Paychex, Inc. DEF 14A
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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(1) |
Title of each class of securities to which
transaction applies:
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(2) |
Aggregate number of securities to which
transaction applies:
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(3) |
Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4) |
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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(1) |
Amount Previously Paid:
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(2) |
Form, Schedule or Registration Statement No.:
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August 29, 2008
Dear Paychex Stockholder:
The Board of Directors cordially invites you to attend our
Annual Meeting of Stockholders (the Annual Meeting)
on Tuesday, October 7, 2008 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.
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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Date and Time: |
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10:00 a.m. Eastern Time on Tuesday, October 7,
2008. 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 11, 2008, are entitled to notice of, and to vote at,
the Annual Meeting. |
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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. You may vote either by signing and returning the
enclosed proxy card, via the internet, or by telephone, as more
fully described in the Proxy Statement. |
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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 7,
2008. It can be accessed at the Investor Relations page at
www.paychex.com, and will be archived and available for
replay for approximately one month. |
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August 29, 2008
By Order of the Board of Directors
John M. Morphy
Secretary |
IMPORTANT
NOTICE REGARDING THE AVAILIBILITY OF PROXY MATERIALS FOR THE
2008 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 7,
2008
Paychex,
Inc.s Proxy Statement and Annual Report for the year ended
May 31, 2008 are available at
http://investor.paychex.com/annual.aspx
TABLE OF
CONTENTS
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Proxy Statement
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1
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Stockholders Entitled to Vote; Outstanding Shares; Quorum
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1
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How to Vote
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1
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Revoking Your Proxy
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1
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General Information on Voting
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2
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Vote Required
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2
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Voting by Participants in the Paychex Employee Stock Ownership
Plan Stock Fund
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2
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Security Ownership of Certain Beneficial Owners and Management
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3
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Proposal 1 Election of Directors For A One-Year
Term
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4
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Director Compensation for the Fiscal Year Ended May 31, 2008
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6
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Cash Compensation
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6
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Equity-Based Compensation
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6
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Deferred Compensation Plan for Directors
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7
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Benefits
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7
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Stock Ownership Guidelines
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7
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Fiscal 2008 Director Compensation
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8
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Proposal 2 Ratification of Selection of
Independent Registered Public Accounting Firm
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9
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Fees for Professional Services
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9
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Audit Committee Policy on Pre-Approval of Services of
Independent Accountants
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9
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Report of The Audit Committee
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10
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Corporate Governance
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11
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Information About the Board of Directors and Corporate Governance
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11
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Board of Directors Committees
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11
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Nomination Process
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12
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Policy on Transactions with Related Persons
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13
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Communications with the Board of Directors
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13
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Governance and Compensation Committee Interlocks and Insider
Participation
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14
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Section 16(a) Beneficial Ownership Reporting Compliance
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14
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Code of Business Ethics and Conduct
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14
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Compensation Discussion and Analysis
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15
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Objectives of Compensation Program
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15
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Role of Governance and Compensation Committee
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15
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Elements of Compensation
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16
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Annual Base Salary
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17
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Annual Officer Performance Incentive Program
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17
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Equity Compensation
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18
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CEO Compensation
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19
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Stock Ownership Guidelines
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19
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Non-Compete and Other Forfeiture Provisions
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19
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Perquisites
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19
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Deferred Compensation
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20
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Compensation Received In Fiscal 2008
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20
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Subsequent Events
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21
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Impact of the Internal Revenue Code
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21
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The Governance and Compensation Committee Report
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21
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Named Executive Officer Compensation
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22
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Fiscal 2008 Summary Compensation Table
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22
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Grants of Plan-Based Awards In Fiscal 2008
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24
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Outstanding Equity Awards as of May 31, 2008
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25
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Option Exercises and Stock Vested In Fiscal 2008
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26
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Non-Qualified Deferred Compensation Fiscal 2008
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27
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Change of Control and Severance Arrangement Fiscal 2008
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28
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Other Matters and Information
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29
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PROXY
STATEMENT
2008
ANNUAL MEETING OF STOCKHOLDERS OF PAYCHEX, INC.
TO BE HELD ON OCTOBER 7, 2008
This Proxy Statement is being mailed to stockholders of Paychex,
Inc. (Paychex or the Company), a
Delaware corporation, on or about August 29, 2008, in
connection with the solicitation of proxies by the Board of
Directors of the Company (the Board) to be voted at
the 2008 Annual Meeting of Stockholders (the Annual
Meeting). The Annual Meeting will be held on Tuesday,
October 7, 2008 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 11, 2008 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,
360,996,074 shares of common stock were issued and
outstanding. A majority of the outstanding shares
(180,498,038 shares) present at the Annual Meeting in
person or by proxy will constitute a quorum. A quorum is
necessary to hold a valid meeting. Stockholders will be entitled
to one vote for each share of common stock held as of the record
date.
How to
Vote
Your vote is very important and we hope that you will attend the
Annual Meeting. However, whether or not you plan to attend the
Annual Meeting, please vote by proxy 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 Monday, October 6,
2008. 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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General
Information on Voting
All votes properly cast and not revoked will be voted at the
Annual Meeting in accordance with the stockholders
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 the independent registered
public accounting firm (the independent accountants).
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 occur
when a broker does not vote on a matter because the broker does
not have discretionary voting power for that proposal and has
not received instructions from the beneficial owner to vote.
Broker non-votes 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.
Vote
Required
The Companys 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 committees 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 1
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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 2
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Ratification of selection of independent registered
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Majority of the votes duly cast*
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public accounting firm
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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 (401(k) 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 participants
account at the Annual Meeting. The participants voting
instructions will be tabulated confidentially. Only the Trustee
and/or the
tabulator will have access to the participants individual
voting direction. If voting instructions for the shares of
common stock in the ESOP are not received, those shares will be
voted by the Trustee in the same proportions as the shares for
which voting instructions were received from other participants
in the ESOP. Voting by ESOP participants will close at
11:59 p.m. Eastern Time on October 2, 2008. 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, 2008, 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 Companys
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
2008 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),(4)
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38,178,195
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10.5
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1 Fishers Road
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Pittsford, NY 14534
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Capital World Investors
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36,185,000
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10.0
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333 South Hope Street
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Los Angeles, CA 90071
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Directors:
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B. Thomas
Golisano(2),(3),(4)
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38,178,195
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10.5
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David J. S.
Flaschen(5),(6)
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57,793
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**
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Phillip
Horsley(5),(6)
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275,193
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**
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Grant M.
Inman(4),(5),(6)
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222,492
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**
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Pamela A.
Joseph(5),(6)
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13,043
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**
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Jonathan J.
Judge(5),(6)
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784,958
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**
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Joseph M.
Tucci(5),(6)
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45,543
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**
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Joseph M.
Velli(5),(6)
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11,876
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**
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Named Executive Officers:
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Jonathan J.
Judge(5),(6)
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784,958
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**
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John M.
Morphy(5),(6)
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137,275
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**
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Walter
Turek(4),(5),(6)
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385,816
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**
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Martin
Mucci(5),(6)
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142,592
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**
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William G.
Kuchta(5),(6)
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79,727
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**
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All directors, NEOs, and executive officers of the Company as
a group
(13 persons)(4),(5),(6)
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40,362,419
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11.1
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%
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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, 2008. 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 individuals 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
494,568 shares owned by the B. Thomas Golisano Foundation
for which Mr. Golisano is a member of the foundations
six-member board of trustees. |
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Mr. Golisano has 12,574,618 shares pledged as security. |
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Included in shares beneficially owned are shares held in the
names of family members or other entities:
Mr. Golisano 74,380 shares;
Mr. Inman 136,949 shares; and
Mr. Turek 1,670 shares. |
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Included in shares beneficially owned are unvested restricted
stock: Mr. Flaschen 4,543 shares;
Mr. Horsley 4,543 shares;
Mr. Inman 4,543 shares;
Ms. Joseph 4,543 shares;
Mr. Judge 79,075 shares;
Mr. Tucci 4,543 shares;
Mr. Velli 3,876 shares;
Mr. Morphy 45,816 shares;
Mr. Turek 13,470 shares;
Mr. Mucci 16,668 shares;
Mr. Kuchta 7,910 shares; and all
directors, NEOs, and executive officers as a group
195,865 shares. |
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Included in shares beneficially owned are shares that may be
acquired upon exercise of options, which are exercisable on or
prior to September 29, 2008: Mr. Flaschen
41,000 shares; Mr. Horsley
41,000 shares; Mr. Inman
41,000 shares; Ms. Joseph
6,000 shares; Mr. Judge
673,334 shares; Mr. Tucci
41,000 shares; Mr. Velli
3,000 shares; Mr. Morphy
78,000 shares; Mr. Turek
93,000 shares; Mr. Mucci
118,000 shares; Mr. Kuchta
59,000 shares; and all directors, NEOs, and executive
officers as a group 1,213,334 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 Companys 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 2009 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.
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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66
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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 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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52
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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.
Mr. Flaschen is a member of the board of directors of
various private companies.
|
|
|
|
|
|
|
|
|
|
|
|
Phillip Horsley
|
|
|
69
|
|
|
|
1982
|
|
|
Mr. Horsley is the founder and Managing Director of Horsley
Bridge Partners, a leading manager of private equity investments
for institutional clients since 1982.
|
|
|
|
|
|
|
|
|
|
|
|
Grant M. Inman
|
|
|
66
|
|
|
|
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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|
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|
Director
|
|
|
Position, Principal Occupation, Business
|
Name
|
|
Age
|
|
|
Since
|
|
|
Experience, and Directorships
|
|
|
|
|
|
|
|
|
|
|
|
|
Pamela A. Joseph
|
|
|
49
|
|
|
|
2005
|
|
|
Ms. Joseph is Chairman of U.S. Bancorp Payment Services and
Chairman and Chief Executive Officer of Elavon (formerly NOVA
Information Systems, Inc.), a wholly owned subsidiary of U.S.
