August 31, 2011

 

Dear Paychex Stockholder:

 

The Board of Directors cordially invites you to attend our Annual Meeting of Stockholders (the “Annual Meeting”) on Tuesday, October 11, 2011 at 10:00 a.m. Eastern Time at The Strong, One Manhattan Square, Rochester, NY, 14607. Please note this is a change in venue from the prior year.

 

This booklet includes the formal Notice of Annual Meeting of Stockholders and the Proxy Statement. The Proxy Statement tells you about the agenda items and the procedures for the Annual Meeting. It also provides certain information about Paychex, Inc., its Board of Directors, and its named executive officers.

 

It is important that your shares be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, you are encouraged to vote. You may vote by Internet, telephone, proxy card, or written ballot at the Annual Meeting. We encourage you to use the Internet as it is the most cost-effective way to vote. If you elected to electronically access the Proxy Statement and Annual Report, you will not be receiving a proxy card and must vote via the Internet.

 

We hope you will be able to attend the Annual Meeting and would like to take this opportunity to remind you that your vote is important. If you need special assistance at the Annual Meeting, please contact the Corporate Secretary at (800) 828-4411, or write to Paychex, Inc., 911 Panorama Trail South, Rochester, New York 14625-2396, Attention: Corporate Secretary.

 

Sincerely,

 

 

Martin Mucci

President and Chief Executive Officer

 

PAYCHEX, INC.

 

911 Panorama Trail South •  Rochester, New York 14625-2396

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILIBILITY OF PROXY MATERIALS FOR THE 2011 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 11, 2011

 

Paychex, Inc.’s Proxy Statement and Annual Report for the year ended May 31, 2011 are available at
http://investor.paychex.com/annual.aspx

 

 

TABLE OF CONTENTS

 

 

This Proxy Statement is being mailed to stockholders of Paychex, Inc. (“Paychex,” the “Company,” “we,” or “our”), a Delaware corporation, on or about August 31, 2011, in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board”) to be voted at the 2011 Annual Meeting of Stockholders (the “Annual Meeting”). The Annual Meeting will be held on Tuesday, October 11, 2011 at 10:00 a.m. Eastern Time at The Strong, One Manhattan Square, Rochester, NY, 14607.

 

Paychex has one class of shares outstanding, designated common stock, $0.01 par value per share. The Board has fixed the close of business on August 12, 2011 as the record date for determining the holders of common stock entitled to notice of, and to vote at, the Annual Meeting. As of the record date, 362,685,721 shares of common stock were issued and outstanding. A majority of the issued and outstanding shares (181,342,862 shares) present at the Annual Meeting in person or by proxy will constitute a quorum. A quorum is necessary to hold a valid meeting. Stockholders will be entitled to one vote for each share of common stock held as of the record date.

 

Your vote is very important and we hope that you will attend the Annual Meeting. However, whether or not you plan to attend the Annual Meeting, please vote by proxy.

 

Registered Stockholders.  If your shares are registered directly in your name with the Company’s transfer agent, American Stock Transfer & Trust Company, LLC, you are considered a stockholder of record of those shares. Please vote by proxy in accordance with the instructions on your proxy card, or the instructions you receive through electronic mail.

 

There are three convenient ways to submit your vote by proxy:

 

 

The deadline for Internet or telephone voting is 11:59 p.m. Eastern Time on Monday, October 10, 2011. If you vote by telephone or the Internet, you do not need to return your proxy card. Signing and returning your proxy card or submitting your proxy via the Internet or by telephone does not affect your right to vote in person if you attend the Annual Meeting and your shares are registered in your name.

 

Beneficial Stockholders.  If you hold your shares through a broker, bank, or other holder of record, you are not a registered stockholder, but rather are considered a “beneficial owner” of those shares. In order to vote your shares, please refer to the voting instruction form or other materials forwarded to you by your broker, bank, or other holder of record. If your shares are held in the name of a broker, bank, or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote in person at the Annual Meeting.

 

Voting by Participants in the Paychex Employee Stock Ownership Plan Stock Fund.  If a stockholder is a participant in the Paychex Employee Stock Ownership Plan Stock Fund (“ESOP”) of the Paychex 401(k) Incentive Retirement Plan (the “401(k) Plan”), the stockholder can vote using the previously described methods. This will serve as a voting instruction for Fidelity Management Trust Company (the “Trustee”), where all accounts are

registered in the same name. As a participant in the ESOP, the stockholder has the right to direct the Trustee, who is the holder of record, regarding how to vote the shares of common stock credited to the participant’s account at the Annual Meeting. The participant’s voting instructions will be tabulated confidentially. Only the Trustee and/or the tabulator will have access to the participant’s individual voting direction. If voting instructions for the shares of common stock in the ESOP are not received, those shares will be voted by the Trustee in the same proportions as the shares for which voting instructions were received from other participants in the ESOP. Voting by ESOP participants will close at 11:59 p.m. Eastern Time on October 6, 2011. The Trustee will then vote all shares of common stock held in the ESOP by the established deadline.

 

Registered stockholders can revoke their proxy at any time prior to it being voted at the Annual Meeting by:

 

 

Beneficial stockholders should contact their broker, bank, or other holder of record for instructions on how to change their vote.

 

All votes properly cast and not revoked will be voted at the Annual Meeting in accordance with the stockholder’s directions. Shares voted by proxy card received without choices specified will be voted as follows:

 

 

If a broker holds your shares in its name, and you do not provide your voting instructions to them, that broker is permitted to use its own discretion and vote your shares on routine matters. However, a broker does not have discretion to vote your shares on non-routine matters (“broker non-votes”). Broker non-votes are not considered votes for or against a proposal and therefore will have no direct impact on any proposal since they are not deemed to be duly cast nor entitled to vote, but they will be counted for the purpose of determining the presence or absence of a quorum. Therefore, we urge you to give voting instructions to your broker on all voting items.

 

Abstentions are also counted for the purposes of establishing a quorum, but will have the same effect as a vote against a proposal, except in regards to the election of directors and the frequency of advisory votes on executive compensation. For these two items, abstentions will have no direct impact.

 

The table below shows the vote required to approve each of the proposals described in this Proxy Statement, assuming the presence of a quorum at the Annual Meeting. With respect to Proposals 1, 2, and 4, you may vote “FOR,” “AGAINST,” or “ABSTAIN.” With respect to Proposal 3, you may vote for a frequency of “ONE YEAR,” “TWO YEARS,” or “THREE YEARS,” or you may “ABSTAIN.”

