Paychex, Inc.

Title of each class of securities to which transaction applies:

Aggregate number of securities to which transaction applies:

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):

Proposed maximum aggregate value of transaction:

Amount Previously Paid:

Form, Schedule or Registration Statement No.:

Filing Party:

Date Filed:

WHEN

Thursday, October 15, 2020

10:00 a.m. Eastern Time

WHERE

Online at

www.virtualshareholdermeeting.com/PAYX2020

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2020 ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD ON OCTOBER 15, 2020

Paychex has elected to use the Securities and Exchange Commission’s Notice and Access model, which allows us to make the proxy materials available on the Internet, as the primary means of furnishing proxy materials to stockholders. On or about September 4, 2020, we will mail to all stockholders a Notice of Internet Availability of Proxy Materials, which contains instructions for accessing our proxy materials on the Internet and voting by telephone or on the Internet. The Notice of Internet Availability of Proxy Materials also contains instructions for requesting a printed set of proxy materials. Paychex, Inc.’s Proxy Statement and Annual Report for the year ended May 31, 2020 are available at www.proxyvote.com and www.paychex.com/investors.

The principal business of the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) will be:

1. To elect nine nominees to the Board of Directors for a one-year term;

2. To hold an advisory vote to approve named executive officer compensation;

3. To approve and amend the Paychex, Inc. 2002 Stock Incentive Plan;

4. To ratify the selection of PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm; and

5. To transact such other business as may properly come before the meeting or any adjournment thereof.

Stockholders are cordially invited to attend the Annual Meeting. Due to the public health concerns resulting from the novel coronavirus (“COVID-19”) pandemic, we are holding our Annual Meeting in a virtual format to provide a safe and consistent experience for our stockholders and employees regardless of location. You will not be able to attend the Annual Meeting at a physical location.

Our Annual Meeting will be broadcast as a live webcast accessible at: www.virtualshareholdermeeting.com/PAYX2020. Stockholders of record at the close of business on August 17, 2020 will be entitled to notice of and to vote at the Annual Meeting and at any adjournments or postponements thereof. With the nature of our Annual Meeting being virtual, you will be able to vote and ask questions through the webcast by using your 16-digit control number.

For more information about the virtual meeting format, please see the “Frequently Asked Questions” section beginning on page 70 of the proxy statement.

By order of the Board of Directors

Stephanie L. Schaeffer

Corporate Secretary

September 4, 2020

VOTE BY

INTERNET BEFORE OR

DURING THE MEETING

Visit the website listed

on your Notice of

Internet Availability of

Proxy Materials.

VOTE BY

TELEPHONE

Call 1-800-690-6903

to vote by phone.

VOTE BY MAIL

Sign, date, and return

your proxy card in the

enclosed envelope (this is

only available if you

requested a printed copy).

Board Leadership Structure

Board Oversight of Risk

Board Meetings and Committees

Nomination Process

Corporate Social Responsibility

Policy on Transactions with Related Persons

Governance and Compensation Committee Interlocks and Insider Participation

Communications with the Board of Directors

Executive Summary

Elements of Compensation

Compensation Decision Process

CEO Compensation

CEO Pay Ratio

Subsequent Events

Impact of the Internal Revenue Code

The Governance and Compensation Committee Report

Fiscal 2020 Summary Compensation Table

Grants of Plan-Based Awards for Fiscal 2020

Option Exercises and Stock Vested in Fiscal 2020

Outstanding Equity Awards as of May 31, 2020

Potential Payments upon Termination or Change in Control Fiscal 2020

Non-Qualified Deferred Compensation Fiscal 2020

Fees for Professional Services

Report of The Audit Committee

  Proxy Summary  

October 15, 2020

10:00 a.m., Eastern Time

Virtual Meeting at:

www.virtualshareholdermeeting.com/PAYX2020

Board Vote

Recommendation

Based on 52-week high and low sale prices as reported on the Nasdaq Global Select Market as of May 31, 2020 and 2019.

  Proxy Summary  

A significant portion of annual compensation is “at risk” based on performance. For the President and Chief Executive Officer (“CEO”), 89% of total target compensation is at risk. On average, for other named executive officers (“NEOs”), 77% of their total target compensation is at risk.

Variable compensation is comprised of an annual cash incentive program and longer-term equity-based incentives. For the annual cash incentive for fiscal 2020, results of performance measures were below target, resulting in payouts at 51% of target for our CEO and an average of 48% of target for the other NEOs.

  Election of Directors  

What am I voting on?

Voting Recommendation

The Board recommends a vote FOR each of the nine director nominees.

  Election of Directors  

The Board recommends the election of each of the director nominees identified on the following pages.

Unless otherwise directed, the named proxy holders will vote the proxy FOR the election

of each of these director nominees.

  Election of Directors  

B. Thomas Golisano

Founder and Chairman of the Board of Paychex, Inc.

Age 78

Director since 1979

Board Committees:

•  Executive

Current Public Company Directorships:

•  Twinlab Consolidated Holdings, Inc.

Mr. Golisano founded Paychex in 1971 and is Chairman of the Board of the Company. He served as President and CEO of the Company until October 2004. He serves on the board of trustees of the Rochester Institute of Technology. Mr. Golisano serves on the boards of Cognivue, Inc., Twinlab Consolidated Holdings, Inc., PostProcess Technologies, Inc., and Viridi Parente, Inc. and serves as a director of numerous other non-profit organizations and private companies. He is founder and member of the board of trustees of the B. Thomas Golisano Foundation.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Mr. Golisano is qualified to lead the Board due to his relevant executive leadership experience and extensive knowledge of the operations of the Company. These skills were attained through his role of founder and former CEO of Paychex.