Bancorp. Elavon manages and facilitates payment processing.
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. Ms. Joseph is honorary chairman of Gift for a
Child, a non-profit organization that assists foster children in
finding permanent homes. She is also a member of the board of
directors for Centene Corporation.
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan J. Judge
|
|
|
54
|
|
|
|
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 1976 to 2002, Mr. Judge worked for
IBM in a variety of sales, marketing, and executive management
positions, most recently as General Manager of IBMs
Personal Computing Division, a $10 billion business unit
offering a broad range of products, services, and solutions,
including IBMs ThinkPad brand of mobile computers.
Mr. Judge is a member of the board of directors of
PMC-Sierra, Inc. and the Buffalo Branch of the Federal Reserve
Bank of New York.
|
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|
|
|
|
|
|
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|
Joseph M. Tucci
|
|
|
61
|
|
|
|
2000
|
|
|
Mr. Tucci has been the Chairman of the Board of Directors
of EMC Corporation, the world leader in information
infrastructure technology and solutions, since January 2006. He
has been Chief Executive Officer and President of EMC
Corporation since January 2001, and President since January
2000. Mr. Tucci is also Chairman of the Board of Directors
of VMware, Inc., the global leader in virtualization solutions.
|
|
|
|
|
|
|
|
|
|
|
|
Joseph M. Velli
|
|
|
50
|
|
|
|
2007
|
|
|
Mr. Velli has been Chairman and Chief Executive Officer of
BNY ConvergEx Group, LLC, a leading global agency brokerage and
technology company offering a comprehensive suite of investment
services, since October 2006. Prior to the formation of BNY
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.
|
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.
5
DIRECTOR
COMPENSATION
FOR THE
FISCAL YEAR ENDED MAY 31, 2008
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
2008 Summary Compensation Table on page 22 of this Proxy
Statement.
Cash
Compensation
During the year ended May 31, 2008 (fiscal
2008), 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. The combination of annual
retainer and meeting fees provides compensation to those Board
members contributing additional time through their participation
at standing committee meetings.
In fiscal 2008, 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.
In July 2008, the Board approved a change to the cash and equity
compensation structure for outside directors. In total, the
compensation to be realized by each Board member is unchanged,
however, the new structure is more in line with trends at other
large market capitalization companies in terms of pay levels and
composition. The annual retainer was increased to $45,000, to be
paid in quarterly installments. Compensation for each Board and
committee meeting attended has been eliminated, replaced with
committee retainers of $7,500 annually for members of the Audit
Committee and $5,000 annually for all other committees. These
committee retainers will be paid in quarterly installments.
Additionally, the compensation for each meeting attended by the
Audit Committee chairman has been eliminated, replaced with an
annual chairman retainer of $15,000. The Board also introduced
an annual chairman retainer for the Governance and Compensation
Committee in the amount of $7,500. Both chairman retainers will
be paid in quarterly installments. The Board also approved a
change in the proportion of options and restricted stock to be
awarded annually to each outside director. The awards will be
based on a total equity value of $120,000 with 50% to options
and 50% to restricted stock.
Equity-Based
Compensation
As the Company matures, the market for our common stock has
matured and therefore, the Governance and Compensation Committee
determined, during the year ended May 31, 2007
(fiscal 2007), it would be more appropriate to shift
equity awards from 100% in options to a blend of options and
restricted stock.
6
In July 2007, each outside director received an award under the
Companys 2002 Stock Incentive Plan, as amended and
restated effective October 12, 2005 (the 2002
Plan) as follows:
|
|
|
|
|
|
|
Stock Awards
|
|
Option Awards
|
|
Grant Date
|
|
July 17, 2007
|
|
July 17, 2007
|
Exercise Price
|
|
NA
|
|
$43.91
|
Quantity(1)
|
|
1,334
|
|
6,000
|
Vesting Schedule
|
|
On the third anniversary of the date of grant
|
|
One-third per annum over three years from the date of grant
|
Certain Restrictions
|
|
Shares may not be sold during the directors tenure as a
member of the Board, except as necessary to satisfy tax
obligations
|
|
|
Other
|
|
Upon the discretion of the Governance and Compensation
Committee, unvested shares may be accelerated in whole or in
part for certain events, including, but not limited to director
retirement(2)
|
|
In the event of death or disability of a Board member, unvested
options will vest in full and be immediately exercisable.
Unvested options outstanding upon the retirement of a Board
member will be canceled
|
|
|
|
(1) |
|
Mr. Velli received an additional awards of 667 restricted
shares and 3,000 options to purchase shares of the
Companys common stock, based on his service on the Board
since January 2007. |
|
(2) |
|
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 2008, each outside director, except for
Mr. Golisano, received 6,250 options to purchase shares of
the Companys common stock at an exercise price of $31.95
per share and 1,875 shares of restricted stock, with terms
similar to the awards granted in July 2007.
Deferred
Compensation Plan for Directors
The Company maintains a non-qualified and 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 participants 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
investment choices 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. Mr. Golisano
also receives access to the Companys standard health and
life insurance plans, and receives Company matching
contributions into his account in the 401(k) Plan.
Stock
Ownership Guidelines
Directors must adhere to strict standards with regards to
trading in the Companys stock. They may not, among other
things:
|
|
|
|
|
speculatively trade in the Companys stock;
|
|
|
|
short sell any securities of the Company; or
|
|
|
|
buy or sell puts or calls on the Companys securities.
|
7
Fiscal
2008 Director Compensation
The table below summarizes the total compensation received from
the Company by all outside directors for fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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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
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,990
|
|
|
$
|
149,990
|
|
David J. S.
Flaschen(6)
|
|
$
|
56,500
|
|
|
$
|
33,416
|
|
|
$
|
75,120
|
|
|
$
|
|
|
|
$
|
165,036
|
|
Phillip Horsley
|
|
$
|
40,000
|
|
|
$
|
33,416
|
|
|
$
|
75,120
|
|
|
$
|
|
|
|
$
|
148,536
|
|
Grant M. Inman
|
|
$
|
50,500
|
|
|
$
|
33,416
|
|
|
$
|
75,120
|
|
|
$
|
|
|
|
$
|
159,036
|
|
Pamela A. Joseph
|
|
$
|
42,500
|
|
|
$
|
33,416
|
|
|
$
|
46,404
|
|
|
$
|
|
|
|
$
|
122,320
|
|
Joseph M. Tucci
|
|
$
|
40,000
|
|
|
$
|
33,416
|
|
|
$
|
75,120
|
|
|
$
|
|
|
|
$
|
148,536
|
|
Joseph M. Velli
|
|
$
|
40,000
|
|
|
$
|
25,574
|
|
|
$
|
30,860
|
|
|
$
|
|
|
|
$
|
96,434
|
|
|
|
|
(1) |
|
The amounts 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 Companys consolidated
financial statements for fiscal 2008 for the fair value of
restricted stock awards in accordance with Statement of
Financial Accounting Standard (SFAS) No. 123
(revised) (No. 123R), 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 C 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 2008 for further discussion on restricted stock
awards. |
|
(3) |
|
The amounts in this column represent the dollar amount
recognized as expense in the Companys consolidated
financial statements for fiscal 2008 for the fair value of
option awards in accordance with SFAS No. 123R, 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. 123R
for grants since June 1, 2006. Grants prior to June 1,
2006 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 2003, July 2004, July 2005, July 2006, and
July 2007. Refer to note 2 on page 22 of this
Proxy Statement for the assumptions and resulting per share fair
value for these option awards. Refer to Note C contained in
the Notes to Consolidated Financial Statements included in
Item 8 of our
Form 10-K
for fiscal 2008 for further discussion of option awards and the
relevant assumptions used in the calculation of the grant date
fair value. |
|
(4) |
|
As of May 31, 2008, Mr. Flaschen, Mr. Horsley,
Mr. Inman, Ms. Joseph, and Mr. Tucci each had
2,668 shares of unvested restricted stock, and
Mr. Velli had 2,001 shares of unvested restricted
stock. As of May 31, 2008, each director had the following
number of options outstanding: Mr. Flaschen
69,500; Mr. Horsley 57,000;
Mr. Inman 57,000; Ms. Joseph
12,000; Mr. Tucci 79,500; and
Mr. Velli 9,000. |
|
(5) |
|
All Other Compensation for Mr. Golisano includes $5,223 of
Company-matching contribution under the 401(k) Plan and
$4,767 in Company-provided benefits for standard health and life
insurance. |
|
(6) |
|
Mr. Flaschen defers 100% of the fees earned to our
non-qualified, unfunded, deferred compensation plan. During
fiscal 2008, in accordance with the election requirements of
section 409A of the Internal Revenue Code
(Code), Mr. Flaschen received a distribution
from the plan of $148,890. |
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 Companys independent registered public
accounting firm for the year ending May 31, 2009.
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 Companys independent accountants since 1983,
will be present at the Annual Meeting, will be afforded the
opportunity to make any statements they wish, and will be
available to respond to appropriate questions from stockholders.
To ratify the appointment of Ernst & Young LLP, a
majority of 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
Companys independent registered public accounting firm for
the year ending May 31, 2009.