 

 

The following table sets forth information, based upon reports filed by such persons with the Securities and Exchange Commission (“SEC”), as of July 31, 2011, with respect to the beneficial ownership of common stock of the Company by: (i) any person (including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) who is known by the Company to be the beneficial owner of more than 5% of the Company’s voting securities; (ii) each director and nominee for director of the Company; (iii) each of the named executive officers (“NEO”s) of the Company named in the Fiscal 2011 Summary Compensation Table; and (iv) all directors, NEOs, and executive officers of the Company as a group.

 

 

 

 

Stockholders annually elect directors to serve for one year and until the directors’ successors have been elected and qualified. The nine persons listed below, each of whom currently serves as a director, have been nominated for election to the Board by the Company’s Governance and Compensation Committee. Seven of the nine nominees are neither employees nor former employees of the Company. If elected, each nominee will hold office until the 2012 Annual Meeting of Stockholders and until his or her successor is elected and has qualified. Although the Board believes that all of the nominees will be available to serve as a director, the persons named in the enclosed proxy may exercise discretionary authority to vote for substitute nominees proposed by the Board. Below we identify and describe the key experience, qualifications, and skills our directors bring to the Board that are important in light of our business and structure. Also included below are any public company directorships held during the past five years and directors’ periods of service to our Board.

 

Our by-laws provide that each director shall be elected by a majority of the votes cast for the director at any meeting for the election of directors at which a quorum is present. If a nominee that is an incumbent director does not receive a required majority of the votes cast, the director shall offer to tender his or her resignation to the Board. The Governance and Compensation Committee of the Board shall consider such offer and will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will consider the committee’s recommendation and will determine whether to accept such offer.

 

The Board of Directors recommends the election of each of the nominees identified above. Unless otherwise directed, the persons named in the enclosed proxy will vote the proxy FOR the election of each of these nominees.

 

Director compensation is set by the Governance and Compensation Committee and approved by the Board. The Board’s authority cannot be delegated to another party. The Company compensates the independent directors of the Board using a combination of cash and equity-based compensation. The Company’s management does not play a role in setting Board compensation. Martin Mucci, President and Chief Executive Officer (“CEO”) of the Company since September 2010, and Jonathan J. Judge, former President and CEO of the Company, received no compensation for their services as directors. The compensation received by Mr. Mucci and Mr. Judge in their roles as President and CEO are shown in the Fiscal 2011 Summary Compensation Table, contained in the Named Executive Officer Compensation Section of this Proxy Statement.

 

The annual cash compensation paid to the independent directors in effect for the fiscal year ended May 31, 2011 (“fiscal 2011”) is as follows:

 

 

The cash compensation component is comprised solely of annual retainers, which are paid in quarterly installments. The retainers for the chairs of the Audit Committee and Governance and Compensation Committee were included to provide compensation for those Board members who contribute additional time in preparation for committee meetings. These amounts are in addition to member annual retainer amounts. Effective July 7, 2010, annual retainers were increased to the levels noted above. The most significant change was in the annual retainer, increasing $25,000 to $70,000.

 

Mr. Golisano, who is not an independent director, received an annual retainer of $200,000 for his services as Chairman of the Board, paid in quarterly installments. This reflects an increase of $60,000 effective July 7, 2010, in conjunction with the other increases to director cash compensation. The Chairman of the Board does not receive any other cash or equity-based compensation.

 

Equity-based compensation consists of a blend of stock options and restricted stock. In July 2010, the restricted stock awards granted in July 2007 lapsed. For Messrs. Flaschen, Inman, and Tucci and Ms. Joseph, 1,334 shares lapsed resulting in a value of $34,244 each. For Mr. Velli, 2,001 shares lapsed resulting in a value of $51,366. In July 2010, independent directors Messrs. Flaschen, Inman, Tucci, and Velli and Ms. Joseph received an annual award under the Paychex, Inc. 2002 Stock Incentive Plan (the “2002 Plan”) as follows:

 

 

 

 

With the July 2010 award, the equity-based compensation structure for independent directors was based on a total value of approximately $100,000 per director, with approximately 50% awarded in the form of stock options and 50% in the form of restricted stock. The total estimated value was reduced from a previous target of $120,000 with the increase to director annual retainers as noted previously under “Cash Compensation.” The quantity of equity awards granted varies based on the estimated fair value as of the grant date.

 

On October 13, 2010, Mr. Doody was granted 5,765 options to purchase common stock at an exercise price of $27.63 and 1,442 shares of restricted stock. The terms of these grants are similar to the equity awards granted in July 2010, with the exception that both awards vest fully on the first anniversary of the grant date. These awards were granted to Mr. Doody upon his appointment to the Board. The award quantities are based on a proration of 75% of the quantities awarded to directors in July 2010.

 

In July 2011, the Board granted each independent director 11,468 options to purchase shares of the Company’s common stock at an exercise price of $31.63 per share and 1,652 shares of restricted stock. The terms of these awards were similar to the equity awards granted in July 2010, with the exception that these awards vest on the first anniversary of the grant date. The award quantities are based on an estimated total value of approximately $100,000.

 

We maintain a non-qualified and unfunded deferred compensation plan in which all independent directors are eligible to participate. Directors may elect to defer up to 100% of their Board cash compensation. Gains and losses are credited based on the participant’s selection of a variety of designated investment choices, which the participant may change at any time. We do not match any participant deferral or guarantee a certain rate of return. The interest rates earned on these investments are not above-market or preferential. Refer to the Non-Qualified Deferred Compensation table and discussion within the Named Executive Officer Compensation section of this Proxy Statement for a listing of investment funds available to participants and the annual rates of return on those funds. Mr. Flaschen defers 100% of his Board cash compensation under this plan. No other directors participate in the plan at this time.

 

We reimburse each director for expenses associated with attendance at Board and committee meetings.

 

The Governance and Compensation Committee set a stock ownership guideline for our independent directors with a value of four times his or her annual Board retainer, not including any committee retainers. The ownership guideline was established to provide long-term alignment with stockholders’ interests. The independent directors are expected to attain the ownership guideline within five years after the later of first becoming a director or the initial adoption of the guideline. Directors must hold underlying stock received through restricted stock awards until their service on the Board is complete, with the exception of those shares sold as necessary to satisfy tax obligations. For the purpose of achieving the ownership guideline, unvested restricted stock awarded to the directors is included.

 

Directors must adhere to strict standards with regards to trading in the Company’s stock. They may not, among other things:

 

 

The table below presents the total compensation received from the Company by all directors for fiscal 2011.

