stock. In July 2006, each outside director was
awarded a grant of 6,000 options to purchase shares of the
Company’s common stock at an exercise price of $36.87 per
share, under the Company’s 2002 Stock Incentive Plan, as
amended and restated effective October 12, 2005 (the
“2002 Plan”). The exercise price of the stock options
granted was equal to the market price of the underlying stock on
the date of grant. These options vest one-third per annum over
three years from the date of grant and have a term of ten years.
In addition, each outside director received an award of
1,334 shares of restricted stock in July 2006. This
restricted stock granted has the following terms:
|
|
|
| |
•
|
the shares vest on the third anniversary of the date of grant;
|
| |
| |
•
|
the vested shares may not be sold during the director’s
tenure as a member of the Board, except as necessary to satisfy
any tax obligations; and
|
| |
| |
•
|
the Governance and Compensation Committee has the discretion to
accelerate vesting in whole or in part for certain events,
including, but not limited to director retirement. Retirement
eligibility for directors for this purpose begins at age 55
or older with ten years of service as a member of the Board.
|
In July 2007, each outside director, except for
Mr. Golisano, received 6,000 options to purchase shares of
the Company’s common stock at an exercise price of $43.91
per share and 1,334 shares of restricted stock. In
addition, Mr. Velli received an additional award based on
his service on the Board since January 2007. The vesting of the
July 2007 awards is unchanged from the July 2006 awards.
Deferred
Compensation Plan for Directors
The Company maintains a non-qualified, unfunded, deferred
compensation plan in which all outside directors are eligible to
participate. Directors may elect to defer up to 100% of their
Board cash compensation. Gains and losses are credited based on
the participant’s election of a variety of designated
investment choices, which the participant may change at any
time. The Company does not match any participant deferral or
guarantee a certain return. The interest rates earned on these
mutual funds is not above-market or preferential. Refer to
page 27 of this Proxy Statement for a listing of investment
funds available to a participant and the annual returns on those
funds. Mr. Flaschen defers 100% of his Board cash
compensation under this plan. No other directors participate in
the plan at this time.
Benefits
We reimburse each director for expenses associated with
attendance at Board and committee meetings. For his arrangement
with the Company, Mr. Golisano also receives access to the
Company’s standard health and life insurance plans, and
receives Company-matching contributions into his account in the
Paychex, Inc. 401(k) Incentive Retirement Plan.
7
Fiscal
2007 Director Compensation
The table below summarizes the compensation paid by the Company
to all outside directors for fiscal 2007.
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Fees Earned
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
or Paid in
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Compensation
|
|
|
Total
|
|
|
Name
|
|
Cash
($)(1)
|
|
|
($)(2),(4)
|
|
|
($)(3),(4)
|
|
|
($)(5)
|
|
|
($)
|
|
|
|
|
B. Thomas Golisano
|
|
$
|
140,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,515
|
|
|
$
|
151,515
|
|
|
David J. S. Flaschen
|
|
$
|
54,500
|
|
|
$
|
14,508
|
|
|
$
|
70,545
|
|
|
$
|
—
|
|
|
$
|
139,553
|
|
|
Phillip Horsley
|
|
$
|
36,500
|
|
|
$
|
14,508
|
|
|
$
|
70,545
|
|
|
$
|
—
|
|
|
$
|
121,553
|
|
|
Grant M. Inman
|
|
$
|
48,500
|
|
|
$
|
14,508
|
|
|
$
|
70,545
|
|
|
$
|
—
|
|
|
$
|
133,553
|
|
|
Pamela A. Joseph
|
|
$
|
41,000
|
|
|
$
|
14,508
|
|
|
$
|
13,635
|
|
|
$
|
—
|
|
|
$
|
69,143
|
|
|
J. Robert
Sebo(6)
|
|
$
|
20,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,000
|
|
|
Joseph M. Tucci
|
|
$
|
38,000
|
|
|
$
|
14,508
|
|
|
$
|
70,545
|
|
|
$
|
—
|
|
|
$
|
123,053
|
|
|
Joseph M.
Velli(7)
|
|
$
|
17,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,500
|
|
|
|
|
|
(1) |
|
The amounts shown in this column are as described above under
“Cash Compensation.” |
| |
|
(2) |
|
The amounts in this column represent the dollar amount
recognized as expense in the Company’s Consolidated
Financial Statements for fiscal 2007 for the fair value of
restricted stock awards in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 123
(revised) (“No. 123 (R)”), “Share-Based
Payment.” Pursuant to SEC rules, the amount disclosed
disregards estimates of forfeitures of awards that have been
included in the financial statement reporting for such awards.
The fair value of restricted stock awards is determined based on
the closing price of the underlying common stock on the date of
grant. Refer to Note B contained in the Notes to
Consolidated Financial Statements included in Item 8 of our
Annual Report on
Form 10-K
(“Form 10-K”)
for fiscal 2007 for further discussion of restricted stock
awards. |
| |
|
(3) |
|
The amounts in this column represent the dollar amount
recognized as expense in the Company’s Consolidated
Financial Statements for fiscal 2007 for the fair value of stock
option awards in accordance with
SFAS No. 123 (R), and thus include amounts from
awards granted prior to June 1, 2006. The fair value was
determined using a Black-Scholes option pricing model in
accordance with SFAS No. 123 (R) for grants in fiscal
2007. Grants prior to fiscal 2007 were valued using a
Black-Scholes option pricing model in accordance with
SFAS No. 123, “Accounting for Stock-Based
Compensation.” Pursuant to SEC rules, the amount disclosed
disregards estimates of forfeitures of awards that have been
included in the financial statement reporting for such awards.
Included in these amounts are grants of option awards in July
2002, July 2003, July 2004, July 2005, and July 2006. Refer to
page 22 of this Proxy Statement for the assumptions and
resulting per share fair value for these stock option grants.
Refer to Note B contained in the Notes to Consolidated
Financial Statements included in Item 8 of our
Form 10-K
for fiscal 2007 for further discussion of the relevant
assumptions used in the calculation of the grant date fair value. |
| |
|
(4) |
|
As of May 31, 2007, Mr. Flaschen, Mr. Horsley,
Mr. Inman, Ms. Joseph, and Mr. Tucci each had
1,334 shares of unvested restricted stock outstanding. As
of May 31, 2007, each director had the following number of
stock options outstanding: Mr. Flaschen — 63,500;
Mr. Horsley — 51,000; Mr. Inman —
51,000; Ms. Joseph — 6,000;
Mr. Sebo — 28,335; and Mr. Tucci —
73,500. |
| |
|
(5) |
|
All Other Compensation for Mr. Golisano includes $4,200 of
Company-matching contribution under the Paychex, Inc. 401(k)
Incentive Retirement Plan and $7,315 in Company-provided
benefits for standard life and health insurance. |
| |
|
(6) |
|
Mr. Sebo retired from the Board effective October 4,
2006. Upon his retirement from the Board, Mr. Sebo
forfeited his July 2006 grant of stock options and restricted
stock award, as they were unvested as of that date. |
| |
|
(7) |
|
Mr. Velli was appointed to the Board in January 2007. |
8
PROPOSAL 2 •
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 registered public
accounting firm (the “independent accountants”) for
the year ending May 31, 2008.
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, which has
served as the Company’s independent accountants since 1983,
will be present at the Annual Meeting and will be afforded the
opportunity to make any statements they wish and to answer
appropriate questions.
To ratify the appointment of Ernst & Young LLP, a
majority of votes cast at the meeting must be voted for the
proposal.
The Board of Directors recommends a vote FOR the proposal to
ratify appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm.
Fees For
Professional Services
The following table shows the aggregate fees for professional
services rendered for the Company by Ernst & Young LLP:
| |
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Year Ended May 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Audit fees
|
|
$
|
544,000
|
|
|
$
|
493,000
|
|
|
Audit related fees
|
|
|
359,000
|
|
|
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
903,000
|
|
|
$
|
833,000
|
|
|
|
|
|
|
|
|
|
|
|
Audit fees for fiscal 2007 and the year ended
May 31, 2006 (“fiscal 2006”) were for
professional services rendered for the audits of the
Company’s consolidated financial statements, and reviews of
the financial statements included in the Company’s
Quarterly Reports on
Form 10-Q,
and for the audits of management’s assessment of the
effectiveness of internal control over financial reporting and
the effectiveness of internal control over financial reporting.