Fees For
Professional Services
The following table shows the aggregate fees for professional
services rendered for the Company by Ernst & Young LLP:
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Audit fees
|
|
$
|
558,000
|
|
|
$
|
544,000
|
|
Audit related fees
|
|
|
164,000
|
|
|
|
359,000
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
722,000
|
|
|
$
|
903,000
|
|
|
|
|
|
|
|
|
|
|
Audit fees for fiscal 2008 and 2007 were for professional
services rendered for the audits of the Companys annual
consolidated financial statements, and reviews of the financial
statements included in the Companys Quarterly Reports on
Form 10-Q,
and for the audits of managements assessment of the
effectiveness of internal control over financial reporting for
fiscal 2007 and the effectiveness of internal control over
financial reporting for fiscal 2008.
Audit related fees for fiscal 2008 and 2007 were for
employee benefit plan audits and other reports.
There were no tax or other non-audit related services provided
by the independent accountants for fiscal 2008 and 2007.
Audit
Committee Policy on Pre-Approval of Services of Independent
Accountants
The Audit Committees 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 2008 and 2007.
9
REPORT OF
THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors oversees the
Companys 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 Companys internal controls over financial reporting.
Ernst & Young LLP, the Companys independent
accountants, is responsible for performing independent audits of
the Companys consolidated financial statements in
accordance with the standards of the Public Company Accounting
Oversight Board. The independent accountants are also
responsible for expressing an opinion on the effectiveness of
the Companys 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 Companys 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 Companys internal
controls, and the overall quality and effectiveness of the
Companys financial reporting process and legal and ethical
compliance programs, including the Companys Code of
Business Ethics and Conduct. The Audit Committee held seven
meetings during fiscal 2008 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 2008, including a discussion on the quality and
acceptability of the Companys 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 Companys
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 firms independence. There were no non-audit services
provided to the Company during fiscal 2008 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
Companys
Form 10-K
for the year ended May 31, 2008 for filing with the SEC.
The Audit Committee has recommended for approval by the Board
the selection of the Companys 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.
The Board held four meetings during fiscal 2008. To the extent
practicable, directors are expected to attend all Board meetings
and meetings of the committees on which they serve. During
fiscal 2008, each director attended more than 75% of the Board
meetings and committee meetings on which the director served.
Directors are encouraged to attend annual meetings of
stockholders. Last year, all directors attended the 2007 Annual
Meeting of Stockholders, except for Mr. Horsley who was
absent due to health reasons.
Regularly scheduled executive sessions of the independent
members of the Board, without members of management, are held in
conjunction with meetings of the Board. The Board has selected
Mr. Tucci to preside at all executive sessions of the
independent directors.
Board of
Directors Committees
The Board has established four standing committees with the
following director assignments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
Governance and
|
|
|
|
|
Executive
|
|
Audit
|
|
Investment
|
|
Compensation
|
Name
|
|
Independence(1)
|
|
Committee
|
|
Committee
|
|
Committee
|
|
Committee
|
|
B. Thomas Golisano
|
|
|
|
X
|
|
|
|
|
|
|
Jonathan J. Judge
|
|
|
|
Chairman
|
|
|
|
|
|
|
David J. S. Flaschen
|
|
X
|
|
|
|
Chairman
|
|
X
|
|
X
|
Phillip Horsley
|
|
X
|
|
X
|
|
|
|
X
|
|
X
|
Grant M. Inman
|
|
X
|
|
|
|
X
|
|
Chairman
|
|
X
|
Pamela A. Joseph
|
|
X
|
|
|
|
X
|
|
|
|
|
Joseph M. Tucci
|
|
X
|
|
|
|
|
|
|
|
Chairman
|
Joseph M. Velli
|
|
X
|
|
|
|
|
|
X
|
|
X
|
Number of meetings held by committee during fiscal 2008
|
|
|
|
1
|
|
7
|
|
2
|
|
5
|
|
|
|
(1) |
|
Directors are independent within the meaning of applicable SEC
and The NASDAQ Stock
Market®
(NASDAQ) director independence standards. |
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 2008 were
all directors except for Mr. Golisano and Mr. Judge.
Executive Committee.
The primary responsibility of the Executive Committee is to
exercise all the powers and authority of the Board except as
limited by law.
Audit Committee. The primary responsibilities
of the Audit Committee are to:
|
|
|
|
|
serve as an independent and objective party to monitor the
Companys financial reporting process and system of
internal control;
|
11
|
|
|
|
|
review the performance and independence of the Companys
independent accountants;
|
|
|
|
review and appraise the performance of the Companys
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 Companys investment policies and strategies,
and the performance of the Companys 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:
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evaluate and determine compensation for the directors, CEO, and
executive officers;
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provide general oversight with respect to governance of the
Board, including periodic review and assessment of corporate
governance policies;
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identify, evaluate, and recommend to the Board candidates for
nomination for election to the Board; and
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review annually the independence of directors.
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The Audit, Investment, and Governance and Compensation
Committees responsibilities are more fully described in
each committees charter adopted by the Board, which is
accessible on the Companys website, www.paychex.com
at the Investor Relations section under Corporate
Governance.
Nomination
Process
The Governance and Compensation Committee performs the function
of our 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 candidates demonstrated business judgment,
leadership abilities, integrity, prior experience, education,
training, relationships, and other factors that the Board
determines relevant. In identifying candidates for nomination to
fill vacancies created by the expiration of the term of any
incumbent director, the Nomination Policy requires Governance
and Compensation Committee members to determine whether such
incumbent director is willing to stand for re-election and, if
so, to take into consideration the value to the Board and to the
Company of their continuity and familiarity with the
Companys business. The Board has previously used a third
party search firm to identify director candidates and the
charter authorizes the Governance and Compensation Committee to
continue this practice.
The Nomination Policy requires the Governance and Compensation
Committee to consider candidates for nomination to the Board
recommended by any reasonable source, including stockholders.
Stockholders who wish to do so may recommend candidates for
nomination by identifying such candidates and providing relevant
biographical information in written communications to the
chairman of the Governance and Compensation Committee in
accordance with the policy described below in the section
entitled Communications with the Board of Directors.
12
Policy on
Transactions with Related Persons
It is the Companys policy to avoid transactions with
related persons. However, there may be occasions when a
transaction with a related person is in the best interest of the
Company. The Companys policies and procedures for review
and approval of related persons transactions appear in the
Companys Standards of Conduct, Conflict of Interest, and
its Employment of Relatives Standards, which are internally
distributed, and in the Companys Code of Business Ethics
and Conduct which is posted on the Companys 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 Companys Chief
Financial Officer (CFO) oversees the review and
determination of such transactions.
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 Companys relationship with any person or entity
with which the Company has or proposes to enter into a business
or contractual relationship.
The Companys human resources department determines whether
employment of an employees relative is appropriate. The
Companys management, in consultation with the human
resources department, is required to resolve any conflict
regarding employment of an employees relative.
The Companys financial accounting department annually
reviews the Companys listing of related parties for
determination of potential related person transactions that
would be disclosable in the Companys periodic reports or
proxy materials under U.S. generally accepted accounting
principles (GAAP) and SEC rules.
The Governance and Compensation Committee is required to
consider all questions of possible conflicts of interest of
Board members and executive officers, including review and
approval of transactions of the Company in excess of $120,000 in
which a director, 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 executive
officer.
Mr. Tucci, who is a member of the Board, is the Chairman,
President, and Chief Executive Officer of EMC Corporation.
During fiscal 2008, the Company purchased through negotiated
transactions approximately $4.4 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 2008, the Company purchased approximately $19,654 of
aviation services from Rochester Aviation, Inc. related to
Mr. Golisanos travel to attend Board meetings.
Communications
with the Board of Directors
The Board has established procedures to enable stockholders and
other interested parties to communicate in writing with the
Board, including the chairman of any standing committee of the
Board. 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 Corporate
Secretary will promptly forward all stockholder and other
interested party communications to the Board or to the
appropriate standing committee of the Board, as the case may be.
13
Governance
and Compensation Committee Interlocks and Insider
Participation
None of the members of the Governance and Compensation Committee
were at any time during fiscal 2008, 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 2008, 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 Companys common stock to
file reports of their ownership and changes in their ownership
of the Companys equity securities with the SEC. Based
solely on our review of information supplied to the Company and
filings made with the SEC, the Company believes that during
fiscal 2008, 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 Companys 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 NEOs 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 committees 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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considers the impact of section 162(m) of the Code.
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As outlined in its charter, the committee has the authority to
retain consultants and advisors, at the Companys expense,
to assist in the discharge of the committees duties. The
committee utilizes the compensation advisory services of Watson
Wyatt Worldwide, reporting to the committee and purposefully
independent from Paychex management. Management does not
participate in the committees decision to retain Watson
Wyatt as its consultant. Watson Wyatt advises the committee on
matters of NEO compensation, assists the committee with analysis
and research, and updates the committee on evolving best
practices in compensation. Watson Wyatt is invited to attend all
meetings and executive sessions of the committee. However, the
committee is solely responsible for setting the type and amount
of compensation.
Management retains the services of First Niagara Consulting as
compensation consultant to advise management on overall
compensation strategy and plan design. They do not provide
advice on individual NEOs compensation. Generally,
compensation plans are developed and proposed by management with
analytical and research assistance by First Niagara Consulting.