Thomas F. Bonadio

Founder and Senior Counsel of The Bonadio Group

Age 71

Director since 2017

Board Committees:

•  Audit

•  Corporate Development Advisory

Current Public Company Directorships:

•  CurAegis Technologies, Inc.

Mr. Bonadio is the founder and senior counsel of The Bonadio Group, the largest independent provider of accounting, business advisory, and financial services in New York State outside of Manhattan. Mr. Bonadio has experience serving on community organizations and not-for-profit boards, as well as publicly traded boards. He is currently a director and chair of the audit committee for CurAegis Technologies, Inc. He also previously served as a director and audit committee chair for Conceptus, Inc., which is now a wholly owned subsidiary of Bayer AH of Germany.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Mr. Bonadio is qualified to serve as a director of the Company due to his strong background in finance and business, his entrepreneurial experience, and his knowledge of the Certified Public Accountant community. Mr. Bonadio is a successful entrepreneur whose experience building his own business is representative of many clients Paychex serves today. He also brings a high degree of financial literacy obtained from his years in the financial services industry, and his ability to assess financial performance of other companies through the review and understanding of financial statements. This financial expertise is a great benefit to the Board and its committees.

  Election of Directors  

Joseph G. Doody

Former Vice Chairman of Staples, Inc.

Age 68

Director since 2010

Board Committees:

•  Audit

•  Investment

Current Public Company Directorships:

•  Casella Waste Systems, Inc.

•  Virtusa Corporation

Mr. Doody retired from Staples, Inc., an office products company, in September 2017. He previously served as Vice Chairman of Staples, Inc. since February 2014. Prior to that, he served as President, North American Commercial, from January 2013 until February 2014, and President, North American Delivery, from March 2002 to January 2013. Mr. Doody has experience serving on other public boards, including Casella Waste Systems, Inc. and Virtusa Corporation. Mr. Doody is a member of the Foundation Board at The College at Brockport.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Mr. Doody is qualified to serve as a director of the Company due to his significant leadership and international experience. His long tenure in management of a large division of a multinational company enables him to provide our Board with important operational expertise. In addition, his deep knowledge of small- to medium-sized businesses brings a thorough understanding of the risks and opportunities affecting the Company’s clients and potential clients. Mr. Doody also has extensive experience in strategic planning and business development, which allows him to provide valuable input into the Company’s plans for market growth.

David J.S. Flaschen

Investor and Advisor

Age 64

Director since 1999

Board Committees:

•  Audit (Chair)

•  Investment

•  Corporate Development Advisory

•  G&C

Current Public Company Directorships:

•  Informa plc (London
Stock Exchange)

Mr. Flaschen is an investor and advisor to a number of private companies providing business, marketing, and information services. From 2005 to 2011, he was a partner with Castanea Partners, a private equity investment firm. Mr. Flaschen is a member of the National Association of Corporate Directors Blue Ribbon Commission on Adaptive Governance for Board Oversight of Disruptive Risks. Mr. Flaschen is also a director/advisor of various private companies. He also serves as a director and member of the audit committee for Informa plc, a Financial Times Stock Exchange 100 public company which is traded on the London Stock Exchange.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Mr. Flaschen is qualified to serve as a director of the Company as a result of his extensive executive experience in information and marketing services. Over the course of his career, Mr. Flaschen has worked internationally with a number of businesses, including Thomson Financial and AC Nielsen. He also brings a high degree of financial literacy obtained from his years in the financial services industry, and his ability to assess financial performance of other companies through review and understanding of financial statements. This financial expertise is a great benefit to the Board and its committees.

  Election of Directors  

Pamela A. Joseph

Chief Executive Officer of Clearent, LLC

Age 61

Director since 2018

(previously served from 2005-2017, reappointed in 2018)

Board Committees:

•  G&C

•  Corporate Development Advisory

•  Investment (Chair)

Current Public Company Directorships:

•  TransUnion (Chair)

•  Adyen N.V. (Euronext)

Ms. Joseph currently serves as the CEO of Clearent, LLC, and as a member of its board. Clearent is a full-service payment-solutions provider and owner-independent software vendor in select vertical markets. She previously served as President, Chief Operating Officer, and Board Member of Total System Services, Inc. (“TSYS”), from May 2016 until September 2017. She was Vice Chair of U.S. Bancorp Payment Services and Chair of Elavon (formerly NOVA Information Systems, Inc.), a wholly owned subsidiary of U.S. Bancorp, from December 2004 until her retirement in June 2015. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare, and business solutions. U.S. Bancorp Payment Services and Elavon manage and facilitate consumer and corporate card issuing, as well as payment processing. Ms. Joseph also serves as Board Chairperson for TransUnion and as a member of the Board of Directors of Adyen N.V.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Ms. Joseph is qualified to serve as a director of the Company due to her extensive executive experience in the financial services and payment industries. Her wealth of technology experience brings insight to the Board and its committees. In addition, her experience with major acquisitions, board experience with the healthcare services field, and international expansion provides valuable input towards the Company’s growth plans.

Martin Mucci

President and Chief Executive Officer of Paychex, Inc.

Age 60

Director since 2010

Board Committees:

•  Executive (Chair)

•  Corporate Development Advisory

Current Public Company Directorships:

•  None

Mr. Mucci has served as President and CEO of the Company since September 2010. Mr. Mucci joined the Company in 2002 as Senior Vice President (“SVP”), Operations. Prior to joining Paychex, he held senior level positions with Frontier Communications, a telecommunications company, including President of Telephone Operations and CEO of Frontier Telephone of Rochester, over the course of his 20-year career. Mr. Mucci was a member of the Board of Directors of Cbeyond, Inc. until it was purchased by Birch Communications in July 2014. He is a Trustee Emeritus of St. John Fisher College.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Mr. Mucci is qualified to serve as a director of the Company because he provides day-to-day leadership as the current President and CEO of Paychex, giving him extensive knowledge of the Company, its operations, challenges, and opportunities. In addition, Mr. Mucci’s educational background and senior leadership experience provide him with strong financial literacy.