 

 

 

 

We are asking our stockholders to provide advisory approval for our NEO compensation, as described in the Compensation Discussion and Analysis (the “CD&A”) section and Named Executive Officer Compensation section of this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders an opportunity to express their views on the overall compensation of our NEOs and the philosophy, policies, and practices as described in this Proxy Statement. We encourage stockholders to read the sections of this Proxy Statement referenced, which provide detailed information on the Company’s compensation policies and practices, and overall compensation of our NEOs.

 

Our executive compensation programs are designed to attract, develop, motivate, and retain highly qualified NEOs, who are critical to our success. We believe in a pay-for-performance approach to NEO compensation, and under our compensation programs, the NEOs are rewarded for the achievement of specific annual and longer-term strategic and financial goals of the Company. Some key aspects of our compensation programs are as follows:

 

 

In addition, we have compensation practices that ensure consistent leadership and decision-making, certain of which are intended to mitigate risk. These include:

 

 

The Governance and Compensation Committee and the Board believe that the policies, procedures, and amounts of compensation discussed here and described further in this Proxy Statement are effective in achieving the desired goals of aligning our executive compensation structure with the interests of our stockholders. To indicate approval of our executive compensation, a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting must be voted for the proposal.

 

This say-on-pay vote is advisory, and therefore is not binding on the Company, the Governance and Compensation Committee, or our Board. Our Board values the opinions of our stockholders and, to the extent that there is any significant vote against the NEO compensation as disclosed in this Proxy Statement, we will

consider our stockholders concerns and the Governance and Compensation Committee will evaluate whether actions are necessary to address these concerns.

 

The Board of Directors recommends a vote FOR the advisory vote approving the executive compensation, as disclosed in this Proxy Statement.

 

In addition to the advisory say-on-pay vote, we are seeking a stockholder advisory vote on the frequency of future say-on-pay votes, as provided in Proposal 2. Stockholders may indicate how often they would prefer a say-on-pay advisory vote to occur: every year, every two years, or every three years. In addition, stockholders may abstain from voting. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Company to hold the advisory vote on the frequency of say-on-pay votes at least once every six years.

 

After careful consideration, our Board has determined that an annual say-on-pay vote is the most appropriate for the Company at this time, and recommends that stockholders vote for the Company to hold annual advisory votes on executive compensation, as decisions on executive compensation are made annually. We believe that an annual advisory say-on-pay vote allows us to obtain frequent and timely input from our stockholders regarding corporate governance and executive compensation philosophy, policies, and practices.

 

The option of one year, two years, or three years that receives the majority of votes cast will be the frequency for the advisory say-on-pay vote that has been selected by the stockholders. However, as this is an advisory vote, it is not binding on the Company or the Board. The Board will take into account the opinion of our stockholders when determining which frequency for future say-on-pay votes is best suited to the Company.

 

The Board of Directors recommends a vote for a frequency of EVERY YEAR for which stockholders will have an opportunity to cast an advisory vote on the compensation of the Company’s NEOs as set forth in the Proxy Statement.

 

The Audit Committee has appointed the firm of Ernst & Young LLP as the Company’s independent accountants for the fiscal year ending May 31, 2012. Although action by stockholders in this matter is not required, the Audit Committee believes that it is appropriate to seek stockholder ratification of this appointment and to seriously consider stockholder opinion on this issue. If the stockholders do not ratify the appointment, the Audit Committee will review its future selection of the independent accountants, but may still retain them.

 

Representatives from Ernst & Young LLP, the Company’s independent accountants since 1983, will be present at the Annual Meeting, will be afforded the opportunity to make any statements they wish, and will be available to respond to appropriate questions from stockholders.

 

To ratify the appointment of Ernst & Young LLP, a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting must be voted for the proposal.

 

The Board of Directors recommends a vote FOR the proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending May 31, 2012.

 

The following table shows the aggregate fees for professional services rendered for the Company by Ernst & Young LLP:

 

 

Audit fees for fiscal 2011 and for the fiscal year ended May 31, 2010 (“fiscal 2010”) were for professional services rendered for the audits of the Company’s annual consolidated financial statements, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, audits of the effectiveness of internal control over financial reporting, and for statutory and regulatory filings.

 

Audit-related fees for fiscal 2011 and fiscal 2010 were for employee benefit plan audits.

 

All other fees for fiscal 2011 were for an information technology data security review. There were no tax or other non-audit-related services provided by the independent accountants for fiscal 2010.

 

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent accountants. The Audit Committee pre-approved all such audit and audit-related services provided by the independent accountants during fiscal 2011 and fiscal 2010.

 

The Audit Committee of the Board of Directors oversees the Company’s financial reporting process on behalf of the Board and is composed entirely of independent directors. The Audit Committee is governed by a written charter and its primary responsibilities are highlighted in the Corporate Governance section of this Proxy Statement.

 

Paychex management is responsible for the preparation of the consolidated financial statements, the financial reporting process, and for the Company’s internal controls over financial reporting. Ernst & Young LLP, the Company’s independent accountants, is responsible for performing independent audits of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board. The independent accountants are also responsible for expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. The Audit Committee monitors and oversees these processes.

 

As part of the oversight processes, the Audit Committee regularly meets with management, the Company’s internal auditors, and the independent accountants. The Audit Committee meets with the internal auditors and independent accountants, with and without management present, to discuss the overall scope and plans for various audits, results of their examinations, their evaluations of the Company’s internal controls, and the overall quality and effectiveness of the Company’s financial reporting process and legal and ethical compliance programs, including the Company’s Code of Business Ethics and Conduct. The Audit Committee held six meetings during fiscal 2011 and had full access to each of the aforementioned parties.

 

In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed with management and the independent accountants the consolidated financial statements for fiscal 2011, including a discussion on the quality and acceptability of the Company’s accounting policies, the reasonableness of significant judgments and estimates, and the clarity of disclosures in the consolidated financial statements. The Audit Committee also monitored the progress and results of testing of internal controls over financial reporting, reviewed reports from management and internal audit regarding design, operation, and effectiveness of internal controls over financial reporting, and reviewed the report from the independent accountants regarding the effectiveness of the Company’s internal control over financial reporting.

 

The Audit Committee has discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU 380) and SEC Rule 207. The independent accountants have provided the Audit Committee with the written disclosures and the letter required by the Public Company Accounting Oversight Board regarding independent accountants’ communications with the audit committee concerning independence, and the Audit Committee has discussed with the independent accountants and management the accountants’ independence.

 

Based upon the reviews and discussions referred to above, the Audit Committee recommended and the Board approved that the audited consolidated financial statements be included in the Company’s Form 10-K for fiscal 2011 for filing with the SEC. The Audit Committee has recommended for approval by the Board the selection of the Company’s independent accountants.