Audit related fees for fiscal 2007 and 2006 were for
internal control reviews of transaction processing, employee
benefit plan audits, and other reports.
There were no tax or other non-audit related services provided
by the independent accountants for fiscal 2007 and 2006.
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 2007.
9
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 non-management 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
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 management’s
assessment about the effectiveness of internal controls over
financial reporting and issuing 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 2007 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 2007, 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, as amended by Statement on
Auditing Standard No. 90 (Communications With Audit
Committees). The independent accountants have provided the
Audit Committee with written disclosures and the letter required
by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the
Audit Committee has discussed with the independent accountants
their firm’s independence. There were no non-audit services
provided to the Company during fiscal 2007 that required
consideration by the Audit Committee.
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 Annual Report on
Form 10-K
for the year ended May 31, 2007 for filing with the SEC.
The Audit Committee has recommended for approval by the Board
the selection of the Company’s independent accountants.
The Audit Committee:
David J. S. Flaschen, Chairman
Grant M. Inman
Pamela A. Joseph
10
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.
Regularly scheduled executive sessions of the independent
members of the Board, without members of management, are held in
conjunction with meetings of the Board. These meetings of
non-management directors include the evaluation of the CEO and
are held on a regular basis. The Board has selected
Mr. Tucci to preside at all executive sessions of the
independent directors.
The Board met five times during fiscal 2007. To the extent
practicable, directors are expected to attend all Board meetings
and meetings of the committees on which they serve. Each
director attended more than 75% of all meetings of the Board and
of the committees on which such director served during fiscal
2007, with the exception of Mr. Horsley, who attended seven
of eleven meetings due to health reasons. Directors are
encouraged to attend annual meetings of stockholders. Last year,
all directors attended the 2006 Annual Meeting of Stockholders.
The Governance and Compensation Committee leads the process of
Board and committee evaluation and carefully examines the
performance and qualifications of each director nominee before
deciding whether to recommend him or her to the Board for
nomination. The Governance and Compensation Committee
periodically reviews and assesses the Company’s corporate
governance policies.
In its annual review of director independence, the Board
considers many facts and circumstances, including but not
limited to, commercial business, banking, consulting, legal,
accounting, charitable, or other business relationships a
director may have with the Company. Based on its review, the
Board has determined that each of the directors, other than
Mr. Golisano and Mr. Judge, is independent within the
meaning of applicable SEC and The NASDAQ Stock
Market®
(“NASDAQ”) director independence standards.
Board of
Directors Committees
The Board has established four standing committees with the
following director assignments:
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Governance and
|
|
|
|
Executive
|
|
Audit
|
|
Investment
|
|
Compensation
|
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Name
|
|
Committee
|
|
Committee
|
|
Committee
|
|
Committee
|
|
|
|
B. Thomas Golisano
|
|
X
|
|
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|
|
|
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|
Jonathan J. Judge
|
|
Chairman
|
|
|
|
|
|
|
|
David J. S. Flaschen
|
|
|
|
Chairman
|
|
X
|
|
X
|
|
Phillip Horsley
|
|
X
|
|
|
|
X
|
|
X
|
|
Grant M. Inman
|
|
|
|
X
|
|
Chairman
|
|
X
|
|
Pamela A. Joseph
|
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|
X
|
|
|
|
|
|
Joseph M. Tucci
|
|
|
|
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Chairman
|
|
Joseph M. Velli
|
|
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|
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|
Number of meetings held by
committee during fiscal 2007
|
|
1
|
|
6
|
|
2
|
|
3
|
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.
11
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 and system of
internal control;
|
| |
| |
•
|
review the performance and independence of the Company’s
independent accountants;
|
| |
| |
•
|
review and appraise the performance of the Company’s
internal auditors;
|
| |
| |
•
|
review various legal and regulatory matters; and
|
| |
| |
•
|
provide an open avenue of communication among the independent
accountants, financial and senior management, the internal
auditors, and 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
executive officers;
|
| |
| |
•
|
provide general oversight with respect to governance of the
Board; and
|
| |
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•
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identify, evaluate, and recommend to the Board candidates for
nomination for election to the Board.
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The Board has determined that all members of the Audit Committee
meet the independence, experience, and other applicable NASDAQ
listing requirements, 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. Matters presented to the Board by
the Governance and Compensation Committee are discussed and
decided upon by the outside directors, which in fiscal 2007 were
all directors except for Mr. Golisano and Mr. Judge.
The Audit, Investment, and Governance and Compensation
Committees’ responsibilities are more fully described in
each committee’s charter adopted by the Board, which is
accessible on the Company’s
website, www.paychex.com at the Investor Relations
section under “Corporate Governance.”
Nomination
Process
The Governance and Compensation Committee performs the function
of a nominating committee. 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 Nomination Policy included in the Governance and
Compensation Committee Charter is intended to achieve this
result.
In evaluating candidates for nomination to the Board, 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 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.
12
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 below in the Section
entitled “Communications with the Board of Directors.”
Policy on
Transactions with Related Persons
It is the Company’s policy to avoid related persons
transactions. However, there may be occasions when a transaction
is in the best interest of the Company and is also a related
person transaction. The Company’s policies and procedures
for review and approval of related persons transactions appear
in the Company’s Standards of Conduct, Conflict of
Interest, and its 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.
For all employees, these policies and procedures require the
employee to disclose and the Company to make a conflict of
interest review and determination for 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. For officers, the Company’s Chief
Financial Officer (“CFO”) oversees the review and
determination.
Members of the Board are required to disclose to the Chairman of
the Board or the Chairman 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 human resources department determines whether
employment of an employee’s relative is appropriate. The
Company’s management, in consultation with the human
resources department, is required to resolve any conflict
regarding employment of an employee’s relative.
The Company’s financial accounting 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 U.S. generally accepted accounting
principles and SEC rules.
The Governance and Compensation Committee is required to
consider all questions of possible conflicts of interest of
Board members and officers, including review and approval of
transactions of the Company in excess of $120,000 in which a
director, officer, or an immediate family member of a director
or officer has an interest. An immediate family member, as
defined under Item 404 (a) of SEC
Regulation S-K,
includes any child, stepchild, parent, stepparent, spouse,
sibling,
mother-in-law,
father-in-law,
son-in-law,
daughter-in-law,
brother-in-law,
or
sister-in-law
of such director or officer, and any person (other than a tenant
or employee) sharing the household of such director or officer.
Mr. Tucci, who is a member of the Board, is the Chairman,
President, and Chief Executive Officer of EMC Corporation.
During fiscal 2007, the Company purchased through negotiated
transactions approximately $2.8 million of data processing
equipment and software from EMC Corporation. Mr. Golisano,
Chairman of the Board, is the owner of Rochester Aviation, Inc.
In fiscal 2007, the Company purchased approximately $65,000 of
aviation services from Rochester Aviation, Inc. related to
Mr. Golisano’s travel to attend Board meetings.
13
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 and with chairmen of standing committees of the Board.
These procedures cover recommendations by stockholders of
candidates for nomination for election to 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 Company
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.
Governance
and Compensation Committee Interlocks and Insider
Participation
None of the members of the Governance and Compensation Committee
were at any time during fiscal 2007, 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 2007, 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.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires directors, executive officers, and beneficial
owners of more than 10% of the Company’s common stock to
file with the SEC reports of transactions in the stock. Based on
information supplied to the Company and filings made with the
SEC, the Company believes that during fiscal 2007, its
directors, executive officers, and greater than 10% beneficial
owners have complied in a timely manner with all applicable
Section 16 filing requirements.
CODE OF
BUSINESS ETHICS AND CONDUCT
The Company has adopted a Code of Business Ethics and Conduct
that applies to all of its directors, officers, and employees.
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.
14
COMPENSATION
DISCUSSION AND ANALYSIS
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 provide competitive opportunities when compared with
companies of comparable size; attract, retain, and develop
highly qualified NEOs; reward exceptional individual
performance; tie compensation to our overall financial and
strategic objectives; and align the interests of NEOs with the
interests of stockholders.