  Election of Directors  

Joseph M. Tucci

Co-Founder, Co-Chief Executive Officer, and Co-Chairman of GTY Technology Holdings, Inc.

Age 73

Director since 2000

Lead Independent Director

Board committees:

•  G&C (Chair)

•  Executive

Current Public Company Directorships:

•  Motorola Solutions, Inc.

•  GTY Technology
Holdings, Inc.

Mr. Tucci is the co-founder of GTY Technology Holdings, Inc., a special purpose acquisitions company founded in September 2016, and is a member of the board of directors. He has been Chairman of Bridge Growth Partners, LLC, a private equity firm based in New York, since October 2016. Mr. Tucci was the former Chairman of the Board of Directors and CEO of EMC Corporation (“EMC”), a provider of data-storage systems. He was EMC’s Chairman from January 2006 and CEO from January 2001 until September 2016, when Dell Technologies acquired the company. He was Chairman of the Board of Directors for VMWare, Inc. from 2007 through September 2016. He serves on the Board of Directors of Motorola Solutions, Inc., and on the boards of various academic and community organizations.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Mr. Tucci is qualified to serve as a director of the Company due to his extensive executive leadership experience as CEO of EMC. Mr. Tucci has spent over 40 years in the technology industry in senior roles at large, complex, and global technology companies. His experience leading EMC through a period of dramatic revitalization, growth and market share gains, and new product introductions enables him to share knowledge of the challenges a company faces due to rapid changes in the marketplace.

Joseph M. Velli

Retired Financial Services and Technology Executive

Age 62

Director since 2007

Board committees:

•  Investment

•  Executive

•  Corporate Development Advisory (Chair)

•  G&C

Current Public Company Directorships:

•  Computershare Ltd.

    (Australian Stock Exchange)

•  Cognizant Technology Solutions Corp.

•  AssetMark Financial
Holdings

Mr. Velli currently serves on the Board of Directors of Computershare Limited, a global provider of corporate trust, stock transfer, employee share plan, and mortgage servicing services. He serves on the Board of Directors of Cognizant Technology Solutions Corp., a multinational corporation that provides information technology services, including digital, technology, consulting, and operations services. He also serves on the Board of Directors of Foreside Financial Group, a private company in the investment management industry. In May 2020, Mr. Velli was also appointed to the Board of Directors of AssetMark Financial Holdings, Inc., an investment management and consulting firm serving independent financial advisors. Mr. Velli previously served as Senior Executive Vice President of The Bank of New York and as a member of the Senior Policy Committee. During his 22-year tenure with The Bank of New York, Mr. Velli’s responsibilities included heading Global Issuer Services, Global Custody and related Investor Services, Global Liquidity Services, Pension and 401(k) Services, Consumer and Retail Banking, Correspondent Clearing, and Securities Services. Most recently, he served as Chairman and CEO of ConvergEx Group, LLC, a provider of brokerage, software products, and technology services from 2006 to 2013, and continued to serve on the ConvergEx Board until 2014. Mr. Velli served on the Board of Directors of E*TRADE Financial Corporation and E*TRADE Bank until October 2014. Mr. Velli has been a member of the board of trustees for William Paterson University since June 2017. Mr. Velli acts as an advisory council member to Lovell Minnick Partners and, from time to time, he provides advisory services to other private equity firms.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Mr. Velli is qualified to serve as a director of the Company due to his extensive experience with securities servicing, capital markets, business to business, marketing, and mergers and acquisitions matters, as well as his public board experience. He plays a key role in the Board’s discussions of the Company’s investments and liquidity. Mr. Velli has extensive experience with acquisitions and business services, providing valuable insights on potential growth opportunities for the Company.

  Election of Directors  

Kara Wilson

Senior Advisor at KKR & Co. Inc.

Age 50

Director since 2017

Board committees:

•  Audit

•  Corporate Development Advisory

CurrentPublic Company Directorships:

•  None

Ms. Wilson currently serves as a Senior Advisor at KKR & Co. Inc., a global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic partners that manage hedge funds. She currently serves on the Board of Directors for Corel Corp, a company with a wide portfolio of software solutions that deliver best-in-class capabilities to knowledge workers worldwide, and KnowBe4, a security awareness computer-based training firm that assists companies in strengthening their security through their employees. She was formerly Chief Marketing Officer at Rubrik, Inc., a cloud data management company, a role she held from June 2017 until May 2019. She has over 20 years of experience in driving go-to-market strategies for large, medium, and hyper-growth start-ups. She has held marketing leadership roles with some of the technology industry’s most influential companies, including Cisco Systems, SAP, SuccessFactors, PeopleSoft/Oracle, Okta, and FireEye, Inc. Prior to Rubrik, from October 2016 to June 2017, Ms. Wilson was Executive Vice President and from August 2013 to June 2017, Chief Marketing Officer of cyber security company FireEye, where she helped launch FireEye’s initial public offering and was responsible for the company’s global marketing initiatives including corporate, product, and technical marketing, global communications, and field enablement.

SPECIFIC QUALIFICATIONS AND SKILLS:

The Board has concluded that Ms. Wilson is qualified to serve as a director of the Company due to her extensive experience in driving go-to-market strategies for enterprise technology companies. The Board can leverage Ms. Wilson’s marketing experience to help Paychex with the development and execution of go-to-market strategies to effectively differentiate the Company in a highly competitive and constantly evolving industry. Ms. Wilson has experience at global companies and can provide insight on any expansion of the Company’s global presence.