 

The Audit Committee:

 

David J. S. Flaschen, Chairman
Joseph G. Doody
Grant M. Inman
Pamela A. Joseph

 

The Board is elected by the stockholders to oversee the overall success of the Company, review its operational and financial capabilities, and periodically assess its long-term strategic objectives. The Board serves as the final decision-making body of the Company, except for those matters for which authority is reserved for, or shared with, the stockholders. The Board selects and oversees the members of senior management, who are charged by the Board with conducting the day-to-day business of the Company.

 

The Board currently separates the role of Chairman of the Board from the CEO. The Board believes that the Company is best served by having a Chairman who has in-depth knowledge of the Company’s operations and the industry, but is not involved in the day-to-day operations of the Company. Mr. Golisano’s extensive experience as founder and former CEO qualifies him to lead the Board, particularly as it focuses on strategic risks and opportunities facing the Company. Our corporate governance guidelines also provide that the Board will designate a Lead Independent Director, currently Mr. Tucci, who has the responsibility for conducting regularly scheduled executive sessions of the independent directors.

 

The Board held four meetings during fiscal 2011 and two conference calls. To the extent practicable, directors are expected to attend all Board meetings and meetings of the committees on which they serve. During fiscal 2011, each director attended more than 90% of the Board meetings and committee meetings on which the director served. Directors are encouraged to attend annual meetings of stockholders. All directors attended the 2010 Annual Meeting of Stockholders.

 

Regularly scheduled executive sessions of the independent members of the Board, without members of management present, are held in conjunction with meetings of the Board. As appropriate, matters presented to the Board by the Governance and Compensation Committee are reviewed and discussed in executive session by the independent directors, which in fiscal 2011 were all directors except for Mr. Golisano, Mr. Judge, and Mr. Mucci.

 

One of the functions of the Board is oversight of risks inherent in the operation of the Company’s business. The Board fulfills this function through regular reports from officers for oversight of particular risks within the Company, through review of the Company’s strategic plan, and through delegation of certain risk oversight functions to various committees. The Audit Committee has oversight responsibility for the areas of financial risk, data security risk, compliance risk, and fraud risk. The Investment Committee has established a policy outlining risk-tolerance and detailing requirements for the Company’s investment portfolios, and oversees compliance with that policy. The Governance and Compensation Committee oversees risks related to compensation programs, as discussed in greater detail below, as well as risks related to corporate governance matters including succession planning, director independence, and related person transactions. The responsibilities of each committee are detailed in the individual committee charters, which are available on the Company’s website and are summarized in the Board of Directors Committees section that follows.

 

As part of its risk oversight, the Board conducted an assessment of risks arising from the Company’s compensation programs. The Governance and Compensation Committee reviewed such programs with its independent compensation consultant. The Governance and Compensation Committee’s assessment included a review of mitigating factors including the performance metrics used in each compensation arrangement, the balance of fixed and variable and short-term and long-term compensation, stock ownership guidelines, and recoupment and other forfeiture provisions. Based on this review, the Governance and Compensation Committee concluded that its compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.

 

The Board has established four standing committees with the following director assignments and independence determination:

 

 

 

 

Note: Phillip Horsley was appointed to the Board in July 2011, and serves on the Investment and Governance and Compensation Committees.

 

The Board has determined that all members of the Audit Committee meet the independence, experience, and other applicable NASDAQ listing requirements and applicable SEC rules regarding independence, and that Mr. Flaschen qualifies as an “Audit Committee Financial Expert,” as defined by applicable SEC rules. The Board has also determined that all members of the Governance and Compensation Committee meet the NASDAQ independence criteria.

 

Executive Committee.  The primary responsibility of the Executive Committee is to exercise all the powers and authority of the Board except as limited by law.

 

Audit Committee.  The primary responsibilities of the Audit Committee are to:

 

 

Investment Committee.  The primary responsibilities of the Investment Committee are to:

 

 

Governance and Compensation Committee.  The primary responsibilities of the Governance and Compensation Committee are to:

 

 

 

The Audit, Investment, and Governance and Compensation Committees’ responsibilities are more fully described in each committee’s charter adopted by the Board, which are accessible on the Company’s website at www.paychex.com at the Investor Relations section under “Corporate Governance.”

 

The Governance and Compensation Committee functions as our nominating committee. The Board does not have a formal policy regarding diversity. However, the Board has determined that it is necessary for the continued success of the Company to ensure that the Board is composed of individuals having a variety of complementary experience, education, training, and relationships relevant to the then-current needs of the Board and the Company. The Board’s Nomination Policy included in the Governance and Compensation Committee Charter is intended to achieve this result.

 

In evaluating candidates for nomination to the Board, including candidates for nomination recommended by a stockholder, the Nomination Policy requires Governance and Compensation Committee members to consider the contribution that a candidate for nomination would be expected to make to the Board and the Company, based upon the current composition and needs of the Board, and the candidate’s demonstrated business judgment, leadership abilities, integrity, prior experience, education, training, relationships, and other factors that the Board determines relevant. In identifying candidates for nomination to fill vacancies created by the expiration of the term of any incumbent director, the Nomination Policy requires Governance and Compensation Committee members to determine whether such incumbent director is willing to stand for re-election and, if so, to take into consideration the value to the Board and to the Company of their continuity and familiarity with the Company’s business. The Board has previously used a third-party search firm to identify director candidates and the charter authorizes the Governance and Compensation Committee to continue this practice.

 

The Nomination Policy requires the Governance and Compensation Committee to consider candidates for nomination to the Board recommended by any reasonable source, including stockholders. Stockholders who wish to do so may recommend candidates for nomination by identifying such candidates and providing relevant biographical information in written communications to the Chairman of the Governance and Compensation Committee in accordance with the policy described in the section entitled “Communications with the Board of Directors.”

 

It is the Company’s policy to avoid transactions with related persons. However, there may be occasions when a transaction with a related person is in the best interest of the Company. The Company’s policies and procedures for review and approval of related-person transactions appear in the Company’s Standards of Conduct, Conflict of Interest, and Employment of Relatives Standards, which are internally distributed, and in the Company’s Code of Business Ethics and Conduct, which is posted on the Company’s website.

 

All employees are required to disclose specified transactions, which include certain financial interests in or relationships with any supplier, customer, partner, subcontractor, or competitor; serving on the board of non-profit organizations; and engaging in any activity that could create the appearance of a conflict of interest, including financial involvement or dealings with employees or representatives of the types of entities listed above. The Company reviews and determines if a conflict of interest exists related to any such transactions. For officers, the Company’s Chief Financial Officer (“CFO”) oversees the review of such transactions.