To achieve these objectives, our NEO compensation plan has been
designed to:
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be closely linked to, and deliver pay opportunities based on
Company performance and the individuals’ performance;
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have incentives based on a focused set of financial,
operational, and strategic goals;
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provide the appropriate mix of individualized base salary,
variable compensation, and short- and long-term incentives based
on the NEO’s role and responsibilities. This provides
considerable opportunities for superior performance and downside
risk if performance goals are not achieved; and
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be clearly communicated to NEOs, stockholders, and other key
parties.
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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:
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reviews base salaries for increases, if any;
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resets the annual officer performance incentive program (the
“annual incentive program”);
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approves the prior year payouts under the annual incentive
program;
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grants awards under our 2002 Plan; and
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updates its intent with regards to section 162(m) of the
Internal Revenue Code.
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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 utilizes the compensation advisory services of Watson
Wyatt Worldwide, reporting to the committee and purposefully
independent from Paychex management. During fiscal 2007,
management utilized the services of Watson Wyatt in connection
with the adoption of new accounting for stock-based
compensation. Such services were provided on the approval of the
committee. The results of such services were not distributed to
the committee. However, the information was the basis for
certain disclosures within our annual SEC filings, which the
committee members, as members of the Board, review and approve.
Management has discontinued use of Watson Wyatt.
Management retains the services of First Niagara Consulting
(formerly the Burke Group) as our compensation consultant. First
Niagara Consulting advises the Company on overall compensation
strategy and plan design. They do not provide advice on
individual NEOs’ compensation. First Niagara Consulting
holds discussions with Watson Wyatt during the year on
matters related to the market survey data and methodology for
analysis of comparative data for consistency between the two
consultants.
Watson Wyatt advises the committee on matters of NEO
compensation and assists the committee with analysis and
research. Generally, compensation plans are developed and
proposed by management with analytical and research assistance
by First Niagara Consulting. Watson Wyatt will review reports
from management and First Niagara Consulting, and offer the
committee their opinions on the findings.
Our CEO, along with the Vice President of Organizational
Development, makes recommendations to the committee on the
design of elements of compensation. These individuals, and from
time to time the CFO, will be in attendance at the meetings of
the committee to present plan design recommendations, evaluate
current plan design,
15
and respond to questions on current or recommended plan design.
Our CEO, annually, will review achievement to the prior
year’s plan, review salary recommendations for the NEOs,
recommend the upcoming fiscal year’s annual incentive
program structure, and present recommendations on equity awards.
Management is excluded from executive sessions of the committee
where final decisions on compensation elements are made,
particularly those on our CEO’s performance and
compensation. Executive sessions occur at each meeting of the
committee. Watson Wyatt has been in attendance at these
executive sessions.
Elements
of Compensation
We use a combination of compensation elements, including annual
base salary, annual incentive program, and equity awards under
our 2002 Plan. The committee compares our CEO compensation plan
and that of other NEOs with other similar companies. The
committee reviews various reports and survey information as
input to assess our cash compensation elements of annual base
salary and annual incentive program. The committee strives for
our NEOs’ cash compensation to be competitive with a select
group of comparable companies (the “Peer Group”). The
market survey information 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’s evaluation for fiscal 2007
indicated that certain elements of the compensation package were
not yet fully competitive, mainly that compensation should be
more heavily weighted towards performance-based plans as
described under the Annual Officer Performance Incentive Program
below. The committee will continue to review each of the
elements annually to ensure that compensation is appropriate and
competitive to attract and retain a high performing executive
team. For fiscal 2007, compensation packages averaged 52% in
cash compensation and 48% in non-cash compensation, including
the values of equity awards as provided in the Fiscal 2007
Summary Compensation Table on page 22 of this Proxy
statement.
Annually, the committee receives from management a summary of
total cash compensation and equity awards with estimated future
value, and total compensation for the upcoming fiscal year for
all officer levels, from vice president to CEO. The summary is
used to evaluate compensation recommendations and the impact to
both total cash compensation and total compensation for each
individual.
Management also provides the committee annually a five-year
history of total compensation, including cash, annual incentive
payout, and equity compensation, for all officers. This history
provides a more complete picture of the internal trend of
rewards to executive officers, both as a team, and as
individuals. This summary facilitates discussion in that it more
accurately details individual officer compensation, noting
differences that reflect officer tenure, performance, and
relative degree of importance of the position. Newly promoted
officers often have pay progression at a somewhat faster rate
than more tenured officers.
Competitive benchmarking is achieved on a two-tiered basis.
Compensation is most closely compared to a group of companies
known as the Peer Group. This select group consists of fifteen
companies with comparable revenue, net income, market
capitalization, and earnings per share within our industry, or
are direct competitors of Paychex. This group includes the two
direct competitors in the payroll industry, Automatic Data
Processing, Inc. and Ceridian Corporation, several firms in the
financial transaction management arena, business process
outsourcing companies, and more recently added companies in
human resources outsourcing. The Peer Group companies are not
necessarily limited to the markets in which Paychex does
business. The committee also receives
16
data on CEO compensation at other large, Rochester-based public
companies. This information, by itself, does not necessarily
trigger a change of our CEO’s compensation. Our current
Peer Group consists of:
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Affiliated Computer Services, Inc.
(ACS)
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First Data Corporation (FDC)
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Automatic Data Processing, Inc.
(ADP)
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Fiserv, Inc. (FISV)
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The BISYS Group, Inc. (BSG)
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H&R Block, Inc. (HRB)
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Ceridian Corporation (CEN)
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Hewitt Associates, Inc. (HEW)
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Convergys Corporation (CVG)
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Intuit Inc. (INTU)
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DST Systems, Inc. (DST)
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Robert Half International Inc.
(RHI)
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The Dun & Bradstreet
Corporation (DNB)
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T. Rowe Price Group, Inc. (TROW)
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Equifax Inc. (EFX)
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The committee annually reviews and approves the selection of
Peer Group companies for its review. They may vary from year to
year based upon changes in our business and industry relative to
other companies. The Peer Group will also change for mergers,
acquisitions, or other financial restructurings. There have been
no changes to this Peer Group since 2005.
The second tier of comparison is the Market Group, consisting of
35 companies. These companies are of a similar relative
size, either in revenue or market capitalization, and are
competitive for management staffing. This second group also
allows the Company to compare with companies that are emerging
competitors, either due to their growth, or as the Company moves
into new markets. For example, medium-sized insurance companies
have been added as Paychex grows its employee insurance
offerings.
Annual
Base Salary
The annual base salaries of the NEOs are determined based on the
responsibilities of their position and comparisons with base
salaries paid to executive officers having similar
responsibilities in comparable companies. Annually, the base
salaries are reviewed to determine what, if any, increase is
required. In 2007, the committee changed the cash compensation
mix, as noted below under the Annual Officer Performance
Incentive Program section.
Annual
Officer Performance Incentive Program
The annual incentive program is established annually and
provides our NEOs the opportunity for additional cash
compensation based primarily on our annual revenue and operating
income growth. The targets for payout are established through a
collaborative effort between management and the committee. The
program was established to motivate our NEOs to meet the goals
set by the Company as presented to its stockholders. These goals
have both financial and strategic objectives and are closely
aligned with our stated goals of 12% annual service revenue
growth and 15% annual operating income growth (without interest
on funds held for clients). In addition to annual service
revenue growth and annual operating income growth, the NEOs are
measured on operating income as a percentage of service revenue.
The Senior Vice President of Sales and Marketing is measured on
new business revenue instead of annual service revenue growth,
as he has greater influence on the results in that area.
Targets for annual incentives are set at specific financial
goals, which are in alignment with stockholder interests, and
which require all aspects of our business to function well in
order to attain. The goals are achievable and difficult to
overachieve. In fact, the annual incentive program has never
achieved a maximum payout. In 2001, executive officers received
no payout when the plan missed one element of achievement. We
believe the rigor of the annual incentive program is one of the
reasons for the consistency of the Company’s financial
performance. Once the target is determined, it is set for the
year and is not changed. For extraordinary circumstances, the
compensation committee reserves the right to apply discretion.