Watson Wyatt, the committees consultant, 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, and respond to questions on current or
recommended plan design. Our CEO, annually, will review
achievement to the prior years plan, review salary
recommendations for each of the NEOs (other than himself),
recommend the upcoming fiscal years annual incentive
program structure, and present recommendations on equity awards.
15
Management is excluded from executive sessions of the committee
where final decisions on compensation elements are made,
particularly those on our CEOs performance and
compensation. Executive sessions occur at each meeting of the
committee.
Elements
of Compensation
We use a combination of compensation elements, including annual
base salary, annual incentive, 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 continues to review each of the
elements annually to ensure that compensation is appropriate and
competitive to attract and retain a high performing executive
team. For fiscal 2008, compensation packages averaged 51% in
cash compensation and 49% in equity compensation, based on the
value of equity awards as provided in the Fiscal 2008 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.
As indicated above, compensation is most closely compared to a
group of companies known as the Peer Group. While the committee
targets compensation at the median of the Peer Group, this is
not the sole determining factor in the committees
decisions on compensation, and the committee reserves the
discretion to adjust compensation based on other factors. The
Peer 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 our direct competitor in the payroll
industry, Automatic Data Processing, Inc., 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 data on CEO compensation
at other large, Rochester-based public companies. This
information, by itself, does not necessarily trigger a change of
our CEOs compensation. Our current Peer Group consists of
the following companies:
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Affiliated Computer Services, Inc. (ACS)
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Hewitt Associates, Inc. (HEW)
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Automatic Data Processing, Inc. (ADP)
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Intuit Inc. (INTU)
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Convergys Corporation (CVG)
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Iron Mountain Inc. (IRM)
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DST Systems, Inc. (DST)
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Metavante Technologies, Inc. (MV)
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The Dun & Bradstreet Corporation (DNB)
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Moodys Corporation (MCO)
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Equifax Inc. (EFX)
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Robert Half International Inc. (RHI)
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Fiserv, Inc. (FISV)
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Total System Services, Inc. (TSS)
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H&R Block, Inc. (HRB)
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The committee annually reviews and approves the selection of
Peer Group companies. 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. During fiscal
2008, First Data Corporation, Ceridian Corporation and The BISYS
Group, Inc. were removed from the Peer Group as these companies
are no longer publicly held and therefore compensation
information is not readily available. The companies were
replaced
16
with Iron Mountain Inc., Moodys Corporation and Total
System Services, Inc. as these companies are business to
business providers of similar size and clients served. T. Rowe
Price Group, Inc. was replaced with Metavante Technologies, Inc.
as T. Rowe Price Group, Inc. is purely an investment company
with clients much larger than our client base.
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. Newly promoted officers will often have pay
progression at a somewhat faster rate than more tenured
officers. In fiscal 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 performance targets for the annual incentive program are
established at the beginning of each fiscal year, typically
based on the Board-approved fiscal year financial plan, and
provide our NEOs the opportunity for additional cash
compensation based primarily on our annual revenue and operating
income growth. The targets for payout are established by the
committee with consultation of management. The program was
established to motivate our NEOs to meet the goals set by the
Company as presented to its stockholders. These goals are
closely aligned with our stated long-term objectives of 12%
annual service revenue growth and 15% annual operating income
growth, net of certain items. Historically, the sole exclusion
from operating income, net of certain items has been interest on
funds held for clients. However, at the discretion of the
committee, certain items have and may also include items that
are unusual and infrequent in nature. During fiscal 2007, the
operating income metric excluded interest on funds held for
clients and the expense charge of $38 million to increase
the litigation reserve. This metric is considered a non-GAAP
measure. The performance targets of the annual incentive program
have both financial and strategic objectives including:
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annual service revenue growth;
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annual operating income growth, net of certain items; and
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operating income, net of certain items, as a percentage of
service revenue.
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The Senior Vice President (SVP) 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 the annual incentive program 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
Companys financial performance. Once the target is
determined, it is set for the year and is normally not changed.
For extraordinary circumstances, the compensation committee
reserves the right to apply discretion.
For fiscal 2008, the annual incentive program applicable to the
CEO and the NEOs was structured into two components
quantitative and qualitative. The quantitative component is
intended to comply with section 162(m) of the Code. The
CEOs quantitative target percentage is 100% of annual base
salary. The quantitative target percentage for SVPs is 65% of
annual base salary. For all other vice presidents, the
quantitative target percentage is 40% of annual base salary. As
the committee adjusts total compensation, it increases the
percentage of total compensation that is performance-based. 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 potentially receiving 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.
17
Equity
Compensation
To align our NEOs with the long-term interests of our
stockholders, the Company grants equity awards under the 2002
Plan. 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.
Since 1998, annual grants of equity awards to the NEOs have been
approved during the regularly scheduled meeting of the Board in
July. The exercise price of the award is the closing market
price on the date of the grant. Historically, the July Board
meeting has been scheduled to occur approximately two weeks
after the release of our fiscal year-end earnings and upcoming
fiscal year financial guidance. Our black-out period normally
lifts on the third business day following such release of
information. The committee anticipates continuing its granting
practice. Recipients are notified shortly after Board approval
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% in options to
a blend of 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.
The blend of options and restricted stock optimized total awards
while maintaining expense levels similar in manner to the
previous grants of solely options. The granting of
performance-accelerated restricted stock awards occurred for the
following reasons:
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We believe the granting of performance-accelerated awards
provides better alignment with stockholders interests.
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It affords the opportunity for increased equity ownership by
NEOs.
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The use of restricted stock moderates the negative impact of
external stock market factors outside the control of management.
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The grants of restricted stock awards have time-based vesting
with performance-based acceleration to recognize all aspects of
the NEOs contributions to the Company, and to motivate the
NEOs to meet our
long-term
financial targets. The restricted stock will vest on the fifth
anniversary of the grant date, unless performance criteria are
met for the acceleration of vesting. The performance criteria
for the acceleration of the vesting of the restricted stock were
based on the Companys stated long-term objective of 15%
annual operating income growth, net of certain items, to remain
consistent with the annual incentive program targets. The fiscal
2008 award targets for acceleration of one-third in any one
fiscal year are operating income, net of certain items, as
follows:
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In millions
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Fiscal Year
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Operating Income, Net of Certain Items
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2008
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$
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696.3
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2009
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$
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800.7
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2010
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$
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920.8
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2011
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$
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1,058.9
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During fiscal 2008, a one-time grant of 30,000 restricted shares
that vest one-third per year beginning in October 2010 was
awarded to the CFO. The award was granted to provide incentive
for long-term retention for the CFO.
The value of equity awards for the NEOs is detailed on the
Fiscal 2008 Summary Compensation Table, page 22 of this
Proxy Statement.
18
CEO
Compensation
It is the responsibility of the committee to evaluate
Mr. Judges performance annually and determine his
total compensation. Mr. Judge receives compensation based
on his leadership role and the overall performance of the
Company. A number of compensation elements, particularly his
employment agreement, are provided to Mr. Judge as a means
of retention. Mr. Judge receives a base salary comparable
to the median of salaries for CEOs in our Peer Group. His annual
incentive program, as described under Annual Officer
Performance Incentive Program is also comparable to the
median of CEOs in our Peer Group, and is commensurate with his
leadership role at the Company. Mr. Judge also receives
equity awards under the 2002 Plan. During fiscal 2008, he
received options to purchase 150,000 shares of common
stock. He also received 33,334 restricted shares. The equity
awards are provided to motivate all NEOs, including
Mr. Judge, to meet our long-term financial targets. Certain
elements of Mr. Judges compensation are significantly
higher than those of the SVPs due to the executive structure of
the Company.
In addition to the above elements of compensation,
Mr. Judge has a severance package, described in his
employment agreement which was renewed on November 30, 2007
for an additional three years. No written or oral change of
control or severance arrangements exist for our NEOs, except for
this arrangement with Mr. Judge. The employment agreement
provides for fixed annual base salary, participation in the
annual incentive program, and grants of equity awards under the
2002 Plan. If Mr. Judge is terminated other than for cause
or resigns for good reason, he is entitled to certain
compensation as detailed further in the Change of Control and
Severance Arrangement table on page 28 of this Proxy
Statement.
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 CFO and other SVPs (one times annual
base salary). The guidelines were established to provide an
additional element of retention and alignment with
stockholders interests.
NEOs of the Company must also adhere to strict standards with
regards to trading in the Companys stock. They may not,
among other things:
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speculatively trade in the Companys stock;
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short sell any securities of the Company; or
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buy or sell puts or calls on the Companys securities.
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Non-Compete
and Other Forfeiture Provisions
A principle component of our equity compensation is that
following termination of an NEOs employment certain
benefits (including equity based compensation) will be forfeited
if the NEO engages in activities adverse to the Company. These
activities include competition with the Company during a
specified period after termination of employment, solicitation
of the Companys clients or employees during a specified
period after termination of employment, breach of
confidentiality either during or after employment, or engaging
in conduct which is detrimental to the Company during the
NEOs employment with the Company. Should any of these
activities occur, the Company may cancel all or any outstanding
portion of the equity awards subject to this principle, and
recover the gross value of any vested restricted shares,
including all dividends, or in the case of non-qualified stock
options, the Company may suspend the NEOs right to
exercise the option
and/or may
declare the option forfeited. In addition, the Company may seek
to recover all profits from certain prior exercises as
liquidated damages and pursue other available legal remedies.
Perquisites
Our NEOs 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.
19
Deferred
Compensation
We offer a non-qualified and unfunded deferred compensation plan
to our NEOs and directors. The deferred compensation plan is an
extension of the NEOs 401(k) 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. Refer to the Non-Qualified Deferred Compensation table
on page 27 of this Proxy Statement for more information on
how our deferred compensation plan functions.