Members of the Board are required to disclose to the Chairman of the Board or the Chair of the Governance and Compensation Committee any situation that involves, or may reasonably be expected to involve, a conflict of interest with the Company, including engaging in any conduct or activities that would impair the Company’s relationship with any person or entity with which the Company has or proposes to enter into a business or contractual relationship.

 

The Company’s finance department annually reviews the Company’s listing of related parties for determination of potential related-person transactions that would be disclosable in the Company’s periodic reports or proxy materials under United States generally accepted accounting principles (“GAAP”) and SEC rules.

 

The Governance and Compensation Committee is required to consider all questions of possible conflicts of interest of Board members and executive officers, including review and approval of transactions of the Company in excess of $120,000 in which a director, executive officer, or an immediate family member of a director or executive officer has an interest.

 

Mr. Tucci, a member of the Board, is the Chairman, President, and Chief Executive Officer of EMC Corporation. During fiscal 2011, the Company purchased through negotiated transactions approximately $5.7 million of data processing equipment and software from EMC Corporation. Mr. Tucci was not personally involved in the negotiation of these transactions.

 

Mr. Doody, a member of the Board, is the President for North American Delivery, one of Staples, Inc. significant business segments. During fiscal 2011, the Company purchased through negotiated transactions approximately $1.8 million of office supplies from Staples, Inc. Mr. Doody was not personally involved in the negotiation of these transactions.

 

Mr. Judge, the Company’s former President and CEO and a former member of the Board until October 2010, is a member of the Board of Directors of Dun & Bradstreet Corporation. During fiscal 2011, the Company purchased $0.4 million of services from Dun & Bradstreet Corporation.

 

None of the members of the Governance and Compensation Committee were at any time during fiscal 2011, or at any other time, an officer or employee of the Company. Mr. Tucci, a member of the Board, is Chairman of the Governance and Compensation Committee, and is also an executive of EMC Corporation. As noted above, the Company purchases data processing equipment and software from EMC Corporation. During fiscal 2011, no member of the Governance and Compensation Committee or Board was an executive officer of another entity on whose compensation committee or board of directors an executive officer of Paychex served.

 

The Board has established procedures to enable stockholders and other interested parties to communicate in writing with the Board, including the chairman of any standing committee of the Board. Written communications should be clearly marked “Stockholder and Other Interested Parties — Board Communication,” and be mailed to Paychex, Inc. at 911 Panorama Trail South, Rochester, New York, 14625-2396, Attention: Corporate Secretary. In the case of communications intended for committee chairmen, the specific committee must be identified. Any such communications that do not identify a standing committee will be forwarded to the Board. The Corporate Secretary will promptly forward all stockholder and other interested party communications to the Board or to the appropriate standing committee of the Board, as the case may be.

 

Section 16(a) of the Exchange Act requires directors, executive officers, and beneficial owners of more than 10% of the Company’s common stock to file reports of their ownership and changes in their ownership of the Company’s equity securities with the SEC. Based solely on our review of information supplied to the Company and filings made with the SEC, the Company believes that during fiscal 2011, its directors, executive officers, and greater than 10% beneficial owners have complied in a timely manner with all applicable Section 16 filing requirements, with one exception. Mr. Doody’s Form 3 filing upon becoming a member of the Board was filed timely, but was subsequently amended more than ten days after his appointment to the Board.

 

The Company has a Code of Business Ethics and Conduct that applies to all of its directors, officers, and employees. The Company requires all to adhere to this code in addressing legal and ethical issues that they encounter in the course of doing their work. This code requires our directors, officers, and employees to avoid conflicts of interest, comply with all laws and regulations, conduct business in an honest and ethical manner, and otherwise act with integrity and in the Company’s best interest. All newly hired employees are required to certify that they have reviewed and understand this code. In addition, each year all employees are reminded of and asked to affirmatively acknowledge their obligation to follow the code. The Code of Business Ethics and Conduct is available for review on the Company’s website at www.paychex.com at the Investor Relations section under “Corporate Governance.” The Company intends to disclose any amendment to, or waiver from, a provision of its Code of Business Ethics and Conduct that relates to any element of the code of ethics definition enumerated in Item 406 of SEC Regulation S-K by posting such information on its website at the address specified above.

 

2011 Business and Financial Highlights

 

Our financial results for fiscal 2011 reflected continued gradual improvement in many of our key business indicators that had in the prior two years been challenged by the economic recession. These improvements resulted in a return to year-over-year growth, after experiencing a decline in the previous year.

 

 

During fiscal 2011, we had changes in our executive officer team as follows:

 

 

 

2011 Executive Compensation Highlights

 

We believe in a pay-for-performance approach to executive compensation. For those NEOs not nearing retirement, 66% of total compensation was in the form of pay-for-performance for fiscal 2011. Therefore, the Company’s financial results were a significant factor in the decisions made by the Governance and Compensation Committee related to executive compensation for fiscal 2011.

 

 

As part of Mr. Humenik’s separation and release, he received a lump-sum payment equal to six months salary and health insurance premiums. For further discussion of the agreements with Mr. Judge and Mr. Humenik, refer to the section of this CD&A entitled “Separation Agreements.”

 

 

Corporate Governance Highlights

 

We endeavor to maintain governance standards and oversight of our executive compensation policies and practices. The following governance practices were in place during fiscal 2011, and these practices, among other elements of our compensation programs, aid in mitigating risk associated with our compensation programs.

 

 

Refer to the remainder of this CD&A for a discussion of the overall compensation philosophy, practice, and analysis of elements of the compensation awarded to our NEOs as detailed in the Fiscal 2011 Summary Compensation Table included in the Named Executive Officer Compensation section of this Proxy Statement.

 

The Company believes in a pay-for-performance approach to NEO compensation. The overall objectives of our officer compensation plan are to tie compensation to our overall financial and strategic objectives; align the interests of NEOs with the interests of our stockholders; reward exceptional individual performance; provide competitive opportunities when compared with companies of comparable size; and attract, retain, and develop highly qualified NEOs.

 

To achieve these objectives, our officer compensation plan has been designed to:

 

 

As part of the committee’s responsibility to evaluate and determine NEO compensation, on an annual basis the committee:

 

 

As outlined in its charter, the committee has the authority to retain consultants and advisors, at the Company’s expense, to assist in the discharge of the committee’s duties. The committee can retain and dismiss such consultants

and advisors at any time. The committee’s consultants report directly to the committee and have direct access to the committee through the committee’s chair. The committee requires that any consultant it retains cannot be utilized by management for other purposes. Although management, particularly the Vice President of Human Resources and Organizational Development, may work closely with the committee’s consultant, the consultant is ultimately accountable to the committee on matters related to executive compensation.