For the year ending May 31, 2008, the annual incentive
program applicable to the CEO was structured into two
components – quantitative and qualitative. The
quantitative component is intended to comply with
section 162(m) of the Internal Revenue Code. The CEO’s
quantitative target percentage incentive is 100% of annual base
salary. The quantitative target percentage for senior vice
presidents (“SVP”) was increased from 60% to 65% of
annual
17
base salary. The increases reflect the committee’s
evaluation that increasingly more annual compensation should be
derived from performance-based plans. At the same time, NEO base
salaries were constrained, in order to implement a more
appropriate alignment to this philosophy. Each NEO is also
assigned a qualitative section under the annual incentive
program, with the CEO potentially receiving 20% of base salary
and all other NEOs 10% of base salary, the same at both target
and maximum. Qualitative targets are established annually, often
based on functions unique to the individual. The qualitative
portion of the incentive program also allows focus on singular,
critical, officer-level projects.
Equity
Compensation
To align our NEOs with the long-term interests of our
stockholders, the Company has long granted equity awards under
our stock incentive plans. The committee has provided guidance
to management regarding the aggregate amount of equity-based
compensation to be utilized while also considering the financial
impact of such grants. Management believes this is a prudent use
of equity grants, which aligns the interests of both NEOs and
stockholders, and is respectful of the issue of stockholder
dilution.
Grants of equity awards to the NEOs have, since 1998, occurred
in July subsequent to the release of our fiscal year-end
earnings and upcoming fiscal year financial guidance, and after
the black-out period has lifted for our NEOs relative to such
release of information. The committee anticipates continuing
this practice. Prior to 1998, stock options to NEOs occurred in
October. All grants of equity awards are based on the closing
market price on the date of grant, which is typically the same
date that the Board has approved the grant. Recipients are
notified shortly thereafter of their grant, noting the number of
awards granted, the vesting schedule, and exercise price. Any
restrictive or unusual terms of the award are also communicated
at that time.
As the Company matures, the market for its common stock has
matured and therefore, the committee determined it would be more
appropriate to shift equity awards from 100% of stock options to
a blend of stock options and restricted stock. Beginning in
fiscal 2007, the committee approved the granting of
performance-accelerated restricted stock awards to NEOs. The
grants were made subject to the 2002 Plan and were issued to
provide pay for performance. The performance-accelerated
restricted stock provides the committee with the best vehicle at
this time to align NEOs’ interests with
stockholders’ interests over the long-term.
This was accomplished by creating a blend of restricted stock
and options, which optimized total awards while maintaining
expense similar in manner to the previous grant levels of solely
stock options. The granting of performance-accelerated
restricted stock awards occurred for a number of reasons:
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First, we believe the granting of performance-accelerated awards
provides better alignment with stockholders’ interests.
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Second, it affords the opportunity for increased equity
ownership by NEOs.
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Third, the use of restricted stock moderates the negative impact
of external stock market factors outside the control of
management.
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This grant of restricted stock awards included both
performance-based and time-based vesting to recognize all
aspects of the NEOs’ contributions to the Company, and to
motivate the NEOs to meet our long-term financial targets. The
performance criteria for the acceleration of the vesting of the
restricted stock were based on the Company’s stated goal of
15% growth in operating income without interest on funds held
for clients, with a further exclusion for stock-based
compensation costs, to remain consistent with the annual
incentive program targets. The targets for acceleration of
one-third in any one fiscal year are operating income less
interest on funds held for clients and stock-based compensation
for fiscal 2007 of $631.1 million, and for the years ending
May 31, 2008, 2009, and 2010 operating income less interest
on funds held for clients of $696.3 million,
$800.7 million, and $920.8 million, respectively. In
accordance with the committee’s evaluation of performance
under the 2002 Plan, the performance criteria for fiscal 2007
was adjusted for the expense charge to increase the litigation
reserve. In addition to these two types of equity awards, our
2002 Plan also provides for the issuance of stock appreciation
rights and restricted stock units, although there have not yet
been any grants of these award types. The value of equity awards
for the NEOs is detailed on the Fiscal 2007 Summary Compensation
Table, page 22.
18
Stock
Ownership Guidelines
In furtherance of the long-term alignment with stockholders, the
committee set stock ownership guidelines for our CEO (two times
his annual base salary) and SVPs (one times annual base salary),
including our CFO. The guidelines were established to provide an
additional element of retention and alignment with
stockholders’ interests. Similarly, awards to members of
the Board contain rules which restrict directors from selling
any vested restricted shares underlying the award during their
tenure as a member of the Board, except as necessary to satisfy
any tax obligations.
NEOs of the Company must also adhere to strict standards with
regards to trading in the Company’s stock. They may not:
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speculatively trade in the Company’s stock;
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short sell any securities of the Company;
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or buy or sell puts or calls on the Company’s securities.
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Perquisites
Our NEOs and directors do not receive benefits not otherwise
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. Refer to the Deferred
Compensation section below for more information on how our plan
functions.
Deferred
Compensation
We offer a non-qualified and unfunded deferred compensation plan
to our NEOs and directors. The plan has been designed to comply
with the current guidelines of Internal Revenue Code
section 409A. Eligible employees are able to defer up to
50% of their annual base salary and bonus and outside directors
can elect to defer up to 100% of their Board cash compensation.
Gains and losses are credited based on the participant’s
election of a variety of designated investment choices. It is
solely in the NEO’s control as to which of the designated
funds to invest in, and they earn the resulting return on such
investment. We do not match any participant deferral or
guarantee a certain return. Returns earned on the designated
investments are detailed in the non-qualified, deferred
compensation table on page 27. The deferred compensation
plan is an extension of the NEO’s 401(k) incentive
retirement plan account. Due to the limitations on the 401(k)
account provided by the Internal Revenue Service, this plan
allows for further savings toward retirement for the NEOs and
functions similarly to the 401(k) account. 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.
Severance
The only person among our NEOs and Board who has a severance
package is Mr. Judge, which was negotiated as part of his
original employment agreement established when he joined Paychex
in October 2004, and expires in October 2007. The employment
agreement provided for fixed annual base salary, participation
in the annual incentive program and an initial grant of 650,000
options to acquire the Company’s common stock. If
Mr. Judge is terminated other than for cause or resigns for
good reason, we shall pay one year’s annual base salary
plus an annual bonus determined at the same percentage of plan
as for the immediately preceding fiscal year (without
pro-ration). Additionally, any unvested options of his original
650,000 grant in October 2004 shall immediately vest and become
exercisable. The value of this arrangement to Mr. Judge as
of May 31, 2007 is approximately $1.9 million in cash
and $4.2 million for 433,332 of unvested stock options. The
value of the unvested stock options is determined by the
difference in the market price of the Company’s common
stock of $40.40 at May 31, 2007 and the exercise price of
$30.68 multiplied by the number of unvested stock options.
No written or oral arrangements exist for our NEOs, except for
the arrangement identified above with our CEO.
19
Compensation
Received In Fiscal 2007
In reviewing the Company’s NEO compensation, it is
important to note the opportunities Paychex provided to its NEOs
in fiscal 2007. The increasing complexity of the standards of
financial accounting and reporting related to stock-based
compensation has made it difficult for investors to assess this
information and has, at times, caused confusion between what
might be called “reported” pay versus
“received” pay, or the amount of compensation received
by an NEO. Therefore, provided below is an additional
compensation table designed to highlight the compensation that
reflects what an NEO has received.
The table below shows the actual compensation received by each
of the NEOs for fiscal 2007. This table includes salary,
incentive bonus, all other compensation received in fiscal 2007,
and net value realized from the exercise of stock options during
fiscal 2007. The table below excludes the complex accounting
valuations for equity awards as required in the Fiscal 2007
Summary Compensation Table on page 22.
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2007 Compensation Received by NEOs
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Stock
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Annual
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Annual
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Option
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All Other
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Base Salary
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Incentive
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Exercise
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Compensation
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Total
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Jonathan J. Judge
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$
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868,144
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$
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814,385
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$
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—
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$
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—
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$
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1,682,529
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John M. Morphy
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$
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393,243
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$
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215,013
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$
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—
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$
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7,134
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$
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615,390
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Walter Turek
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$
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397,426
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$
|
233,277
|
|
|
$
|
630,599
|
|
|
$
|
6,715
|
|
|
$
|
1,268,017
|
|
|
Martin Mucci
|
|
$
|
386,968
|
|
|
$
|
211,582
|
|
|
$
|
—
|
|
|
$
|
6,537
|
|
|
$
|
605,087
|
|
|
Daniel A. Canzano
|
|
$
|
326,780
|
|
|
$
|
125,435
|
|
|
$
|
—
|
|
|
$
|
6,657
|
|
|
$
|
458,872
|
|
Subsequent
Events
Annual base salaries of certain NEOs were increased in July 2007
with no NEO receiving greater than 5% of base salary. Increases
are provided to adjust base salaries to the median of comparable
companies and assure the retention of NEOs.