  Director Compensation  

DIRECTOR COMPENSATION

FOR THE FISCAL YEAR ENDED MAY 31, 2020

Name

(a)

Fees Earned

or Paid in

Cash

(b)

Stock Awards

(c)

Option Awards

(d)

Total

B. Thomas Golisano

$

335,000

$

—

$

—

$

335,000

Thomas F. Bonadio

$

107,500

$

83,197

$

85,316

$

276,013

Joseph G. Doody

$

107,500

$

83,197

$

85,316

$

276,013

David J.S. Flaschen

$

144,250

$

83,197

$

85,316

$

312,763

Pamela A. Joseph

$

106,750

$

83,197

$

85,316

$

275,263

Joseph M. Tucci

$

122,500

$

83,197

$

85,316

$

291,013

Joseph M. Velli

$

118,500

$

83,197

$

85,316

$

287,013

Kara Wilson

$

107,500

$

83,197

$

85,316

$

276,013

  Director Compensation  

Compensation Element

2020

2019

Annual cash retainer

$

95,000

$

85,000

Audit Committee member annual retainer

$

10,000

$

10,000

G&C Committee member annual retainer

$

7,500

$

7,500

Investment Committee member annual retainer

$

5,000

$

5,000

Executive Committee member annual retainer

$

5,000

$

5,000

Corporate Development Advisory Committee member annual retainer

$

5,000

$

5,000

Audit Committee Chair annual retainer⁽¹⁾

$

25,000

$

22,000

G&C Committee Chair annual retainer⁽¹⁾

$

17,500

$

17,500

Corporate Development Advisory Committee Chair annual retainer⁽¹⁾

$

2,000

$

2,000

Investment Committee Chair annual retainer⁽¹⁾

$

2,000

$

2,000

The committee chair receives the chair annual retainer in addition to the respective committee member retainer.

Grant Date

July 11, 2019

July 11, 2019

Exercise Price

N/A

$85.33

Quantity

975

7,929

Fair Value⁽¹⁾

$85.33

$10.76

Vesting Schedule

On the first anniversary of the date of grant.

On the first anniversary of the date of grant.

The fair value of restricted stock awards is determined based on the closing price of the underlying common stock on the date of grant. The fair value of stock option awards is determined using a Black-Scholes option pricing model. The assumptions used in determining the July 11, 2019 fair value of $10.76 per share for these stock options were: risk-free interest rate of 2.2%; dividend yield of 3.3%; volatility factor of 0.18; and expected option term life of 8 years.

Retirement eligibility for this purpose begins at age 55 or older with ten years of service as a member of the Board.

  Director Compensation  

Director

Restricted
Stock
Outstanding
(Shares)

Stock
Options
Outstanding
(Shares)

Thomas F. Bonadio

975

30,589

Joseph G. Doody

975

36,405

David J.S. Flaschen

975

70,900

Pamela A. Joseph

975

18,730

Joseph M. Tucci

975

97,420

Joseph M. Velli

975

97,420

Kara Wilson

975

26,185

speculatively trade in Paychex stock;

short sell any securities of the Company; or

buy or sell puts or calls on the Company’s securities.

  Beneficial Ownership  

BENEFICIAL OWNERSHIP OF

PAYCHEX COMMON STOCK

each principal stockholder known to be a beneficial owner of more than 5% of the Company’s common stock. This includes any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”);

each director and nominee for director;

each of the Company’s NEOs; and

all directors, NEOs, and executive officers of the Company as a group.

  Beneficial Ownership  

Amount of

Shares Owned⁽¹⁾

Non-vested

Shares
of Restricted

Stock⁽²⁾

Stock Options

Exercisable by

September 29,

2020⁽³⁾

Principal Stockholders:

B. Thomas Golisano^(4),(5),(6)

1 Fishers Road

Pittsford, NY 14534

—

—

37,843,028

10.4

% 

BlackRock Inc.⁽⁹⁾

55 East 52nd Street

New York, NY 10055

—

—

34,574,913

9.5

% 

Vanguard Group Inc.⁽¹⁰⁾

PO Box 2600 V26

Valley Forge, PA 19482-2600

—

—

27,679,243

7.6

% 

Directors:

B. Thomas Golisano^(4),(5),(6)

—

—

37,843,028

10.4

% 

Thomas F. Bonadio

15,242

1,082

30,589

46,913

*

*

Joseph G. Doody⁽⁷⁾

1,082

36,405

57,101

*

*

David J.S. Flaschen⁽⁸⁾

1,082

70,900

117,201

*

*

Pamela A. Joseph

1,082

18,730

26,549

*

*

Martin Mucci

52,030

1,699,072

2,122,812

*

*

Joseph M. Tucci

1,082

97,420

149,344

*

*

Joseph M. Velli

1,082

97,420

138,571

*

*

Kara Wilson

1,082

26,185

30,488

*

*

Named Executive Officers:

Martin Mucci

52,030

1,699,072

2,122,812

*

*

Efrain Rivera

—

259,596

354,898

*

*

Mark A. Bottini

9,191

434,686

520,633

*

*

John B. Gibson

21,852

373,354

418,519

*

*

Michael E. Gioja

9,191

240,016

330,946

*

*

All directors, NEOs, and executive
officers of the Company as a group
(16 persons)

127,532

3,795,502

42,699,480

11.7

% 

Indicates that percentage is less than 1%.