 

For fiscal 2011, the committee retained the services of Steven Hall as its independent compensation consultant. Steven Hall has not provided any services to the Company prior to or subsequent to being retained as compensation consultant to the committee. The committee was solely responsible for the decision to retain Steven Hall as its consultant. In fiscal 2011, Steven Hall advised the committee on matters of NEO compensation, assisted the committee with analysis and research, and updated the committee on evolving best practices in compensation. While Steven Hall may express an opinion on compensation matters, the committee is solely responsible for setting the type and amount of compensation for NEOs.

 

Management retains the services of The Burke Group (formerly First Niagara Consulting) as a compensation consultant to advise management on overall compensation strategy and plan design. Generally, compensation plans are developed and proposed by management, with analytical and research assistance by The Burke Group. The committee’s consultant reviews reports from management and The Burke Group and offers the committee their opinions on the findings.

 

Our CEO and our Vice President of Human Resources and Organizational Development provide recommendations to the committee on design elements for compensation. These individuals, and from time to time invited guests including other officers, will be in attendance at the meetings of the committee to present and respond to questions on current or proposed plan design. Annually, our CEO reviews achievement of the recently completed fiscal year’s plan and also presents recommendations regarding: salary for each of the NEOs (other than himself); the upcoming fiscal year’s annual incentive program structure; and equity awards. Management is excluded from executive sessions of the committee where final decisions on compensation are made, particularly those on our CEO’s performance and compensation. Executive sessions occur at each meeting of the committee.

 

We use a combination of compensation elements, including base salary, annual incentive program, and equity awards delivered under our 2002 Plan. The committee compares our NEOs’ compensation plan with that of other NEOs at similar companies, when such information is available. The committee reviews compensation consultants’ reports to assess our cash compensation elements of base salary and annual incentive program. The committee strives for our NEOs’ compensation to be competitive with our Peer Group, a group of companies with comparable revenue and net income who are in a comparable industry, or who are direct competitors of Paychex (as detailed on the following page). The information provided by the compensation consultant indicates whether our compensation package, if target performance is achieved, is comparable to the median compensation of our Peer Group, given current competitive practices, overall best practices, and other compensation and benefit trends. The committee continues to review each of the elements annually to ensure that compensation is appropriate and competitive to attract and retain a high-performing executive team. The committee, in making its decisions, targets an equitable mix of compensation.

 

Annually, management provides the committee a summary for the upcoming fiscal year of total cash compensation and equity awards (based on grant date fair value) for all officer levels, from Vice President (“VP”) to CEO. The summary is used to evaluate compensation recommendations and the impact to total compensation for each individual.

 

Management also provides the committee on an annual basis a three-year history of total compensation for all officers, including cash, annual incentive program payout, and equity-based compensation. This history provides a more complete picture of the internal trend of compensation to executive officers, both as a team and as individuals. This summary facilitates discussion that more accurately details individual officer compensation, noting differences that reflect officer tenure, performance, and position in the management structure.

The committee uses these management updates along with peer information, where available, as tools to evaluate executive compensation. This information is reviewed in a subjective manner. There is no implied direct or formulaic linkage between peer information and our compensation decisions.

 

Compensation for our officers is most closely compared to our Peer Group, for positions where such information is available. The committee assesses total compensation at the median of the Peer Group, even though Paychex performs above the median of its Peer Group for net income as shown in the following table. Peer Group comparisons were available for the positions of CEO and CFO, both of whom have total compensation that falls below the median of the Peer Group. Peer Group benchmarking is not the sole determining factor in the committee’s decisions on compensation, and the committee reserves the discretion to adjust compensation based on other factors as discussed above. The Peer Group companies are not necessarily limited to the markets in which Paychex does business. The Peer Group is comprised of the following industries or segments: a direct competitor in the payroll industry; financial transaction management companies; and business services and outsourcing companies.

 

Our current Peer Group consists of the following companies:

 

Paychex Peer Group⁽¹⁾

 

 

 

 

The committee annually reviews and approves the selection of Peer Group companies, adjusting the group from year to year based upon our business and changes in the Peer Group companies’ business or comparative metrics. The Peer Group may also be adjusted in the event of mergers, acquisitions, or other significant economic changes. During fiscal 2011, the committee took action to adjust the Peer Group. Hewitt Associates, Inc. was removed from our Peer Group, as it was acquired by Aon Corporation.

 

Annually, base salaries are reviewed to determine what, if any, increase is required. For fiscal 2011, the increase in base salaries for NEOs were moderate, with the exception of Mr. Gioja and Mr. McCarthy. Mr. Gioja received a larger salary increase commensurate with the additional responsibilities of overseeing development as well as product management. Mr. McCarthy’s salary increase reflected his strong leadership of the Major Market Services area during the economic recession.

 

The annual incentive program provides additional opportunity for compensation in the form of pay-for-performance. The program was established to motivate NEOs to meet the financial goals of the Company, while maintaining alignment with stockholders’ interests.

 

In the first quarter of fiscal 2011, the committee set a goal for net income for fiscal 2011 as the minimum performance hurdle for the NEOs to be eligible for payout under the program. The Company achieved the net income goal set by the committee for fiscal 2011. This goal is the basis for the maximum allowable payouts for each NEO. The annual incentive program is intended to comply with section 162(m) of the Code for NEOs affected by the $1 million limitation.

 

Upon achievement of the minimum eligible performance, payouts under our annual incentive program are determined based upon the satisfaction of certain quantitative and qualitative components. The quantitative component consists of certain predetermined performance targets, which are established at the beginning of each fiscal year, typically based on the Board-approved fiscal year financial plan. The CEO can potentially earn 80% of base salary at target performance with up to 140% of base salary if maximum performance is achieved under the quantitative component of the program. Senior Vice Presidents (“SVP”s) can potentially earn 65% of base salary at target performance with up to 110% of base salary if maximum performance is achieved. VPs potentially could earn 40% of base salary at target performance with up to 70% of base salary if maximum performance is achieved. For fiscal 2011, the quantitative component provided our NEOs the opportunity for compensation based on achievement, as calculated under the program, compared to the following pre-established goals:

 

 

 

 

The targets for payout are established by the committee with consultation of management. The performance targets of the annual incentive program have both financial and strategic objectives. Targets for the annual incentive program are set at specific financial goals, which are in alignment with stockholder interests. Once the target is determined, it is set for the year and is normally not changed. For extraordinary circumstances, the committee reserves the right to apply discretion. The weighting of each performance target is determined by the committee

when the targets are established and this weighting varies for each NEO based on the individual’s position. Each of the performance targets applicable to a NEO’s annual incentive program provide the NEO an opportunity to earn a percentage of their annual base salary based on achievement at threshold, target, and maximum. The program was established to motivate our NEOs to meet the financial goals set by the Company as presented to its stockholders.