In July 2007, Mr. Judge was awarded 150,000 options. He was
also awarded 33,334 restricted shares, with five-year cliff
vesting, and performance-accelerated vesting, described below.
Mr. Morphy received an annual award of 30,000 options and
6,667 restricted shares. In addition, Mr. Morphy was
awarded a one-time grant of 30,000 restricted shares that vest
one-third per year beginning in October 2010. Mr. Turek was
awarded 30,000 options and 6,667 restricted shares.
Mr. Mucci was awarded 30,000 options and 6,667 restricted
shares. Mr. Canzano was awarded 12,000 options and 2,667
restricted shares. All options vest annually in 20% increments
over five years. Restricted shares, except for
Mr. Morphy’s one-time award, have five-year cliff
vesting, accelerating one-third in any one fiscal year when the
target for that fiscal year has been met or exceeded. The target
is operating income less interest on funds held for clients, and
for the years ending May 31, 2008, 2009, 2010, and 2011 are
$696.3 million, $800.7 million, $920.8 million,
and $1,058.9 million, respectively.
In July 2007, one-third of the July 2006 restricted stock award
was accelerated based on meeting the target set. The target for
fiscal 2007 was operating income, excluding interest on funds
held for clients and stock-based compensation of
$631.1 million, adjusted by the committee for the expense
charge to increase the litigation reserve. Mr. Judge vested
in 11,111 shares, Messrs. Morphy, Mucci, and Turek
each vested in 2,222 shares and Mr. Canzano in
889 shares. The restricted stock award made in July 2006
was modified to be more consistent with previous awards under
the 2002 plan.
Impact of
the Internal Revenue Code
Section 162(m) of the Internal Revenue 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. 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. For fiscal 2007, the committee authorized total
compensation in excess of $1 million for Mr. Judge
consisting of his annual base salary and annual incentive,
resulting in $0.7 million which did not
20
qualify for a tax deduction. For the year ending May 31,
2008, our annual incentive program is designed to provide
incentive compensation that will not count against the
$1 million limitation, including the NEOs’ annual
incentive. Therefore, it is anticipated that the committee in
the future would not be required to authorize compensation that
is not deductible. However, within the NEOs’ annual
incentive there is a portion of the payout which is qualitative
and would not be exempted from the application of
section 162(m). We expect that amount to be immaterial on
an annual basis.
THE
GOVERNANCE AND COMPENSATION COMMITTEE REPORT
The Governance and Compensation Committee has reviewed and
discussed the Compensation Discussion and Analysis included in
this Proxy Statement with management. Based on such review and
discussion, the committee recommends to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement and the Company’s
Form 10-K
for fiscal 2007.
The Governance and Compensation Committee:
Joseph M. Tucci, Chairman
David J. S. Flaschen
Phillip Horsley
Grant M. Inman
21
NAMED
EXECUTIVE OFFICER COMPENSATION
Fiscal
2007 Summary Compensation Table
The table below summarizes the total compensation paid or earned
by each of the NEOs.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Non-Equity
|
|
All Other
|
|
|
Name and Principal
|
|
Fiscal
|
|
|
|
Awards
|
|
Awards
|
|
Incentive Plan
|
|
Compensation
|
|
Total
|
|
Position
|
|
Year
|
|
Salary ($)
|
|
($)(1)
|
|
($)(2)
|
|
Compensation
($)(3)
|
|
($)(4),(5)
|
|
($)
|
|
|
|
Jonathan J. Judge
|
|
|
2007
|
|
|
$
|
868,144
|
|
|
$
|
362,534
|
|
|
$
|
2,394,083
|
|
|
$
|
1,030,979
|
|
|
$
|
—
|
|
|
$
|
4,655,740
|
|
|
President and CEO
|
|
|
2006
|
(6)
|
|
$
|
817,884
|
|
|
$
|
—
|
|
|
$
|
3,114,262
|
|
|
$
|
814,385
|
|
|
$
|
69,654
|
|
|
$
|
4,816,185
|
|
|
|
|
|
2005
|
(6)
|
|
$
|
510,769
|
|
|
$
|
—
|
|
|
$
|
1,318,474
|
|
|
$
|
605,104
|
|
|
$
|
28,000
|
|
|
$
|
2,462,347
|
|
|
John M. Morphy
|
|
|
2007
|
|
|
$
|
393,243
|
|
|
$
|
72,509
|
|
|
$
|
295,082
|
|
|
$
|
268,362
|
|
|
$
|
7,134
|
|
|
$
|
1,036,330
|
|
|
Senior Vice President,
|
|
|
2006
|
(6)
|
|
$
|
383,878
|
|
|
$
|
—
|
|
|
$
|
391,830
|
|
|
$
|
215,013
|
|
|
$
|
6,354
|
|
|
$
|
997,075
|
|
|
CFO, and Secretary
|
|
|
2005
|
(6)
|
|
$
|
373,679
|
|
|
$
|
—
|
|
|
$
|
229,652
|
|
|
$
|
171,009
|
|
|
$
|
5,733
|
|
|
$
|
780,073
|
|
|
Walter Turek
|
|
|
2007
|
|
|
$
|
397,426
|
|
|
$
|
72,509
|
|
|
$
|
271,756
|
|
|
$
|
257,390
|
|
|
$
|
6,715
|
|
|
$
|
1,005,796
|
|
|
Senior Vice President,
|
|
|
2006
|
(6)
|
|
$
|
387,962
|
|
|
$
|
—
|
|
|
$
|
343,026
|
|
|
$
|
233,277
|
|
|
$
|
5,927
|
|
|
$
|
970,192
|
|
|
Sales and Marketing
|
|
|
2005
|
(6)
|
|
$
|
377,367
|
|
|
$
|
—
|
|
|
$
|
149,408
|
|
|
$
|
172,140
|
|
|
$
|
6,290
|
|
|
$
|
705,205
|
|
|
Martin Mucci
|
|
|
2007
|
|
|
$
|
386,968
|
|
|
$
|
72,509
|
|
|
$
|
308,103
|
|
|
$
|
264,079
|
|
|
$
|
6,537
|
|
|
$
|
1,038,196
|
|
|
Senior Vice President,
|
|
|
2006
|
(6)
|
|
$
|
377,752
|
|
|
$
|
—
|
|
|
$
|
408,422
|
|
|
$
|
211,582
|
|
|
$
|
6,401
|
|
|
$
|
1,004,157
|
|
|
Operations
|
|
|
2005
|
(6)
|
|
$
|
366,654
|
|
|
$
|
—
|
|
|
$
|
248,870
|
|
|
$
|
168,280
|
|
|
$
|
6,332
|
|
|
$
|
790,136
|
|
|
Daniel A. Canzano
|
|
|
2007
|
|
|
$
|
326,780
|
|
|
$
|
29,006
|
|
|
$
|
96,906
|
|
|
$
|
139,710
|
|
|
$
|
6,657
|
|
|
$
|
599,059
|
|
|
Vice President,
|
|
|
2006
|
(6)
|
|
$
|
321,534
|
|
|
$
|
—
|
|
|
$
|
126,067
|
|
|
$
|
125,435
|
|
|
$
|
6,439
|
|
|
$
|
579,475
|
|
|
Information Technology
|
|
|
2005
|
(6)
|
|
$
|
310,730
|
|
|
$
|
—
|
|
|
$
|
99,736
|
|
|
$
|
135,661
|
|
|
$
|
6,140
|
|
|
$
|
552,267
|
|
|
|
|
|
(1) |
|
The amounts shown in this column represent the dollar amount
recognized as expense in the Company’s Consolidated
Financial Statements for fiscal 2007 for the fair value of
restricted stock awards in accordance with
SFAS No. 123 (R). Pursuant to SEC rules, the
amount disclosed disregards estimates of forfeitures of awards
that have been included in the financial statement reporting for
such awards. The fair value of restricted stock awards is
determined based on the closing price of the underlying common
stock on the date of grant. Refer to Note B contained in
the Notes to Consolidated Financial Statements included in
Item 8 of our
Form 10-K
for fiscal 2007 for further discussion on restricted stock
awards. Refer to the Grants of Plan-Based Awards table on
page 24 of this Proxy Statement for further information on
restricted stock awards granted in fiscal 2007. |
| |
|
(2) |
|
The amounts shown in this column for fiscal 2007 represent the
dollar amount recognized as expense in the Company’s
Consolidated Financial Statements for fiscal 2007 for the fair
value of stock option awards in accordance with
SFAS No. 123 (R), and therefore, include amounts
for awards granted prior to June 1, 2006. Amounts presented
for prior years represent the dollar amount reflected in the
Company’s pro-forma disclosure in the Notes to Consolidated
Financial Statements in accordance with SFAS No. 123
for the fair value of stock option awards. The fair value was
determined using a Black-Scholes option pricing model in
accordance with SFAS No. 123 (R) for grants in fiscal
2007. Grants prior to fiscal 2007 were valued using a
Black-Scholes option pricing model in accordance with
SFAS No. 123. Pursuant to SEC rules, the amount
disclosed disregards estimates of forfeitures of awards that
have been included in the financial statement reporting for such
awards. Refer to Note B contained in the Notes to
Consolidated Financial Statements included in Item 8 of our
Form 10-K
for fiscal 2007 for further discussion of the relevant
assumptions used in the calculation of the grant date fair
value. The assumptions and resulting per share fair value for