This column reflects shares held of record and Company shares owned through a bank, broker, or other holder of record. For executive officers, this also includes shares owned through the Paychex, Inc. 401(k) Incentive Retirement Plan (the “401(k) Plan”).

This column includes restricted stock awards to independent directors and executive officers that have not yet vested. These non-vested restricted stock awards have voting and dividend rights, and thus are included in beneficial ownership.

This column includes shares that may be acquired upon exercise of options, which are exercisable on or prior to September 29, 2020. Under SEC rules, shares that may be acquired within 60 days are included in beneficial ownership.

Included in shares beneficially owned for Mr. Golisano are 278,068 shares owned by the B. Thomas Golisano Foundation, of which Mr. Golisano is a member of the foundation’s eight-member board of trustees. Mr. Golisano disclaims beneficial ownership of these shares, but does share voting and investment power.

Mr. Golisano has 7,671,875 shares pledged as security. Mr. Golisano’s pledge of these shares has been disclosed since 2007 and, as such, occurred well before the enactment of our new pledging policy in January 2020.

Included in shares beneficially owned are 56,108 shares held in the name of family members, trusts, or other entities of Mr. Golisano. Mr. Golisano shares voting and investment power of these shares.

Included in shares beneficially owned are 12,639 shares held in the name of a trust for which Mr. Doody is the trustee and beneficiary. Mr. Doody has sole voting and investment power of these shares.

Included in shares beneficially owned are 14,707 shares held in the name of family members, trusts, or other entities of Mr. Flaschen. Mr. Flaschen shares voting and investment power of these shares.

Beneficial ownership is based on information as of June 30, 2020, contained in the Form 13F filed with the SEC on August 14, 2020 by BlackRock, Inc., including notice that it has, along with certain institutional investment managers for which it is the parent holding company, sole voting power as to 30,907,925 shares and sole dispositive power as to 34,574,913 shares.

Beneficial ownership is based on information as of June 30, 2020, contained in the Form 13F filed with the SEC on August 14, 2020 by Vanguard Group Inc., including notice that it has sole dispositive power as to 26,049,639 shares, shared voting power as to 641,366 shares, and shared dispositive power as to 1,629,604 shares.

  Corporate Governance  

CORPORATE GOVERNANCE

Chairman of the Board and non-independent director (Mr. Golisano);

the President and CEO as a non-independent director (Mr. Mucci);

an independent director serving as Lead Independent Director (Mr. Tucci); and

Audit, G&C, Corporate Development Advisory, and Investment committees led by independent directors.

  Corporate Governance  

Audit Committee

•  Risk related to financial statement accuracy and reporting;

•  Internal controls;

•  Legal, regulatory, and compliance risks;

•  Information security, technology, privacy and data protection; and

•  Other operational and fraud risks.

Investment Committee

•  Risk related to investing activities.

•  Risks arising from the Company’s compensation policies and practices for all employees and non-employee directors; and

•  Risk related to the governance structure and processes including succession planning, director independence, and related person transactions.

Corporate Development Advisory Committee                

•  Risk related to the Company’s acquisition opportunities.

  Corporate Governance  

Audit Committee

Committee Members:⁽¹⁾

David J.S. Flaschen (Chair)⁽²⁾

Thomas F. Bonadio⁽²⁾

Joseph G. Doody

Kara Wilson

6 Meetings in fiscal 2020

•  Serve as an independent and objective party to monitor the Company’s financial reporting process, internal control system, and financial risk management processes.

•  Review the performance and independence of the Company’s independent accountants and internal audit department.

•  Provide an open avenue of communication among the independent accountants, financial and senior management, the internal auditors, and the Board.

•  Review significant risk exposures and processes to monitor, control, and report such exposures, periodically reporting on such information to the Board.

Executive Committee

Committee Members:

Martin Mucci (Chair)

B. Thomas Golisano

Joseph M. Tucci

Joseph M. Velli

0 Meetings in fiscal 2020

•  Exercise all the powers and authority of the Board, except as limited by law, between Board meetings and when the Board is not in session.

Investment Committee

Committee Members:

Pamela A. Joseph (Chair)

David J.S. Flaschen

Joseph G. Doody

Joseph M. Velli

2 Meetings in fiscal 2020

•  Review the Company’s investment policies and strategies, and the performance of the Company’s investment portfolios.

•  Determine that the investment portfolios are managed in compliance with the Company’s established investment policy.

  Corporate Governance  

Governance and Compensation Committee

Committee Members:⁽³⁾

Joseph M. Tucci (Chair)

David J.S. Flaschen

Pamela A. Joseph

Joseph M. Velli

3 Meetings in fiscal 2020

•  Evaluate and determine compensation for the CEO and senior executive officers and recommend director compensation to the Board.

•  Provide general oversight with respect to governance of the Board, including periodic review and assessment of corporate governance policies.

•  Evaluate compensation policies to determine if they incentivize risks that are reasonably likely to have a material adverse effect on the Company.

•  Identify, evaluate, and recommend candidates to be nominated for election to the Board.

•  Review annually the independence of directors.

Corporate Development Advisory Committee

Committee Members:

Joseph M. Velli (Chair)

Thomas F. Bonadio

David J.S. Flaschen

Pamela A. Joseph

Martin Mucci

Kara Wilson

2 Meetings in fiscal 2020

•  Review and provide guidance to management and the Board with respect to the Company’s acquisition or divestiture opportunities, as appropriate, and review related strategy.

•  Authority to approve acquisitions or divestitures in accordance with the parameters set by the Board, to the extent permitted by law and the Company’s By-Laws.

All members of the Audit Committee, which was established in accordance with Section 3(a)(58)(A) of the Exchange Act, meet the independence, experience, and other applicable Nasdaq listing requirements and applicable SEC rules regarding independence.