Compensation
Received In Fiscal 2008
In reviewing the Companys NEO compensation, it is
important to note the opportunities Paychex provided to its NEOs
in fiscal 2008. 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, as required to be
disclosed in the Fiscal 2008 Summary Compensation Table on
page 22 of this Proxy Statement, 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 2008. This table includes salary,
incentive bonus, net value realized from the exercise of options
and lapsing of restricted stock, and all other compensation
received during fiscal 2008. The table below excludes the
complex accounting valuations for equity awards as required in
the Fiscal 2008 Summary Compensation Table on page 22 of
this Proxy Statement.
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Fiscal 2008 Compensation Received by NEOs
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Annual
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Annual
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Option
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Restricted
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All Other
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Base
Salary(1)
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Incentive(1)
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Exercises
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Stock Lapse
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Compensation(2)
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Total
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Jonathan J. Judge,
President and CEO
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$
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908,606
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$
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1,030,979
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$
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$
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460,440
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$
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28,852
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$
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2,428,877
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John M. Morphy,
Senior Vice President,
CFO, and Secretary
|
|
$
|
411,498
|
|
|
$
|
268,362
|
|
|
$
|
333,640
|
|
|
$
|
92,080
|
|
|
$
|
8,712
|
|
|
$
|
1,114,292
|
|
Walter Turek,
Senior Vice President,
Sales and Marketing
|
|
$
|
405,659
|
|
|
$
|
257,390
|
|
|
$
|
1,480,391
|
|
|
$
|
92,080
|
|
|
$
|
25,560
|
|
|
$
|
2,261,080
|
|
Martin Mucci,
Senior Vice President,
Operations
|
|
$
|
398,300
|
|
|
$
|
264,079
|
|
|
$
|
374,565
|
|
|
$
|
92,080
|
|
|
$
|
8,359
|
|
|
$
|
1,137,383
|
|
William G. Kuchta,
Vice President,
Organizational Development
|
|
$
|
292,512
|
|
|
$
|
127,394
|
|
|
$
|
|
|
|
$
|
46,040
|
|
|
$
|
7,029
|
|
|
$
|
472,975
|
|
|
|
|
(1) |
|
Included in the annual base salary and annual incentive are
amounts deferred under the Companys
non-qualified
and unfunded deferred compensation plan as shown in the
Executive Contributions column of the Non-Qualified
Deferred Compensation table on page 27 of this Proxy
Statement. |
|
(2) |
|
Refer to notes 4 and 5 of the Fiscal 2008 Summary
Compensation Table on page 22 of this Proxy Statement for
information on these amounts. |
20
Subsequent
Events
In July 2008, the following equity compensation was granted to
the NEOs.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Restricted Stock Awards
|
|
|
Jonathan J. Judge
|
|
|
183,906
|
|
|
|
45,740
|
|
John M. Morphy
|
|
|
36,781
|
|
|
|
9,148
|
|
Walter Turek
|
|
|
27,344
|
|
|
|
6,802
|
|
Martin Mucci
|
|
|
40,000
|
|
|
|
10,000
|
|
William G. Kuchta
|
|
|
18,391
|
|
|
|
4,575
|
|
The exercise price for the options is $31.95. All NEO options
vest annually in 20% increments over five years. NEO restricted
shares 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, net of
certain items, and for the years ending May 31, 2009, 2010,
2011, and 2012 is $787.0 million, $905.1 million,
$1,040.8 million, and $1,197.0 million, respectively.
In July 2008, one-third of the July 2006 and one-third of the
July 2007 restricted stock award were accelerated based on
meeting the target set. The target for fiscal 2008 was operating
income, net of certain items, of $696.3 million.
Mr. Judge vested in 22,222 shares,
Messrs. Morphy, Mucci, and Turek each vested in
4,444 shares and Mr. Kuchta in 2,222 shares.
Impact of
the Internal Revenue Code
Section 162(m) of the Code generally limits the tax
deductibility of annual compensation paid to certain officers to
$1 million, unless specified requirements are met. The
committee has carefully considered the impact of this provision.
At this time, it is the committees 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 2008, our annual
incentive program was designed to provide incentive compensation
that would not count against the $1 million limitation,
including the NEOs annual incentive. However, within the
NEOs annual incentive there is a portion of the payout
which is qualitative and would not be exempt from the
application of section 162(m). Therefore, the committee
authorized compensation that was not deductible resulting in
$1.4 million for fiscal 2008 that did not qualify for a tax
deduction.
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 Companys
Form 10-K
for fiscal 2008.
The Governance and Compensation Committee:
Joseph M. Tucci, Chairman
David J. S. Flaschen
Phillip Horsley
Grant M. Inman
Joseph M. Velli
21
NAMED
EXECUTIVE OFFICER COMPENSATION
FISCAL
2008 SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid or earned
by each of the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
Name and Principal
|
|
Fiscal
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
Position
|
|
Year
|
|
Salary
|
|
Awards(1)
|
|
Awards(2)
|
|
Compensation(3)
|
|
Compensation(4),(5)
|
|
Total
|
|
Jonathan J. Judge
|
|
|
2008
|
|
|
$
|
908,606
|
|
|
$
|
834,991
|
|
|
$
|
1,787,943
|
|
|
$
|
1,055,388
|
|
|
$
|
28,852
|
|
|
$
|
4,615,780
|
|
President and CEO
|
|
|
2007
|
|
|
$
|
868,144
|
|
|
$
|
362,534
|
|
|
$
|
2,394,083
|
|
|
$
|
1,030,979
|
|
|
$
|
|
|
|
$
|
4,655,740
|
|
|
|
|
2006
|
(6)
|
|
$
|
817,884
|
|
|
$
|
|
|
|
$
|
3,114,262
|
|
|
$
|
814,385
|
|
|
$
|
69,654
|
|
|
$
|
4,816,185
|
|
John M. Morphy
|
|
|
2008
|
|
|
$
|
411,498
|
|
|
$
|
387,822
|
|
|
$
|
260,383
|
|
|
$
|
296,851
|
|
|
$
|
8,712
|
|
|
$
|
1,365,266
|
|
Senior Vice President,
|
|
|
2007
|
|
|
$
|
393,243
|
|
|
$
|
72,509
|
|
|
$
|
295,082
|
|
|
$
|
268,362
|
|
|
$
|
7,134
|
|
|
$
|
1,036,330
|
|
CFO, and Secretary
|
|
|
2006
|
(6)
|
|
$
|
383,878
|
|
|
$
|
|
|
|
$
|
391,830
|
|
|
$
|
215,013
|
|
|
$
|
6,354
|
|
|
$
|
997,075
|
|
Walter Turek
|
|
|
2008
|
|
|
$
|
405,659
|
|
|
$
|
167,003
|
|
|
$
|
252,757
|
|
|
$
|
247,228
|
|
|
$
|
25,560
|
|
|
$
|
1,098,207
|
|
Senior Vice President,
|
|
|
2007
|
|
|
$
|
397,426
|
|
|
$
|
72,509
|
|
|
$
|
271,756
|
|
|
$
|
257,390
|
|
|
$
|
6,715
|
|
|
$
|
1,005,796
|
|
Sales and Marketing
|
|
|
2006
|
(6)
|
|
$
|
387,962
|
|
|
$
|
|
|
|
$
|
343,026
|
|
|
$
|
233,277
|
|
|
$
|
5,927
|
|
|
$
|
970,192
|
|
Martin Mucci
|
|
|
2008
|
|
|
$
|
398,300
|
|
|
$
|
167,003
|
|
|
$
|
260,383
|
|
|
$
|
286,550
|
|
|
$
|
8,359
|
|
|
$
|
1,120,595
|
|
Senior Vice President,
|
|
|
2007
|
|
|
$
|
386,968
|
|
|
$
|
72,509
|
|
|
$
|
308,103
|
|
|
$
|
264,079
|
|
|
$
|
6,537
|
|
|
$
|
1,038,196
|
|
Operations
|
|
|
2006
|
(6)
|
|
$
|
377,752
|
|
|
$
|
|
|
|
$
|
408,422
|
|
|
$
|
211,582
|
|
|
$
|
6,401
|
|
|
$
|
1,004,157
|
|
William G. Kuchta
|
|
|
2008
|
|
|
$
|
292,512
|
|
|
$
|
83,514
|
|
|
$
|
126,657
|
|
|
$
|
143,648
|
|
|
$
|
7,029
|
|
|
$
|
653,360
|
|
Vice President,
Organizational Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts in this column represent the dollar amount
recognized as expense in the Companys consolidated
financial statements for the related fiscal year for the fair
value of restricted stock awards in accordance with
SFAS No. 123R. 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 C contained in the Notes to
Consolidated Financial Statements included in Item 8 of our
Form 10-K
for fiscal 2008 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 2008. |
|
(2) |
|
The amounts in this column represent the dollar amount
recognized as expense in the Companys consolidated
financial statements for the related fiscal year for the fair
value of option awards in accordance with
SFAS No. 123R and, therefore, include amounts for
awards granted prior to June 1, 2006. Amounts presented for
the year ended May 31, 2006 (fiscal 2006)
represent the dollar amount reflected in the Companys
pro-forma disclosure in the Notes to Consolidated Financial
Statements in accordance with SFAS No. 123 for the
fair value of option awards. The fair value was determined using
a Black-Scholes option pricing model in accordance with
SFAS No. 123R for grants since June 1, 2006.