option grants included in the amounts disclosed are as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
|
|
July
|
|
October
|
|
July
|
|
July
|
|
November
|
|
July
|
|
July
|
|
July
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2004
|
|
2003
|
|
2002
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
Risk-Free Interest Rate
|
|
|
5.1
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
3.7
|
%
|
|
|
2.5
|
%
|
|
|
2.9
|
%
|
|
|
3.8
|
%
|
|
|
4.8
|
%
|
|
|
6.1
|
%
|
|
Dividend Yield
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
1.1
|
%
|
|
|
0.8
|
%
|
|
Volatility Factor
|
|
|
.32
|
|
|
|
.31
|
|
|
|
.31
|
|
|
|
.32
|
|
|
|
.34
|
|
|
|
.35
|
|
|
|
.35
|
|
|
|
.35
|
|
|
|
.32
|
|
|
Expected Option Term Life in Years
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
Fair Value
|
|
$
|
12.88
|
|
|
$
|
11.02
|
|
|
$
|
8.45
|
|
|
$
|
9.26
|
|
|
$
|
8.66
|
|
|
$
|
8.83
|
|
|
$
|
8.98
|
|
|
$
|
14.09
|
|
|
$
|
15.42
|
|
22
|
|
|
|
(3) |
|
The amounts shown in this column are the amounts earned under
the annual incentive program. At the beginning of each year, the
Governance and Compensation Committee sets the performance
targets that will be used to determine, whether and to what
extent, the NEO will receive payments under the annual incentive
program. For fiscal 2007, the quantitative performance criteria
were based on growth in revenue, operating income excluding
interest on funds held for clients and stock-based compensation,
operating income excluding interest on funds held for clients
and stock-based compensation as a percentage of service revenue,
and, for the SVP of Sales and Marketing, new business revenue.
At the same time, qualitative performance criteria are set up
for each NEO based on their role. These amounts were paid in
July 2007. |
| |
|
(4) |
|
Included in All Other Compensation for fiscal 2006 are amounts
incurred by the Company on behalf of Mr. Judge of $48,200
in relocation expenses and $21,454 in tax
gross-up for
the relocation expenses. During the year ended May 31,
2005, the Company incurred amounts on behalf of Mr. Judge
of $15,500 in relocation expenses and $12,500 in legal expenses,
pursuant to Mr. Judge’s employment agreement. |
| |
|
(5) |
|
The amounts shown in this column consist of the Company’s
matching contributions under the Paychex, Inc. 401(k) Incentive
Retirement Plan, except as noted in (4) above. |
| |
|
(6) |
|
Prior year amounts were calculated in accordance with the
SEC’s rules applied in calculating the amounts for fiscal
2007. |
23
GRANTS OF
PLAN-BASED AWARDS IN FISCAL 2007
The table below summarizes estimated possible payouts under the
Company’s annual incentive program for fiscal 2007 based on
achievement of performance objectives at various levels for the
Company and individual NEOs. This information does not set forth
the actual payout awarded to the NEOs for fiscal 2007. The
actual payout is reported in the Fiscal 2007 Summary
Compensation Table under the column entitled “Non-Equity
Incentive Plan Compensation.” The table below also
summarizes equity awards granted in fiscal 2007 to each of the
NEOs.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
Exercise
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Number of
|
|
or Base
|
|
Value of
|
|
|
|
|
|
Estimated Possible Payouts Under
|
|
Number of
|
|
Securities
|
|
Price of
|
|
Stock and
|
|
|
|
|
|
Non-Equity Incentive Plan
Awards(1)
|
|
Shares of
|
|
Underlying
|
|
Option
|
|
Option
|
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock or
|
|
Options
|
|
Awards
|
|
Awards
|
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
Units
(#)(2)
|
|
(#)(3)
|
|
($/Sh)
|
|
($)(4)
|
|
|
|
Jonathan J Judge
|
|
|
7/13/2006
|
|
|
$
|
522,750
|
|
|
$
|
1,045,500
|
|
|
$
|
1,263,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,334
|
|
|
|
|
|
|
|
|
|
|
$
|
1,229,025
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
$
|
36.87
|
|
|
$
|
1,932,000
|
|
|
John M Morphy
|
|
|
7/13/2006
|
|
|
$
|
118,395
|
|
|
$
|
276,255
|
|
|
$
|
315,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
|
|
|
|
|
|
|
$
|
245,812
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
36.87
|
|
|
$
|
386,400
|
|
|
Walter Turek
|
|
|
7/13/2006
|
|
|
$
|
119,654
|
|
|
$
|
279,194
|
|
|
$
|
319,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
|
|
|
|
|
|
|
$
|
245,812
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
36.87
|
|
|
$
|
386,400
|
|
|
Martin Mucci
|
|
|
7/13/2006
|
|
|
$
|
116,506
|
|
|
$
|
271,846
|
|
|
$
|
310,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
|
|
|
|
|
|
|
$
|
245,812
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
36.87
|
|
|
$
|
386,400
|
|
|
Daniel A Canzano
|
|
|
7/13/2006
|
|
|
$
|
81,860
|
|
|
$
|
147,348
|
|
|
$
|
180,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,667
|
|
|
|
|
|
|
|
|
|
|
$
|
98,332
|
|
|
|
|
|
7/13/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
$
|
36.87
|
|
|
$
|
154,560
|
|
|
|
|
|
(1) |
|
The amounts shown in this column consist of annual incentive
payouts under our annual incentive program for fiscal 2007. The
value of the payout is calculated as a percentage of the
NEO’s annual salary, with that percentage dependent on how
actual growth for revenue, operating income excluding interest
on funds held for clients and stock-based compensation costs,
and operating income excluding interest on funds held for
clients and stock-based compensation costs as a percentage of
service revenue, compares to the targets established for these
items by the Governance and Compensation Committee at the
beginning of the fiscal year. The amounts actually earned by
each NEO in fiscal 2007 are reported as Non-Equity Incentive
Plan Compensation in the Fiscal 2007 Summary Compensation Table
on page 22 of this Proxy Statement. |
| |
|
(2) |
|
The amounts shown in this column consist of restricted stock
awards granted in fiscal 2007 under the 2002 Plan. All shares
underlying these awards are restricted in that they are not
transferable until they vest. These shares vest on the five-year
anniversary of the grant date provided the NEO is still an
employee of the Company on that date. Vesting of these shares
will accelerate to one-third of the grant for each fiscal year
in which a pre-established dollar target for operating income,
as detailed in the Compensation Discussion and Analysis, is
achieved. The NEOs have voting rights and earn dividends on the
underlying shares. Dividends are paid at the time of vesting,
and will be forfeited if the NEO forfeits the related
restricted stock award. |
| |
|
(3) |
|
The amounts shown in this column consist of options to purchase
shares of the Company’s common stock granted in fiscal 2007
under the 2002 Plan. These option grants have an exercise price
equal to the closing stock price on the date of grant and have a
term of ten years. The options vest 20% per annum over a
five-year period. |
| |
|
(4) |
|
The amounts shown in this column represent the aggregate grant
date fair value of stock and option awards granted in fiscal
2007 under the 2002 Plan. The fair value of restricted stock
awards of $36.87 per share was equal to the price of the
underlying common stock on the date of grant. The fair value of
stock options of $12.88 per share was determined using a Black
Scholes option pricing model in accordance with
SFAS No. 123(R). Refer to Note B contained in the
Notes to Consolidated Financial Statements included in
Item 8 of our
Form 10-K
for fiscal 2007 for further discussion of the relevant
assumptions used in the calculation of the grant date far value. |
24
OUTSTANDING
EQUITY AWARDS AS OF MAY 31, 2007
The following table summarizes the equity awards made to NEOs
which are outstanding as of May 31, 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock
Awards(2)
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
or Units
|
|
Market Value