Mr. Flaschen and Mr. Bonadio each qualify as an “Audit Committee Financial Expert,” as defined by applicable SEC rules.

All members of the G&C Committee meet the Nasdaq independence criteria for compensation committee members and directors overseeing director nominations.

  Corporate Governance  

Empowering employees through well-being, inclusion and diversity.

Making a positive impact in
our community.

Being good stewards
of the earth in everything
we do.

Doing business the right
way – for ourselves and our customers.

•  Total well-being of employees (physical, emotional, and financial health)

•  Training and development

•  Inclusion and diversity

•  Corporate giving

•  Employee grass-roots fundraising

•  Volunteerism

•  Improving energy efficiency

•  Reducing greenhouse gas emissions and carbon footprint

•  Recycling and eliminating waste

•  Good corporate governance practices

•  Cybersecurity

•  Physical Security

•  Code of Ethics

•  Vendor Code of Conduct

  Corporate Governance  

served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity which had an executive officer serving as a member of our G&C Committee;

served as a director of another entity which had an executive officer serving as a member of our G&C Committee; or

served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity which had an executive officer serving as a director of our Company.

  Corporate Governance  

CODE OF BUSINESS ETHICS AND CONDUCT

  Say-on-Pay Vote  

PROPOSAL 2:

ADVISORY VOTE TO APPROVE NAMED

EXECUTIVE OFFICER COMPENSATION

What am I voting on?

Voting Recommendation

The Board of Directors recommends a vote FOR the advisory vote approving the NEO compensation, as disclosed in this proxy statement.

NEO compensation is evaluated and determined by our G&C Committee, which is entirely comprised of independent directors. This committee utilizes the services of an independent consultant to advise them on matters of executive compensation.

Our executive compensation program is designed to implement core compensation principles, including alignment with stockholders’ interests, long-term value creation, and pay-for-performance. A significant portion of pay is at risk where the amount realized will be dependent on achievement of financial targets or, in the case of certain time-vested equity awards, the value of the Company’s stock.

A mix of annual and long-term incentive programs creates a balance between short-term and long-term focus, reducing risk in the compensation programs.

Our equity-based, long-term incentive awards include a combination of options, time-based restricted stock awards, and performance-based awards.

Stock ownership guidelines designed to align the directors’ and executives’ long-term financial interests with those of our stockholders.

  Say-on-Pay Vote  

Prohibition of hedging of the Company’s stock for both directors and executive officers.

Prohibition of pledging Company stock as collateral.

A long-standing insider trading policy.

Certain recoupment, non-compete, and other forfeiture provisions within our Annual Officer Performance Incentive Program (the “annual incentive program”) and equity-based compensation agreements. These allow the Company to cancel all or any outstanding portion of equity awards and recoup the gross value of any payouts under the annual incentive program, vested restricted shares, vested performance shares, or profits from exercises of options.

The Board recommends a vote FOR the proposal to approve the NEO compensation on an advisory basis, as
disclosed in this proxy statement.

  CD&A  

COMPENSATION DISCUSSION AND ANALYSIS

Name

Title

For the fiscal year ended May 31,

$ in millions, except per share amounts

  2020  

  2019  

% Change⁽³⁾

Management Solutions

$

2,963

$

2,878

3

% 

PEO and Insurance Solutions⁽¹⁾

991

814

22

% 

Total service revenue

3,954

3,692

7

% 

Interest on funds held for clients

87

81

8

% 

Total revenue

$

4,041

$

3,773

7

% 

Operating income

$

1,461

$

1,371

7

% 

Operating income, net of certain items⁽²⁾

$

1,374

$

1,290

7

% 

Net income

$

1,098

$

1,034

6

% 

Adjusted net income⁽²⁾

$

1,083

$

1,028

5

% 

Diluted earnings per share

$

3.04

$

2.86

6

% 

Adjusted diluted earnings per share⁽²⁾

$

3.00

$

2.84

6

% 

Earnings before interest, taxes, depreciation and amortization (“EBITDA”)⁽²⁾

$

1,673

$

1,554

8

% 

Operating cash flows

$

1,441

$

1,272

13

% 

  CD&A  

Professional employer organization (“PEO”) and Insurance Solutions revenue for fiscal 2019 includes the results of Oasis Outsourcing Group Holdings, L.P. (“Oasis”) since its acquisition in December 2018.

Operating income, net of certain items, adjusted net income, adjusted diluted earnings per share, and EBITDA are not U.S. GAAP measures. Please refer to “Paychex, Inc. Non-GAAP Financial Measures” in Appendix B of this proxy statement for a discussion of these non-GAAP measures and a reconciliation to the most comparable GAAP measures of operating income, net income, and diluted earnings per share. Operating income, net of certain items, is a non-GAAP measure used as one of the performance metrics in the Company’s executive compensation program.

Percentage changes are calculated based on unrounded numbers.

Strategy Focus

Fiscal 2020 Summary of Accomplishments

We continue to invest significantly in our award-winning Paychex Flex^® platform and mobility applications to increase efficiency and functionality for our clients and their employees. In fiscal 2020, we introduced the following new offerings and enhancements to Paychex Flex:

•  Paychex Integrations, which enables users to connect Paychex Flex with some of the world’s leading HR, accounting, point-of-sale, and productivity applications on the market;

•  Smartwatch Solution, which enables users to track time worked via their smartwatch;

•  Pay-on-Demand, which provides participating client employees the option to request access to a portion of earned pay before the scheduled pay date;

•  Real-Time Payments, which provides employers an efficient way to instantly pay their employees for time worked;

•  Help Center, which provides users access to training resources and how-to tutorials in written, video, and tour-like deliverables;

•  Enhancements to Flex Assistant, that provides a user with an in-app learning journey that aligns with their preferences as a verbal, visual, or physical learner and offers written how-to documents, tutorial-style video vignettes, or a guided interactive tour from in-app step-by-step messaging;

•  Document Management was enhanced to add electronic signature capabilities and the ability for customers to run on-demand reports that show the entire process, from initial log-in through signature event;

•  HR Conversations, a new tool that enables managers, employees, and HR staff to collaborate and capture day-to-day interactions; and

•  Other enhancements including, grid entry view capabilities and the ability for employees and administrative users to create a custom dashboard.