Grants prior to June 1, 2006 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 C contained in the Notes to
Consolidated Financial Statements included in Item 8 of our
Form 10-K
for fiscal 2008 for further discussion of option awards and 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
|
|
|
July
|
|
|
October
|
|
|
July
|
|
|
July
|
|
|
November
|
|
|
July
|
|
|
July
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2002
|
|
|
2001
|
|
|
Risk-Free Interest Rate
|
|
|
5.0
|
%
|
|
|
5.1
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
3.7
|
%
|
|
|
2.5
|
%
|
|
|
2.9
|
%
|
|
|
3.8
|
%
|
|
|
4.8
|
%
|
Dividend Yield
|
|
|
2.7
|
%
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
1.1
|
%
|
Volatility Factor
|
|
|
.27
|
|
|
|
.32
|
|
|
|
.31
|
|
|
|
.31
|
|
|
|
.32
|
|
|
|
.34
|
|
|
|
.35
|
|
|
|
.35
|
|
|
|
.35
|
|
Expected Option Life in Years
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Fair Value
|
|
$
|
11.77
|
|
|
$
|
12.88
|
|
|
$
|
11.02
|
|
|
$
|
8.45
|
|
|
$
|
9.26
|
|
|
$
|
8.66
|
|
|
$
|
8.83
|
|
|
$
|
8.98
|
|
|
$
|
14.09
|
|
22
|
|
|
(3) |
|
The amounts in this column are the amounts earned under the
annual incentive program. These amounts were paid in July
following the applicable fiscal year. |
|
(4) |
|
Included in All Other Compensation for fiscal 2008 are
compensation amounts related to certain sales recognition events
of $17,304 and $17,167 on behalf of Mr. Judge and
Mr. Turek, respectively. During fiscal 2006, the Company
incurred amounts on behalf of Mr. Judge of $48,200 in
relocation expenses and $21,454 in tax
gross-up for
the relocation expenses. |
|
(5) |
|
The amounts in this column consist of the Companys
matching contributions under the 401(k) Plan, except as noted in
(4) above. |
|
(6) |
|
Amounts for the year ended May 31, 2006 were calculated in
accordance with the SECs rules adopted in fiscal 2007. |
23
GRANTS OF
PLAN-BASED AWARDS IN FISCAL 2008
The table below summarizes estimated possible payouts under the
Companys annual incentive program for fiscal 2008 based on
achievement of performance objectives at various levels for the
Company and individual NEOs. This information does not set forth
the actual payout awarded to the NEOs for fiscal 2008. The
actual payout is reported in the Fiscal 2008 Summary
Compensation Table on page 22 of this Proxy Statement,
under the column entitled Non-Equity Incentive Plan
Compensation. The table below also summarizes equity
awards granted in fiscal 2008 to each of the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
Exercise
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Number of
|
|
or Base
|
|
Value of
|
|
|
|
|
|
|
Estimated Possible Payouts Under
|
|
Number of
|
|
Securities
|
|
Price of
|
|
Stock and
|
|
|
|
|
|
|
Non-Equity Incentive Plan
Awards(1)
|
|
Shares of
|
|
Underlying
|
|
Option
|
|
Option
|
|
|
Grant
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock or
|
|
Options
|
|
Awards
|
|
Awards
|
Name
|
|
Type
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
Units
(#)(2)
|
|
(#)(3)
|
|
($/Sh)
|
|
($)(4)
|
|
Jonathan J. Judge
|
|
Cash
|
|
|
7/12/2007
|
|
|
$
|
457,500
|
|
|
$
|
1,098,000
|
|
|
$
|
1,830,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,334
|
|
|
|
|
|
|
|
|
|
|
$
|
1,463,696
|
|
|
|
Stock Option
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
$
|
43.91
|
|
|
$
|
1,765,500
|
|
John M. Morphy
|
|
Cash
|
|
|
7/12/2007
|
|
|
$
|
124,315
|
|
|
$
|
310,787
|
|
|
$
|
352,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
|
|
|
|
|
|
|
$
|
292,748
|
|
|
|
Restricted
Stock(5)
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
$
|
1,317,300
|
|
|
|
Stock Option
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
43.91
|
|
|
$
|
353,100
|
|
Walter Turek
|
|
Cash
|
|
|
7/12/2007
|
|
|
$
|
122,048
|
|
|
$
|
305,119
|
|
|
$
|
345,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
|
|
|
|
|
|
|
$
|
292,748
|
|
|
|
Stock Option
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
43.91
|
|
|
$
|
353,100
|
|
Martin Mucci
|
|
Cash
|
|
|
7/12/2007
|
|
|
$
|
120,001
|
|
|
$
|
300,002
|
|
|
$
|
340,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
|
|
|
|
|
|
|
$
|
292,748
|
|
|
|
Stock Option
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
43.91
|
|
|
$
|
353,100
|
|
William G. Kuchta
|
|
Cash
|
|
|
7/12/2007
|
|
|
$
|
73,441
|
|
|
$
|
146,882
|
|
|
$
|
176,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,334
|
|
|
|
|
|
|
|
|
|
|
$
|
146,396
|
|
|
|
Stock Option
|
|
|
7/17/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
$
|
43.91
|
|
|
$
|
176,550
|
|
|
|
|
(1) |
|
The amounts in these columns consist of annual incentive payouts
under our annual incentive program for fiscal 2008. The amounts
actually earned by each NEO in fiscal 2008 are reported as
Non-Equity Incentive Plan Compensation in the Fiscal 2008
Summary Compensation Table on page 22 of this Proxy
Statement. |
|
(2) |
|
The amounts in this column consist of restricted stock awards
granted in fiscal 2008 under the 2002 Plan. All shares
underlying these awards are restricted in that they are not
transferable until they vest. These shares, other than the
CFOs one-time grant, vest on the five-year anniversary of
the grant date, provided the NEO is 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 in this column consist of options to purchase shares
of the Companys common stock granted in fiscal 2008 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 in this column represent the aggregate grant date
fair value of stock and option awards granted in fiscal 2008
under the 2002 Plan. The fair value of restricted stock awards
of $43.91 per share was equal to the price of the underlying
common stock on the date of grant. The fair value of stock
options of $11.77 per share was determined using a Black-Scholes
option pricing model in accordance with SFAS No. 123R.
Refer to Note C contained in the Notes to Consolidated
Financial Statements included in Item 8 of our
Form 10-K
for fiscal 2008 for further discussion of the relevant
assumptions used in the calculation of the grant date fair value. |
|
(5) |
|
The shares of this one-time grant to the CFO vest one-third per
year beginning in October 2010, provided the CFO is an employee
of the Company on that date. |
24
OUTSTANDING
EQUITY AWARDS AS OF MAY 31, 2008
The following table summarizes the equity awards made to NEOs
which are outstanding as of May 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock
Awards(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Total
|
|
or Units
|
|
Market Value
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Potential
|
|
of Stock
|
|
of Shares or
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
Realizable
|
|
That Have
|
|
Units of Stock
|
|
|
Option
|
|
Options
|
|
Options
|
|
Option
|
|
Option
|
|
Value of
|
|
Not
|
|
That Have Not
|
|
|
Grant
|
|
(Exercisable)
|
|
(Unexercisable)
|
|
Exercise
|
|
Expiration
|
|
Outstanding
|
|
Vested
|
|
Vested
|
Name
|
|
Date
|
|
(#)
|
|
(#)(1)
|
|
Price ($)
|
|
Date
|
|
Options(2)
|
|
(#)(4)
|
|
($)(4),(5)
|
|
Jonathan J. Judge
|
|
|
10/01/2004
|
|
|
|
433,334
|
|
|
|
216,666
|
|
|
$
|
30.68
|
|
|
|
10/01/2014
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/07/2005
|
|
|
|
100,000
|
|
|
|
150,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/13/2006
|
|
|
|
30,000
|
|
|
|
120,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/17/2007
|
|
|
|
|
|
|
|
150,000
|
|
|
$
|
43.91
|
|
|
|
07/17/2017
|
|
|
$
|
2,733,000
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,557
|
|
|
$
|
1,919,494
|
|
John M. Morphy
|
|
|
07/13/2000
|
|
|
|
15,000
|
|
|
|
|
|
|
$
|
42.69
|
|
|
|
07/13/2010
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/12/2001
|
|
|
|
15,000
|
|
|
|
|
|
|
$
|
40.86
|
|
|
|
07/12/2011
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/08/2004
|
|
|
|
20,000
|
|
|
|
10,000
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/07/2005
|
|
|
|
20,000
|
|
|
|
30,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/13/2006
|
|
|
|
6,000
|
|
|
|
24,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/17/2007
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
43.91
|
|
|
|
07/17/2017
|
|
|
$
|
126,300
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,112
|
|
|
$
|
1,420,420
|
|
Walter Turek
|
|
|
07/09/1998
|
|
|
|
20,250
|
|
|
|
|
|
|
$
|
19.00
|
|
|
|
07/09/2008
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/08/1999
|
|
|
|
9,000
|
|
|
|
|
|
|
$
|
21.46
|
|
|
|
07/08/2009
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/12/2001
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
40.86
|
|
|
|
07/12/2011
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/11/2002
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
28.14
|
|
|
|
07/11/2012
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/10/2003
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
29.55
|
|
|
|
07/10/2013
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/08/2004
|
|
|
|
16,667
|
|
|
|
8,333
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/07/2005
|
|
|
|
20,000
|
|
|
|
30,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/13/2006
|
|
|
|
6,000
|
|
|
|
24,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/17/2007
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
43.91
|
|
|
|
07/17/2017
|
|
|
$
|
659,313
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,112
|
|
|
$
|
383,920
|
|
Martin Mucci
|
|
|
07/11/2002
|
|
|