 

The qualitative component of the annual incentive program consists of individual-specific qualitative goals established at the beginning of the fiscal year based on functions unique to the individual. The CEO can potentially receive 20% of base salary and all other NEOs can potentially receive 10% of base salary, the same at threshold, target, and maximum for this component of the program. These goals are highly subjective and are not always based on quantifiable financial measurements. The committee may determine, at its sole discretion, whether satisfactory achievement has occurred, regardless of achievement against the pre-established individual goals. For fiscal 2011, the committee exercised its discretion and awarded the qualitative component of the awards at the maximum percentage for each NEO. The qualitative component of the annual incentive program is not considered material to the overall compensation for each NEO.

 

To align our NEOs interests with the long-term interests of our stockholders, the Company grants equity awards under the 2002 Plan. Annual grants of equity awards to the NEOs are approved during the regularly scheduled meeting of the Board in July. The exercise price of the award is typically the closing market price, but never less than 100% of fair market value, on the date of the grant. Historically, the July Board meeting has been scheduled to occur approximately two weeks after the release of our fiscal year-end earnings and upcoming fiscal year financial guidance. Our trading black-out period normally lifts on the third business day following such release of information. The committee anticipates continuing its granting practice. In fiscal 2011, the Board also granted equity awards to individuals upon hire or promotion to executive officer positions. These equity awards were not granted during any trading black-out periods. Recipients are notified shortly after Board approval of their grant, noting the number of stock options, shares of restricted stock, target performance shares and goals, the vesting schedule, and exercise price. Any sales restrictions or other terms of the award are also communicated at that time.

 

In July 2010, the committee granted a blend of stock options, time-vested restricted stock, and performance shares. This is the first year that the committee has utilized performance shares. The quantity of awards was based on an estimated total value, as determined by the committee, with that total value split 30% to stock options, 50% to performance shares, and 20% to restricted stock. A larger portion of the value of the equity was shifted to at-risk, performance-based awards in the form of performance shares and stock options. The balance of equity awards in the form of time-vested restricted stock was granted for retention purposes. The quantity delivered was adjusted by the committee at its discretion for individual performance and future potential considerations.

 

The following equity-based compensation was granted to the NEOs in July 2010:

 

 

 

 

The stock options vest annually in 25% increments over four years. The time-vested restricted shares lapse ratably over three years. The number of performance shares to be received will be based on achievement against

targets over a two-year cumulative period. The performance targets are service revenue and operating income, net of certain items, as set by the Board. The NEO must be an employee of the Company at the end of a one-year period following the achievement of performance in order to receive the shares. During that one year, dividends shall accrue to be paid when the NEO receives the shares. As an incentive for retention as they near retirement, in lieu of the above three types of equity awards, Mr. Morphy, Mr. Kuchta, and Mr. McCarthy received time-vested restricted stock awards that vest ratably over three years.

 

In April 2011, the committee determined that with respect to Mr. Morphy, upon his retirement, if such retirement is after calendar year 2011, one additional year of vesting shall be added to all equity awards under agreements outstanding as of April 6, 2011. This recognizes Mr. Morphy’s commitment to ensure a smooth transition for his successor.

 

Information regarding the equity-based awards granted to the NEOs in fiscal 2011 and in prior years are detailed in the Named Executive Officer Compensation tables included in this Proxy Statement.

 

Mr. Mucci was appointed as President and CEO effective September 30, 2010. Upon this appointment, Mr. Mucci was awarded an annual base salary of $800,000 and granted additional equity awards as follows: 21,451 performance shares at target; 154,591 non-qualified options with an exercise price of $27.28; and 8,580 shares of time-vested restricted stock. The terms of these awards are similar to the awards granted in July 2010, as previously described. The total value of these equity awards is comparable to the lowest quartile in our Peer Group.

 

It is the responsibility of the committee to evaluate Mr. Mucci’s performance annually and determine his total compensation. Mr. Mucci receives compensation based on his leadership role and the overall performance of the Company. Mr. Mucci receives a base salary that is below the median of salaries for CEOs in our Peer Group. His annual incentive program, as described within the section of this CD&A entitled “Annual Officer Performance Incentive Program,” is below the median for CEOs in our Peer Group, and is commensurate with his leadership role at the Company. For fiscal 2011, his annual incentive program payout was pro-rated between the CEO annual incentive program and the SVP annual incentive program, based on the portion of the year he served in the respective positions. Certain elements of Mr. Mucci’s compensation are significantly higher than those of the SVPs. However, Mr. Mucci’s compensation remains below median when compared to that of the CEOs within our Peer Group.

 

In July 2011, the committee increased stock ownership guidelines for our CEO (three times base salary) and SVPs (two times base salary), and established ownership guidelines for all other VPs at one times base salary. The ownership guidelines were established to provide long-term alignment with stockholder interests. For the purposes of achieving the ownership guideline, unvested restricted stock awarded to the executive officers is included.

 

NEOs of the Company must also adhere to strict standards with regards to trading in the Company’s stock. They may not, among other things:

 

 

Our equity-based compensation agreements state that following termination of employment, certain benefits (including equity-based compensation) will be forfeited if the NEO engages in activities adverse to the Company. These activities include competition with the Company during a specified period after termination of employment, solicitation of the Company’s clients or employees during a specified period after termination of employment, breach of confidentiality either during or after employment, or engaging in conduct which is detrimental to the Company during the NEO’s employment with the Company. Should any of these activities occur, the Company may cancel all or any outstanding portion of the equity awards subject to this provision, and recover the gross value of

any vested restricted shares, including all dividends. In the case of non-qualified stock options, the Company may suspend the NEO’s right to exercise the option and/or may declare the option forfeited. In addition, the Company may seek to recover all profits from certain prior exercises as liquidated damages and pursue other available legal remedies.

 

Our NEOs receive benefits in the form of vacation, health insurance, life insurance, Company matching contributions to the 401(k) Plan when such contributions are in effect, and other benefits, which are generally available to all our employees. We do not provide our NEOs with pension arrangements, post-retirement health coverage, or other similar benefits, with the exception of access to a non-qualified and unfunded deferred compensation plan.