  CD&A  

Strategy Focus

Fiscal 2020 Summary of Accomplishments

Our flexible service model and technology-enabled service allows us to provide a personalized service experience for our clients and their employees.

During fiscal 2020, we continued to invest in artificial intelligence and machine learning and self-service capabilities to allow clients and their employees easy, intuitive, and flexible service how, when, and where they want it. Within Paychex Flex there is embedded technology to assist clients. The Paychex Flex Intelligence Engine includes the Flex Assistant, a client service chatbot that can answer over 200 commonly asked questions. During fiscal 2020, we continued to expand the questions answered by Flex Assistant. We also introduced enhancements to our Flex Intelligence Engine that allow clients to elect their preference for learning – via written how-to-documents, tutorial-style video vignettes, or a guided interactive tour. At any time, a live Paychex agent is just a click away, with the entire chat conversation available real-time to provide a better, more personalized service experience.

The platform embeds self-service capabilities that empower client employees to manage their HR and benefits information from any location, on any device. These self-service capabilities allow for greater access and convenience for client employees and greater productivity for clients.

During the fourth quarter of fiscal 2020, the economic impacts of COVID-19 and resulting legislation had a significant impact on small businesses. Throughout this challenging time, we provided information, webinars, and tools to help businesses navigate this environment. We issued a comprehensive Paycheck Protection Program payroll report to help small businesses apply for loans under the Coronavirus Aid, Relief, and Economic Security Act. Our HR professionals were proactive in helping clients. Our customer support interactions increased significantly. Through this, our client satisfaction and net promotor scores continued to increase. We ended fiscal 2020 with record levels of client retention exceeding 83% of the client base as of the beginning of the fiscal year.

We have a comprehensive suite of value-added HR Solutions for our clients and their employees. During fiscal 2020, we continued to expand our offerings with tools such as Document Management and HR Conversations that have allowed clients easier management of a remote workforce. Greater than half of our revenues are from HR and benefits solutions beyond payroll. We are currently the second largest provider of PEO services in the nation.

During COVID-19, our HR and compliance expertise was essential to helping our clients. Our 600+ HR professionals provided HR best practices and recommendations to our clients as they navigated challenging business conditions. In addition, our 200 compliance professionals were in real-time contact with tax agencies and regulators to understand newly enacted laws and regulations, and advocated for our clients’ interests.

We believe there is significant potential to grow within our current target markets. We have invested significantly in new demand generation and sales tools and expanding certain areas of our sales force. We continue to focus on sales productivity with the intent of expanding our market share across all our product lines.

During fiscal 2020, prior to COVID-19, we were showing solid results in both sales and client retention. While COVID-19 did impact sales in the fourth quarter, we still had year-to-date double-digit growth in the mid-market and SurePayroll areas. Through strong retention, our client base has grown from approximately 670,000 clients to greater than 680,000 clients during fiscal 2020.

  CD&A  

The Company

has returned over

$4 billion to stockholders

over the past 5 years.

  CD&A  

A significant portion of our NEOs annual compensation is “at risk” based on performance. For fiscal 2020, variable pay represented 89% of total target compensation for our CEO, and 77% of total target compensation on average for our other NEOs.

Variable compensation is comprised of an annual cash incentive program and longer-term equity-based incentives. Annual grants of performance shares provide the opportunity for restricted stock to be awarded if pre-established financial goals are met for a two-year performance period. Time-vested stock options and restricted stock awards provide value based on our stock price performance.

Target compensation for the annual incentive program and annual grants of performance shares is generally established at the beginning of the performance period by the G&C Committee. NEOs have an opportunity to earn actual compensation that varies from target based on achievement against pre-established performance metrics.

Performance targets incorporated into our executive compensation programs include the metrics of new business revenue and service revenue (our measures of business growth) and operating income, net of certain items (our measure of profitability) for our annual performance-based compensation. Operating income, net of certain items is a non-GAAP measure. Refer to Appendix B for a discussion of this measure and a reconciliation to the most comparable GAAP measure of operating income.

The financial measures used as performance targets are linked directly to our annual and longer-term strategic business plans that are reviewed and approved by the Board.

  CD&A  

In July 2016, the G&C Committee implemented special Long-Term Incentive Plan (“LTIP”) awards in the form of non-qualified performance-based stock options and performance-based restricted stock. These awards were made to reward the executives for achieving long-term financial goals. The stock options and restricted stock vest after four years based on achievement against goals established for fiscal 2020. These are special awards geared toward this long-term achievement and are not part of the annually recurring awards of long-term, equity-based compensation. The performance metrics for these LTIP awards are service revenue, operating income, net of certain items, and diluted earnings per share.

Operating income, net of certain items, is a non-GAAP measure. Refer to the discussion regarding this non-GAAP measure and a reconciliation to the most comparable GAAP measure of operating income in Appendix B.

CEO total compensation as reflected in this chart is equal to the amounts reported in the Fiscal 2020 Summary Compensation Table included in the Named Executive Officer section of this and prior years’ proxy statements.