|
15,000
|
|
|
|
|
|
|
$
|
28.14
|
|
|
|
07/11/2012
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/10/2003
|
|
|
|
25,000
|
|
|
|
|
|
|
$
|
29.55
|
|
|
|
07/10/2013
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/08/2004
|
|
|
|
20,000
|
|
|
|
10,000
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/07/2005
|
|
|
|
20,000
|
|
|
|
30,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/13/2006
|
|
|
|
6,000
|
|
|
|
24,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/17/2007
|
|
|
|
|
|
|
|
30,000
|
|
|
$
|
43.91
|
|
|
|
07/17/2017
|
|
|
$
|
347,450
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,112
|
|
|
$
|
383,920
|
|
William G. Kuchta
|
|
|
07/09/1998
|
|
|
|
20,250
|
|
|
|
|
|
|
$
|
19.00
|
|
|
|
07/09/2008
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/08/1999
|
|
|
|
13,500
|
|
|
|
|
|
|
$
|
21.46
|
|
|
|
07/08/2009
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/13/2000
|
|
|
|
12,000
|
|
|
|
|
|
|
$
|
42.69
|
|
|
|
07/13/2010
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/12/2001
|
|
|
|
8,000
|
|
|
|
|
|
|
$
|
40.86
|
|
|
|
07/12/2011
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/11/2002
|
|
|
|
15,000
|
|
|
|
|
|
|
$
|
28.14
|
|
|
|
07/11/2012
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/10/2003
|
|
|
|
8,000
|
|
|
|
|
|
|
$
|
29.55
|
|
|
|
07/10/2013
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/08/2004
|
|
|
|
8,000
|
|
|
|
4,000
|
|
|
$
|
31.79
|
|
|
|
07/08/2014
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/07/2005
|
|
|
|
10,000
|
|
|
|
15,000
|
|
|
$
|
33.68
|
|
|
|
07/07/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/13/2006
|
|
|
|
3,000
|
|
|
|
12,000
|
|
|
$
|
36.87
|
|
|
|
07/13/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
07/17/2007
|
|
|
|
|
|
|
|
15,000
|
|
|
$
|
43.91
|
|
|
|
07/17/2017
|
|
|
$
|
682,645
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,557
|
|
|
$
|
191,994
|
|
|
|
|
(1) |
|
The option awards displayed in this column 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 NEOs outstanding options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Vesting (#)
|
|
|
|
July
|
|
|
October
|
|
|
July
|
|
|
July
|
|
|
July
|
|
|
July
|
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Jonathan J. Judge
|
|
|
110,000
|
|
|
|
216,666
|
|
|
|
110,000
|
|
|
|
110,000
|
|
|
|
60,000
|
|
|
|
30,000
|
|
John M. Morphy
|
|
|
32,000
|
|
|
|
|
|
|
|
22,000
|
|
|
|
22,000
|
|
|
|
12,000
|
|
|
|
6,000
|
|
Walter Turek
|
|
|
30,333
|
|
|
|
|
|
|
|
22,000
|
|
|
|
22,000
|
|
|
|
12,000
|
|
|
|
6,000
|
|
Martin Mucci
|
|
|
32,000
|
|
|
|
|
|
|
|
22,000
|
|
|
|
22,000
|
|
|
|
12,000
|
|
|
|
6,000
|
|
William G. Kuchta
|
|
|
15,000
|
|
|
|
|
|
|
|
11,000
|
|
|
|
11,000
|
|
|
|
6,000
|
|
|
|
3,000
|
|
|
|
|
(2) |
|
The total potential realizable value is based on the difference
between $34.55, the closing price of the Companys common
stock on May 30, 2008, and the option exercise price
multiplied by all outstanding options |
25
|
|
|
|
|
whether exercisable or unexercisable. In those instances when
the outstanding options are out of the money (the option
exercise price is greater than the closing price), no value is
provided. |
|
(3) |
|
Total dividends and interest accrued on stock awards that have
not vested as of May 31, 2008 for Mr. Judge was
$86,076, for Mr. Morphy was $53,732, for Mr. Turek and
Mr. Mucci was $17,216 each, and for Mr. Kuchta was
$8,610. |
|
(4) |
|
The stock awards in these columns represent awards on
July 13, 2006 and July 17, 2007, and 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 10, 2008 based on the Boards approval
of attainment of performance targets. If performance criteria is
not met for all years, unvested shares from the July 2006 grant
vest on July 13, 2011 and unvested shares from the July
2007 grant vest on July 17, 2012, assuming the NEO is an
employee of the Company on those dates. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Vesting (#)
|
|
|
|
July
|
|
|
July
|
|
|
July
|
|
|
October
|
|
|
October
|
|
|
October
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Jonathan J. Judge
|
|
|
22,222
|
|
|
|
22,223
|
|
|
|
11,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Morphy
|
|
|
4,444
|
|
|
|
4,445
|
|
|
|
2,223
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
10,000
|
|
Walter Turek
|
|
|
4,444
|
|
|
|
4,445
|
|
|
|
2,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Mucci
|
|
|
4,444
|
|
|
|
4,445
|
|
|
|
2,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William G. Kuchta
|
|
|
2,222
|
|
|
|
2,223
|
|
|
|
1,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
The market value displayed is based on the number of shares that
have not vested multiplied by $34.55, the closing price of the
Companys common stock on May 30, 2008. |
OPTION
EXERCISES AND STOCK VESTED IN FISCAL 2008
The following table provides information about the value
realized by the NEOs upon the exercise of options and the
lapsing of restricted stock awards during fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
Name
|
|
Acquired on Exercise (#)
|
|
|
Exercise
($)(1)
|
|
|
Acquired on Lapsing (#)
|
|
|
Lapse
($)(2)
|
|
|
Jonathan J. Judge
|
|
|
|
|
|
$
|
|
|
|
|
11,111
|
|
|
$
|
460,440
|
|
John M. Morphy
|
|
|
23,400
|
|
|
$
|
333,640
|
|
|
|
2,222
|
|
|
$
|
92,080
|
|
Walter Turek
|
|
|
50,625
|
|
|
$
|
1,480,391
|
|
|
|
2,222
|
|
|
$
|
92,080
|
|
Martin Mucci
|
|
|
25,000
|
|
|
$
|
374,565
|
|
|
|
2,222
|
|
|
$
|
92,080
|
|
William G. Kuchta
|
|
|
|
|
|
$
|
|
|
|
|
1,111
|
|
|
$
|
46,040
|
|
|
|
|
(1) |
|
Amounts in this column represent the difference between the
market price and the exercise price of a share of the
Companys common stock as of the date of exercise for all
options exercised. |
|
(2) |
|
Amounts in this column represent the closing stock price of the
Companys common stock as of the date the restricted stock
lapsed for all lapsed shares. |
26
NON-QUALIFIED
DEFERRED COMPENSATION
FISCAL
2008
We offer a non-qualified and unfunded deferred compensation plan
to our NEOs. The plan has been designed to comply with the
current guidelines of section 409A of the Code. Eligible
employees are able to defer up to 50% of their annual base
salary and bonus. Gains and losses are credited based on the
participants election of a variety of designated
investment choices. The NEO has sole control as to which of the
designated funds to invest in, and earns the resulting return on
such investment. We do not match any participant deferral or
guarantee a certain return. Distributions are paid at one of the
following dates selected by the participant: the
participants 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. There were
no withdrawals by or distributions to any NEO under our plan
during fiscal 2008.
The following table summarizes our NEOs benefits under the plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Fiscal 2008
|
|
|
Balance as of
|
|
|
|
Executive
|
|
|
Aggregate
|
|
|
May 31,
|
|
Name
|
|
Contributions($)(1)
|
|
|
Earnings($)(2)
|
|
|
2008($)(3),(4)
|
|
|
Jonathan J. Judge
|
|
$
|
393,675
|
|
|
$
|
(47,882
|
)
|
|
$
|
1,171,236
|
|
John M. Morphy
|
|
$
|
|
|
|
$
|
(14,408
|
)
|
|
$
|
376,371
|
|
Walter Turek
|
|
$
|
92,836
|
|
|
$
|
(3,852
|
)
|
|
$
|
202,975
|
|
Martin Mucci
|
|
$
|
67,320
|
|
|
$
|
3,471
|
|
|
$
|
281,496
|
|
William G. Kuchta
|
|
$
|
49,006
|
|
|
$
|
(8,723
|
)
|
|
$
|
254,345
|
|
|
|
|
(1) |
|
Amounts in this column are included in the amounts shown in the
Salary and Non-Equity Incentive Plan
Compensation columns in the Fiscal 2008 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 2008 as
those amounts were paid after May 31, 2008. |
|
(2) |
|
Amounts in this column include both realized and unrealized
earnings. They are not included in the Fiscal 2008 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 current and previous years in the Fiscal 2008
Summary Compensation Table on page 22. |
|
(4) |
|
The investment funds managed at Legg Mason available to NEOs and
the funds annual rate of return as of May 31, 2008
are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of
|
|
|
|
|
Rate of
|
|
Name of Fund
|
|
Return
|
|
|
Name of Fund
|
|
Return
|
|
|
Appreciation Fund Class A
|
|
|
1.82%
|
|
|
Aggressive Growth Fund Class A
|
|
|
(7.12%
|
)
|
Diversified Strategic Income Fund Class A
|
|
|
(3.72%
|
)
|
|
Capital and Income Fund Class A
|
|
|
(2.68%
|
)
|
Fundamental Value Fund Class A
|
|
|
(8.44%
|
)
|
|
Investment Grade Bond Fund Class A
|
|
|
(1.03%
|
)
|
Mid Cap Core Fund Class A
|
|
|
(5.12%
|
)
|
|
Government Securities Fund Class A
|
|
|
3.91%
|
|
Small Cap Growth Opportunities Class A
|
|
|
(0.38%
|
)
|
|
Money Market Fund Class A
|
|
|
4.26%
|
|
International All Cap Opportunity Fund Class A
|
|
|
(6.56%
|
)
|
|
Large Cap Growth Fund Class A
|
|
|
(6.08%
|
)
|
27
CHANGE OF
CONTROL AND SEVERANCE ARRANGEMENT
FISCAL
2008
Our CEO, Mr. Judge, is the only NEO with a severance
arrangement, described in his employment agreement which was
renewed on November 30, 2007. If Mr. Judge is
terminated other than for cause or resigns for good reason, he
is entitled to:
|
|
|
|
|
one years annual base salary;
|
|
|
|
annual incentive bonus determined at the same percentage of plan
as for the immediately preceding fiscal year (without proration);
|
|
|
|
any unvested equity awards made prior to July 1, 2007 shall
immediately vest and become exercisable; and
|
|
|
|
twelve months of health insurance premiums.