 

We offer a non-qualified and unfunded deferred compensation plan to our NEOs. The deferred compensation plan is intended to supplement the NEO’s 401(k) Plan account. Due to the limitations on 401(k) Plan accounts placed by the Internal Revenue Service, this plan allows for further savings toward retirement for the NEOs and functions similarly to the 401(k) Plan account. Refer to the Non-Qualified Deferred Compensation discussion included in the Named Executive Officer Compensation section of this Proxy Statement for more information on how our deferred compensation plan functions.

 

Effective April 6, 2011, the Board approved a Change-in-Control Plan covering the officers of the Company. Upon Involuntary Termination within 12 months following a Change-in-Control, the officer becomes entitled to certain severance benefits. Refer to the Potential Payments upon Termination or Change-In-Control table within the Named Executive Office Compensation section of this Proxy for further discussion. A copy of the Change-in-Control Plan has been filed as exhibit 10.24 to our fiscal 2011 Form 10-K.

 

On July 12, 2010, Paychex announced Mr. Judge’s resignation from his position as President and CEO effective July 31, 2010. In connection with his resignation, Mr. Judge signed a separation agreement. The following is a summary of terms and conditions of that agreement.

 

 

Mr. Humenik resigned from his position as Senior Vice President of Sales and Marketing effective October 15, 2010. As part of his separation and release, he received a lump-sum payment equal to six months salary and health insurance premiums.

 

In July 2011, the following equity-based compensation was granted to the NEOs.

 

 

The award quantities granted were determined based on a total estimated value, split between stock options, time-vested restricted stock, and performance shares. The terms of the awards were similar to those granted in July 2010. The total estimated value for each NEO may have been adjusted for individual performance and retention considerations. Mr. Morphy, Mr. Kuchta, and Mr. McCarthy did not receive equity awards due to their plans to retire.

 

The Board also granted a special award of performance stock options to focus the leadership team on the strategic plan related to the long-term growth of the Company. The performance stock options may vest based on achievement against targets during a five-year period with potential earlier vesting after three years. The Board set performance targets using service revenue and operating income, net of certain items.

 

In July 2011, the restrictions lapsed on one-sixth of the July 9, 2009 restricted stock award. This acceleration of lapsing was based upon the achievement of the target for operating income, net of certain items, as defined by the 2002 Plan. Actual operating income, net of certain items, for the purposes of acceleration was $740.6 million. The target for service revenue was not achieved. The targets to accelerate the lapsing of the outstanding restricted stock awards granted in July 2008 and 2007 were not achieved, and therefore no lapse occurred. The time-based period for the outstanding restricted stock awards granted in July 2006 expired, and therefore those shares lapsed in July 2011.

 

Mr. McCarthy announced his retirement from the Company effective August 1, 2011. Christian A. Timol will succeed Mr. McCarthy as Vice President of Major Market Services Sales.

 

Section 162(m) of the Code generally limits the tax deductibility of annual compensation paid to certain officers to $1 million, unless specified requirements are met. The committee has carefully considered the impact of this provision as one factor among others in structuring NEO compensation. At this time, it is the committee’s intention to continue to compensate all NEOs based on overall performance. The committee expects that most compensation paid to NEOs will qualify as a tax-deductible expense.

 

The Governance and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in the Proxy Statement with management. Based on such review and discussion, the committee recommends to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement and the Company’s Form 10-K for fiscal 2011.

 

The Governance and Compensation Committee:

 

Joseph M. Tucci, Chairman
David J. S. Flaschen
Grant M. Inman
Joseph M. Velli

 

The table below presents the total compensation paid or earned by each of the NEOs.

 

																						Non-Equity
Name and Principal		Fiscal												Stock				Option				Incentive Plan				All Other
Position		Year				Salary				Bonus				Awards(1),(2)				Awards(3)				Compensation(4)				Compensation(5)				Total
Martin Mucci			2011			$	666,237			$	—			$	1,194,353			$	726,983			$	736,915			$	4,900			$	3,329,388
President and CEO			2010			$	428,003			$	—			$	232,513			$	316,114			$	282,482			$	—			$	1,259,112
			2009			$	423,911			$	—			$	319,500			$	291,600			$	85,601			$	7,254			$	1,127,866
John M. Morphy			2011			$	458,166			$	—			$	570,645			$	—			$	386,722			$	3,548			$	1,419,081
Senior Vice President,			2010			$	439,245			$	—			$	232,513			$	313,493			$	289,902			$	—			$	1,275,153
CFO, and Secretary			2009			$	435,611			$	—			$	292,279			$	268,133			$	87,849			$	8,941			$	1,092,813
Michael E. Gioja			2011			$	271,692			$	—			$	252,891			$	71,016			$	158,536			$	1,077			$	755,212
Vice President,
Product Development
William G. Kuchta			2011			$	318,674			$	—			$	285,335			$	—			$	181,631			$	2,468			$	788,108
Vice President,			2010			$	305,513			$	—			$	116,256			$	156,757			$	135,902			$	—			$	714,428
Government Affairs			2009			$	303,796			$	—			$	146,171			$	134,070			$	53,465			$	10,169			$	647,671
Michael A. McCarthy			2011			$	300,402			$	—			$	313,879			$	—			$	136,904			$	1,646			$	752,831
Vice President, Major			2010			$	276,574			$	—			$	116,256			$	156,801			$	99,106			$	—			$	648,737
Market Services Sales			2009			$	274,649			$	—			$	146,171			$	134,001			$	97,631			$	8,159			$	660,611
Jonathan J. Judge(6)			2011			$	193,558			$	—			$	—			$	—			$	—			$	1,904,288			$	2,097,846
Former President and CEO			2010			$	915,000			$	50,000			$	1,162,516			$	1,567,449			$	934,825			$	27,613			$	4,657,403
			2009			$	915,000			$	—			$	1,461,393			$	1,340,675			$	320,250			$	30,221			$	4,067,539
Delbert M. Humenik(7)			2011			$	174,923			$	—			$	421,442			$	118,358			$	—			$	241,379			$	956,102
Former Senior Vice			2010			$	275,385			$	—			$	224,976			$	274,439			$	225,000			$	18,648			$	1,018,448
President, Sales and Marketing

 

 

 

 

 

The table below presents estimated possible payouts under the Company’s annual incentive program for fiscal 2011 based on achievement of performance objectives at various levels for the Company and individual NEOs. It also summarizes equity awards granted in fiscal 2011 to each of the NEOs. This information does not set forth the actual payout awarded to the NEOs for fiscal 2011.

 

 

 

Note: Mr. Judge did not receive any grants of plan-based awards in fiscal 2011.