Payouts under the annual incentive program for fiscal 2020 were earned at 51% of target for the CEO and an average of 48% of target for the SVPs. Achievement was measured against financial targets established at the beginning of fiscal 2020.

  CD&A  

The two-year performance period for the annual grants of performance shares granted in July 2018 ended on May 31, 2020. The financial targets were set at the beginning of this two-year period. Achievement against these targets resulted in restricted shares earned at 117% of target.

The three-year performance period for Mr. Rivera’s special performance share award granted in September 2017 ended on May 31, 2020. The performance condition specified in the award was achieved and the shares vested in full in July 2020.

The four-year performance period for the LTIP performance-based restricted stock awards and non-qualified performance-based stock options granted in July 2016 ended on May 31, 2020. The financial targets were set at the beginning of this four-year period. Achievement against these targets resulted in performance-based restricted stock awards and non-qualified performance-based stock options earned at 115% of target. Board discretion was exercised in determining the achievement pursuant to terms of the 2002 Plan to account for the uncontrollable impacts of COVID-19 on the business during the fiscal fourth quarter. This discretion utilized an approach to exclude the period of COVID-19 and pro rate the payment. See further discussion under the discussion of “Elements of Compensation”, sub-section “Equity-Based Compensation”.

  CD&A  

2018  

Stock Options

$

1,372,685

$

—

$

2,150,540

$

1,075,270

$

3,225,809

135

%

Restricted Stock

$

940,453

$

854,819

$

—

$

395,878

$

395,878

33

%

Performance Shares

$

2,353,659

$

—

$

—

$

3,128,543

$

3,128,543

33

%

2019  

Stock Options

$

1,582,257

$

—

$

163,663

$

327,320

$

490,983

-69

%

Restricted Stock

$

1,046,229

$

427,930

$

—

$

724,968

$

724,968

10

%

Performance Shares

$

2,618,791

$

—

$

—

$

3,398,264

$

3,398,264

30

%

2020  

Stock Options

$

1,891,759

$

—

$

—

$

—

$

—

-100

%

Restricted Stock

$

1,249,853

$

—

$

—

$

1,057,095

$

1,057,095

-15

%

Performance Shares

$

3,148,087

$

—

$

—

$

1,694,084

$

1,694,084

-46

%

The value reported at grant date represents the amounts reported in the Fiscal 2020 Summary Compensation Table for the respective fiscal year. These values were reported at grant-date fair value of the award.

The value realized through May 31, 2020 represents the value realized on stock option exercises or vesting of restricted stock and performance shares. Mr. Mucci has not exercised any stock options granted in fiscal 2018, fiscal 2019, and fiscal 2020. The value reflected for restricted stock is the stock price on the date shares vested multiplied by the number of shares that vested during the period between date of grant and May 31, 2020.

Intrinsic value not yet realized for stock options is based on the closing stock price of $72.28 per share as of May 31, 2020 less the exercise price for the respective grants. When the option exercise price is greater than the stock closing price, no value is reported. Intrinsic value for restricted stock and performance shares is based on the closing stock price of $72.28 per share as of May 31, 2020 multiplied by the number of shares not yet vested.

The intrinsic value of unvested shares remains at risk as these awards are currently not exercisable.

  CD&A  

WHAT WE DO

WHAT WE DON’T DO

✓  Pay for performance. A significant portion of executive pay is not guaranteed, but rather tied to key financial metrics that are disclosed to our stockholders.

×   No employment agreements. We do not have employment contracts for our NEOs. Employment of all of our executive officers is “at will.”

✓  Mitigate undue risk in compensation programs. The executive compensation program includes features that reduce the possibility of the NEOs, either individually or as a group, making excessively risky business decisions that could maximize short-term results at the expense of longer-term value.

×   No significant perquisites. The benefits our NEOs receive in the form of health insurance, life insurance, and Company matching contributions to the 401(k) Plan are the same benefits generally available to all of our employees.

✓  Balance of short-term and long-term incentives. Our incentive programs are designed to provide an appropriate balance of annual and longer-term incentives.

×   No hedging, pledging, or short sales transactions permitted. Our executive officers, including NEOs, and directors are prohibited from engaging in any hedging, pledging, or other similar types of transactions with respect to the Company’s common stock.

✓  Capped award payouts. Amounts or shares that can be earned under the annual incentive program, as well as under the longer-term performance share and LTIP performance-based stock option and restricted stock awards, are capped.

×   No dividends or dividend equivalents on unearned performance-based awards. Performance share awards and LTIP performance-based restricted stock awards do not earn or pay dividends until the shares are earned.

✓  Stock ownership guidelines. There are restrictions on sales of vested awards until a NEO has attained ownership of the Company’s stock as follows: CEO — six times base salary; SVPs — three times base salary; and Vice Presidents (“VPs”) — two times base salary.

✓  Include double-trigger change in control provisions. Our Change in Control Plan for officers is a “double-trigger” arrangement, requiring change in control and a subsequent termination of employment.

✓  Include recoupment, non-compete, and other forfeiture provisions in our annual incentive program and equity-based compensation agreements. Our annual incentive program and equity-based compensation agreements contain certain recoupment, non-compete, and other forfeiture provisions that will allow the Company to cancel all or any outstanding portion of equity awards and recover the payouts under the annual incentive program, gross value of any vested restricted shares, vested performance shares, or profits from exercises of options.

✓  Utilize an independent compensation consulting firm. The G&C Committee benefits from its utilization of an independent compensation consulting firm, which provides no other services to the Company.

  CD&A  

Compensation

Elements

Annual   

Incentive   

Program   

Stock   

Options   

Restricted   

Stock   

Awards   

Performance     

Shares⁽¹⁾