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
of Stock
|
|
of Shares or
|
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
That Have
|
|
Units of Stock
|
|
|
|
Options
|
|
Options
|
|
Option
|
|
Option
|
|
not
|
|
That Have not
|
|
|
|
(Exercisable)
|
|
(Unexercisable)
|
|
Exercise
|
|
Expiration
|
|
Vested
|
|
Vested
|
|
Name
|
|
(#)
|
|
(#)(1)
|
|
Price ($)
|
|
Date
|
|
(#)(3)
|
|
($)(3),(4)
|
|
|
|
Jonathan J Judge
|
|
|
216,668
|
|
|
|
433,332
|
|
|
$
|
30.68
|
|
|
|
10/01/2014
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
50,000
|
|
|
|
200,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
150,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,334
|
|
|
$
|
1,346,694
|
|
|
John M. Morphy
|
|
|
15,000
|
|
|
|
—
|
|
|
$
|
42.69
|
|
|
|
07/13/2010
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
15,000
|
|
|
|
—
|
|
|
$
|
40.86
|
|
|
|
07/12/2011
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
6,700
|
|
|
|
—
|
|
|
$
|
28.14
|
|
|
|
07/11/2012
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
8,367
|
|
|
|
8,333
|
|
|
$
|
29.55
|
|
|
|
07/10/2013
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10,000
|
|
|
|
40,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
30,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
$
|
269,347
|
|
|
Walter Turek
|
|
|
50,625
|
|
|
|
—
|
|
|
$
|
11.63
|
|
|
|
10/02/2007
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
20,250
|
|
|
|
—
|
|
|
$
|
19.00
|
|
|
|
07/09/2008
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
9,000
|
|
|
|
—
|
|
|
$
|
21.46
|
|
|
|
07/08/2009
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
20,000
|
|
|
|
—
|
|
|
$
|
40.86
|
|
|
|
07/12/2011
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10,000
|
|
|
|
—
|
|
|
$
|
28.14
|
|
|
|
07/11/2012
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
6,667
|
|
|
|
3,333
|
|
|
$
|
29.55
|
|
|
|
07/10/2013
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
8,334
|
|
|
|
16,666
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10,000
|
|
|
|
40,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
30,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
$
|
269,347
|
|
|
Martin Mucci
|
|
|
15,000
|
|
|
|
—
|
|
|
$
|
28.14
|
|
|
|
07/11/2012
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
25,000
|
|
|
|
—
|
|
|
$
|
28.99
|
|
|
|
11/01/2012
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
16,667
|
|
|
|
8,333
|
|
|
$
|
29.55
|
|
|
|
07/10/2013
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10,000
|
|
|
|
40,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
30,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
$
|
269,347
|
|
|
Daniel A. Canzano
|
|
|
20,250
|
|
|
|
—
|
|
|
$
|
19.00
|
|
|
|
07/09/2008
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
13,500
|
|
|
|
—
|
|
|
$
|
21.46
|
|
|
|
07/08/2009
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
9,000
|
|
|
|
—
|
|
|
$
|
42.69
|
|
|
|
07/13/2010
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10,000
|
|
|
|
—
|
|
|
$
|
40.86
|
|
|
|
07/12/2011
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
8,000
|
|
|
|
—
|
|
|
$
|
28.14
|
|
|
|
07/11/2012
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
6,667
|
|
|
|
3,333
|
|
|
$
|
29.55
|
|
|
|
07/10/2013
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
4,167
|
|
|
|
8,333
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
2,500
|
|
|
|
10,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
—
|
|
|
|
12,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,667
|
|
|
$
|
107,747
|
|
|
|
|
|
(1) |
|
The option awards displayed in these columns vest at various
times over periods of up to five years from the date of grant.
The following table provides information with respect to the
future vesting of each NEO’s outstanding options: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Vesting (#)
|
|
|
|
July
|
|
October
|
|
July
|
|
October
|
|
July
|
|
July
|
|
July
|
|
|
|
2007
|
|
2007
|
|
2008
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
Jonathan J. Judge
|
|
|
80,000
|
|
|
|
216,666
|
|
|
|
80,000
|
|
|
|
216,666
|
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
30,000
|
|
|
John M. Morphy
|
|
|
34,333
|
|
|
|
|
|
|
|
26,000
|
|
|
|
|
|
|
|
16,000
|
|
|
|
16,000
|
|
|
|
6,000
|
|
|
Walter Turek
|
|
|
27,666
|
|
|
|
|
|
|
|
24,333
|
|
|
|
|
|
|
|
16,000
|
|
|
|
16,000
|
|
|
|
6,000
|
|
|
Martin Mucci
|
|
|
34,333
|
|
|
|
|
|
|
|
26,000
|
|
|
|
|
|
|
|
16,000
|
|
|
|
16,000
|
|
|
|
6,000
|
|
|
Daniel A. Canzano
|
|
|
12,399
|
|
|
|
|
|
|
|
9,067
|
|
|
|
|
|
|
|
4,900
|
|
|
|
4,900
|
|
|
|
2,400
|
|
25
|
|
|
|
(2) |
|
Dividends and interest accrued on stock awards that have not
vested as of May 31, 2007 for Mr. Judge was $26,575,
for Mr. Morphy, Mr. Turek and Mr. Mucci was
$5,315 each, and for Mr. Canzano was $2,126. |
| |
|
(3) |
|
The stock awards displayed in these columns may have their
restrictions lapse over three years if the performance criteria
for acceleration is met, as detailed in the table below. Shares
vested on July 12, 2007 based on the Board’s approval
of attainment of performance targets. The vesting dates
indicated in 2008 and 2009 are on or about the anticipated Board
meeting in those years. If performance criteria is not met for
all years, all unvested shares vest on July 13, 2011. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Vesting (#)
|
|
|
|
July 12,
|
|
July 13,
|
|
July 13,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
|
|
Jonathan J. Judge
|
|
|
11,111
|
|
|
|
11,111
|
|
|
|
11,112
|
|
|
John M. Morphy
|
|
|
2,222
|
|
|
|
2,222
|
|
|
|
2,223
|
|
|
Walter Turek
|
|
|
2,222
|
|
|
|
2,222
|
|
|
|
2,223
|
|
|
Martin Mucci
|
|
|
2,222
|
|
|
|
2,222
|
|
|
|
2,223
|
|
|
Daniel A. Canzano
|
|
|
889
|
|
|
|
889
|
|
|
|
889
|
|
|
|
|
|
(4) |
|
The market value displayed is based on the number of shares that
have not vested multiplied by $40.40, the closing price of the
Company’s common stock on May 31, 2007. |
OPTIONS
EXERCISES AND STOCK VESTED IN FISCAL 2007
The following table provides information about the value
realized by the NEOs on option awards during fiscal 2007. No
stock vested for these NEOs during fiscal 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of Shares
|
|
Value Realized
|
|
Name
|
|
Acquired on Exercise (#)
|
|
on Exercise
($)(1)
|
|
|
|
Jonathan J. Judge
|
|
|
—
|
|
|
$
|
—
|
|
|
John M. Morphy
|
|
|
—
|
|
|
$
|
—
|
|
|
Walter Turek
|
|
|
25,313
|
|
|
$
|
630,599
|
|
|
Martin Mucci
|
|
|
—
|
|
|
$
|
—
|
|
|
Daniel A. Canzano
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(1) |
|
Amounts in this column represent the market value of the
Company’s common stock as of the date of exercise less the
exercise price. |
26
NON-QUALIFIED
DEFERRED COMPENSATION
Fiscal
2007
In accordance with the Company’s non-qualified and unfunded
deferred compensation plan, NEOs may defer up to 50% of their
annual base salary and bonus. The Company does not make any
contributions to this plan. The following table summarizes our
NEOs benefits under the plan.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
Fiscal 2007
|
|
|
Balance as of
|
|
|
|
|
Executive
|
|
|
Aggregate
|
|
|
May 31,
|
|
|
|
|
Contributions
|
|
|
Earnings
|
|
|
2007
|
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3),(4)
|
|
|
|
|
Jonathan J. Judge
|
|
$
|
335,273
|
|
|
$
|
121,438
|
|
|
$
|
825,444
|
|
|
John M. Morphy
|
|
$
|
136,270
|
|
|
$
|
32,267
|
|
|
$
|
390,779
|
|
|
Walter Turek
|
|
$
|
85,847
|
|
|
$
|
13,486
|
|
|
$
|
113,992
|
|
|
Martin Mucci
|
|
$
|
59,468
|
|
|
$
|
14,840
|
|
|
$
|
210,705
|
|
|
Daniel A. Canzano
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(1) |
|
Amounts in this column are included in the amounts shown in the
“Salary” and “Non-Equity Incentive Plan
Compensation” columns in the Fiscal 2007 Summary
Compensation Table on page 22 of this Proxy Statement.