|
If the termination other than for cause or resignation for good
reason occurs within one year of a change of control, in
addition to the previously mentioned compensation, all unvested
equity awards, regardless of when granted, shall immediately
vest and become exercisable. Cause when used in
reference to the termination of the CEO shall mean dereliction
of duty (after notice and a reasonable opportunity to cure),
conviction for a felony, willful misconduct, or failure to
follow a lawful directive from the Board (after notice and a
reasonable opportunity to cure). Good reason when
used in reference to the resignation of the CEO shall mean
failure of the Company to make any payments or equity grants to
the CEO or any other material breach by the Company of its
obligations to the CEO within 30 days after the same shall
be due, and any material reduction in the CEOs duties,
authority or responsibilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Other
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
Than for Cause/
|
|
|
|
Resignation/
|
|
|
|
|
|
Termination Other
|
|
|
Resignation for
|
|
|
|
Termination for
|
|
|
|
|
|
Than for Cause/
|
|
|
Good Reason within
|
|
|
|
Cause or
|
|
|
Death or
|
|
|
Resignation for
|
|
|
One Year of Change
|
|
Jonathan J. Judge
|
|
Retirement
|
|
|
Disability
|
|
|
Good Reason
|
|
|
of Control
|
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
|
|
|
$
|
|
|
|
$
|
915,000
|
|
|
$
|
915,000
|
|
Annual Incentive Bonus
|
|
|
|
|
|
|
|
|
|
|
1,055,388
|
|
|
|
1,055,388
|
|
Option
Awards(1)
|
|
|
|
|
|
|
968,997
|
|
|
|
968,997
|
|
|
|
968,997
|
|
Restricted Stock
Awards(2)
|
|
|
|
|
|
|
1,919,494
|
|
|
|
767,805
|
|
|
|
1,919,494
|
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Insurance Premiums
|
|
|
|
|
|
|
|
|
|
|
7,342
|
|
|
|
7,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
2,888,491
|
|
|
$
|
3,714,532
|
|
|
$
|
4,866,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value of the unvested options is determined by the
difference in the closing price of the Companys common
stock of $34.55 on May 30, 2008 and the exercise price
multiplied by the number of unvested options. In those instances
when the outstanding options are out of the money (the option
exercise price is greater than the closing price), no value is
provided. |
|
(2) |
|
The value of the unvested stock is based upon the closing price
of the Companys common stock of $34.55 on May 30,
2008. |
28
OTHER
MATTERS AND INFORMATION
Proposals
for Next Years Annual Meeting
Stockholder proposals, which are intended to be presented at the
2009 Annual Meeting of Stockholders, for inclusion in the
Companys Proxy Statement pursuant to SEC
Rule 14a-8,
must be received by the Company at its executive offices on or
before May 3, 2009. Any such proposals must be submitted in
accordance with applicable SEC rules and regulations.
Stockholder proposals, which are intended to be presented at the
2009 Annual Meeting of Stockholders and which are submitted and
not included in the Companys Proxy Statement other than in
accordance with the procedures specified in SEC
Rule 14a-8,
will be considered untimely if not received by the
Companys Secretary on or before July 17, 2009.
Other
Actions at the Annual Meeting
As of the date of this Proxy Statement, management does not
intend to present, and has not been informed that any other
person intends to present, any matter for action at the Annual
Meeting other than those described in this Proxy Statement. If
any other matters properly come before the Annual Meeting, the
persons named in the enclosed proxy will vote on such matters in
accordance with their judgment.
Cost of
Solicitation of Proxies
Solicitation of proxies is made on behalf of the Company and the
Company will pay the cost of solicitation of proxies. The
Company will reimburse any banks, brokers and other custodians,
nominees, and fiduciaries for their expenses in forwarding
proxies and proxy solicitation material to the beneficial owners
of the shares held by them. In addition to solicitation by use
of the mail or via the Internet, directors, officers, and
regular employees of the Company, without extra compensation,
may solicit proxies personally or by telephone or other
communication means.
Electronic
Access to Proxy Materials and Annual Report
The Notice of Annual Meeting of Stockholders, Proxy Statement,
and Annual Report are also available on the Companys
website at www.paychex.com at the Investor Relations
section under Annual Reports and Proxy Statements.
As an alternative to receiving paper copies of the Proxy
Statement and Annual Report in the mail, stockholders can elect
to receive an
e-mail
message, which will provide a link to these documents on the
Internet. Opting to receive your proxy materials online saves
the Company the cost of producing and mailing bulky documents
and reduces the volume of duplicate information received by you.
To give your consent to receive future documents via electronic
delivery, please vote your proxy via the Internet and follow the
instructions to register for electronic delivery.
Delivery
of Proxy Materials and Annual Report
The Notice of Annual Meeting of Stockholders, Proxy Statement,
Proxy Card, and Annual Report are being mailed to stockholders
on or about August 29, 2008. You may also obtain a copy of
our
Form 10-K
filed with the SEC, without charge, upon written request
submitted to Paychex, Inc., 911 Panorama Trail South, Rochester,
New York
14625-2396,
Attention: Investor Relations.
In accordance with notices previously sent to stockholders, the
Company is delivering one Annual Report and Proxy Statement in
one envelope addressed to all stockholders who share a single
address unless they have notified the Company that they wish to
revoke their consent to the program known as
householding. Householding is intended to reduce the
Companys printing and postage costs.
29
You may revoke your consent at any time by calling toll-free
(800) 542-1061
or by writing to Broadridge Investor Communications Services,
Attention: Broadridge Householding Department, 51 Mercedes Way,
Edgewood, New York, 11717. If you revoke your consent, you will
be removed from the householding program within 30 days of
receipt of your revocation, and each stockholder at your address
will receive individual copies of the Companys disclosure
documents.
The Company hereby undertakes to deliver upon oral or written
request a separate copy of its Proxy Statement and Annual Report
to a security holder at a shared address to which a single copy
was delivered. If such stockholder wishes to receive a separate
copy of such documents, please contact Terri Allen, Investor
Relations, either by calling toll-free
(800) 828-4411
or by writing to Paychex, Inc., 911 Panorama Trail South,
Rochester, New York
14625-2396,
Attention: Investor Relations.
If you own Paychex stock beneficially through a bank 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.
30
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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. |
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VOTE BY TELEPHONE - 1-800-690-6903 |
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|
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. |
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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. |
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|
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER 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
stockholder communications electronically in future years. |
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YOUR VOTE IS IMPORTANT |
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|
Do not return this proxy card if you vote by telephone or Internet. |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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PACHX1
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PAYCHEX, INC.
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Proposals - The Board of Directors recommends a vote FOR each of the nominees listed in
Item 1 and FOR Item 2. |
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For
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Against
|
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Abstain
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1.
|
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ELECTION OF DIRECTORS |
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1a. B. Thomas Golisano
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o |
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o |
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1b. David J. S. Flaschen |
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THIS PROXY IS
SOLICITED ON BEHALF
OF THE COMPANYS
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. |
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1c. Phillip Horsley
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1d. Grant M. Inman
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o |
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1e. Pamela A. Joseph |
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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 OCTOBER
2, 2008, 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. |
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1f. Jonathan J. Judge
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1g. Joseph M. Tucci
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1h. Joseph M. Velli
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2.
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RATIFICATION OF THE AUDIT COMMITTEES SELECTION OF ERNST & YOUNG LLP AS THE
COMPANYS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM.
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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. |
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Signature
[PLEASE SIGN WITHIN BOX] |
Date |
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Signature (Joint
Owners) |
Date |
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August 29, 2008
Dear Paychex Stockholder:
The Board of Directors cordially invites you to attend our Annual Meeting of Stockholders (the
Annual Meeting) on Tuesday, October 7, 2008 at 10:00 a.m. Eastern Time 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.
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
Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
Proxy Solicited on Behalf of the Board of Directors
of Paychex, Inc. for the Annual Meeting, October 7, 2008
PROXY
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 7, 2008 (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 undersigneds 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.