Amounts do not include amounts shown in the “Non-Equity
Incentive Plan Compensation” column for fiscal 2007 as
those amounts were paid after May 31, 2007. |
| |
|
(2) |
|
Amounts in this column include both realized and unrealized
earnings. They are not included in the Fiscal 2007 Summary
Compensation Table on page 22 of this Proxy Statement as
the earnings 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 the Fiscal 2007 Summary Compensation Table in
current and previous years. |
| |
|
(4) |
|
The investment funds at Legg Mason available to an NEO and the
funds’ annual rate of return are as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of
|
|
|
|
Rate of
|
|
Name of Fund
|
|
Return
|
|
Name of Fund
|
|
Return
|
|
|
|
Appreciation Fund Class A
|
|
|
17.10%
|
|
|
Aggressive Growth Fund Class A
|
|
|
13.05%
|
|
|
Diversified Strategic Income
Fund Class A
|
|
|
8.23%
|
|
|
Capital and Income Fund Class A
|
|
|
16.38%
|
|
|
Fundamental Value
Fund Class A
|
|
|
18.86%
|
|
|
Investment Grade Bond Fund Class A
|
|
|
7.69%
|
|
|
Mid Cap Core Fund Class A
|
|
|
21.23%
|
|
|
Government Securities Fund Class A
|
|
|
5.54%
|
|
|
Small Cap Growth Opportunities
Class A
|
|
|
19.24%
|
|
|
Money Market Fund Class A
|
|
|
4.94%
|
|
|
International All Cap Opportunity
Fund Class A
|
|
|
22.93%
|
|
|
Large Cap Growth Fund Class A
|
|
|
16.08%
|
|
27
OTHER
MATTERS AND INFORMATION
Proposals
for Next Year’s Annual Meeting
Stockholder proposals, which are intended to be presented at the
2008 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 3, 2008. Any such proposals must be submitted in
accordance with applicable SEC rules and regulations.
Stockholder proposals, which are intended to be presented at the
2008 Annual Meeting of Stockholders and which are submitted and
not included in the Company’s Proxy Statement other than in
accordance with the procedures specified in SEC
Rule 14a-8,
will be considered untimely if not received by the
Company’s Secretary on or before July 17, 2008.
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.
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, 2007. 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: Corporate Secretary.
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) 543-1061
or by writing to Broadridge Investor Communications Services,
Attention: Broadridge Householding Department, 51 Mercedes Way,
Edgewood, New York, 11717. If you revoke your consent, you will
be removed from the householding program within 30 days of
receipt of your revocation, and each stockholder at your address
will receive individual copies of the Company’s disclosure
documents.
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.
28
If you own Paychex stock beneficially through a bank or broker,
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
or broker.
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.
29
PAYCHEX, INC.
911 PANORAMA TRAIL SOUTH
ROCHESTER, NY 14625-2396 |
| INSTRUCTIONS FOR SUBMITTING PROXY: |
| 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.
VOTE BY TELEPHONE — 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.
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 Paychex, Inc., c/o Broadridge, 51 Mercedes
Way, Edgewood, NY 11717.
ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER
COMMUNICATIONS
If you would like to reduce the costs incurred by
Paychex, Inc. 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 shareholder
communications electronically in future years. |
| Do not return this proxy card if you vote by telephone or Internet. |
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: PACHX1 KEEP THIS PORTION FOR YOUR
RECORDS |
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
DETACH AND RETURN THIS PORTION ONLY |
| Proposals — The Board of Directors recommends a vote FOR each of the nominees listed in Item 1
and FOR Item 2. |
| 1. ELECTION OF DIRECTORS For Against Abstain For Against Abstain
01) B. Thomas Golisano 0 0 0 05) Pamela A. Joseph 0 0 0 02) David J. S. Flaschen 0 0 0 06) Jonathan J. Judge 0 0 0 03) Phillip Horsley 0 0 0 07) Joseph M. Tucci 0 0 0 04) Grant M. Inman 0 0 0 08) Joseph M. Velli 0 0 0 |
| 2. RATIFICATION OF THE AUDIT COMMITTEE’S SELECTION OF ERNST & YOUNG LLP AS THE COMPANY’S
INDEPENDENT |
| REGISTERED PUBLIC ACCOUNTING FIRM. 0 0 0 |
| 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 AND “FOR” PROPOSAL 2.
SHARES ISSUED TO OR HELD FOR THE ACCOUNT OF THE UNDERSIGNED UNDER THE ESOP STOCK FUND WILL BE
VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IF THE CARD IS NOT SIGNED, OR IF THE CARD IS NOT
RECEIVED BY SEPTEMBER 28, 2007, THE SHARES ISSUED TO OR HELD FOR THE ACCOUNT OF THE PARTICIPANT
WILL BE VOTED BY THE ESOP STOCK FUND TRUSTEE IN THE SAME PROPORTION AS ESOP SHARES FOR WHICH
INSTRUCTIONS HAVE BEEN RECEIVED.
Please sign exactly as your name appears on this proxy. If the shares are issued in the name of
two or more persons, all such persons must sign the proxy. |
| Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date |
| August 31, 2007
Dear Paychex Stockholder:
The Board of Directors cordially invites you to attend our Annual Meeting of Stockholders (the
“Annual Meeting”) on Wednesday, October 3, 2007 at 10:00 a.m. at the Rochester Riverside Convention
Center, 123 East Main Street, Rochester, New York.
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 these 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, written
proxy, or written ballot at the Annual Meeting. We encourage you to use the Internet because 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.
Additionally, we encourage stockholder participation in the householding program. We believe
participation will benefit both our stockholders and Paychex. Not only will it reduce the volume of
duplicate information that is received in a stockholder’s household, but it will also reduce our
printing and mailing costs.
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 Secretary of the Company at (800) 828-4411, or write to Paychex, Inc., 911
Panorama Trail South, Rochester, New York 14625-2396, Attention: Corporate Secretary.
Sincerely,
Jonathan J. Judge
President and Chief
Executive Officer
Proxy Solicited on Behalf of the Board of Directors
of Paychex, Inc. for the Annual Meeting, October 3, 2007 |
The undersigned hereby appoints JONATHAN J. JUDGE and JOHN M. MORPHY, or either one 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 3, 2007 (“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 proxies
on all other matters. If not otherwise specified, 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 (“ESOP”) Stock Fund, then the undersigned hereby
directs the fiduciary of the ESOP Stock Fund 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 matter set forth on the reverse side. |
