EX-10.1



 





EXHIBIT 10.1




PAYCHEX, INC.

2002 STOCK INCENTIVE PLAN

(as amended and restated effective October 12, 2005)




2007-2008 OFFICER PERFORMANCE INCENTIVE

AWARD AGREEMENT




	 	 	 
	Participant Name
	 	Jonathan J. Judge
	Award Date
	 	July 12, 2007
	Performance Period
	 	June 1, 2007 through May 31, 2008
	Total Target Value
	 	$1,830,000






     1. Grant of Award. This 2007-2008 Officer Performance Incentive Award Agreement (this
“Award Agreement”) sets forth the terms and conditions of the Performance Award (the “Award”)
granted to you by the Governance and Compensation Committee (the “Committee”) of the Board of
Directors of Paychex, Inc. (the “Company”) under the Company’s 2002 Stock Incentive Plan, as
amended and restated effective October 12, 2005 (the “Plan”). The Award is subject to all of the
provisions of the Plan, which is hereby incorporated by reference and made a part of this Award
Agreement. The capitalized terms used in this Award Agreement are defined in the Plan. In the
event of any conflict among the provisions of the Plan and this Award Agreement, the provisions of
the Plan will be controlling and determinative.



     2. Target Value and Components. The Total Target Value of the Award is set forth
above and consists of three components: (a) the Revenue Component; (b) the Operating Income
Component; and (c) the Operating Income to Revenue Ratio Component. The Total Target Value or the
value of any of its components may be reduced by the Committee in its sole discretion.



     3. Requirement of Employment. Your rights to the Actual Value (as that term is
defined below) under Section 5, shall be provisional and shall be canceled in whole or in part, as
determined by the Committee in its sole discretion if your continuous employment with the Company
terminates for any reason other than death or Disability on or before the last day of the
Performance Period. Whether and as of what date your employment with the Company shall terminate
if you are granted a leave of absence or commence any other break in employment intended by your
employer to be temporary, shall be determined by the Committee in its sole discretion. In the
event of your death or Disability, you or your estate shall be entitled to receive a pro-rata
payment of the Actual Value of the Award based on the ratio of the number of days from the
beginning of the Performance Period through the date of your death or Disability and the total
number of days in the Performance Period.



 









 





     4. Determination of Value.



          (a) Potential Value and Actual Value. As soon as practicable after the last day of the
Performance Period and prior to the payment of the Award, the Committee shall determine the Revenue
Value as of the last day of the Performance Period, if any, as provided in Section 4(b), the
Operating Income Value as of the last day of the Performance Period, if any, as provided in Section
4(c), and the Operating Income to Revenue Ratio Value as of the last day of the Performance Period,
if any, as provided in Section 4(d). The sum of the Revenue Value, Operating Income Value and the
Operating Income to Revenue Ratio Value shall be the Potential Value of the Award as so determined.
The Committee may, in its sole discretion, then reduce, but not increase, the Potential Value to
determine the Actual Value of the Award.




          (b) Revenue Value. The Revenue Value shall be the Total Target Value, multiplied by the
Revenue Payment Percentage from Exhibit A, based on the Revenue for the Performance Period.
“Revenue” for the Performance Period means Total Service Revenue for the Performance Period.




          (c) Operating Income Value. The Operating Income Value shall be the Total Target Value,
multiplied by the Operating Income Payment Percentage from Exhibit A, based on the Operating Income
for the Performance Period. “Operating Income” means Operating Income, less Interest on Funds Held
for Clients, for the Performance Period.




          (d) Operating Income to Revenue Ratio Value. The Operating Income to Revenue Ratio Value
shall be the Total Target Value, multiplied by the Operating Income to Revenue Ratio Payment
Percentage from Exhibit A, based on the Operating Income to Revenue Ratio for the Performance
Period. “Operating Income to Revenue Ratio” for the Performance Period means (i) Operating Income,
less Interest on Funds Held for Clients, for the Performance Period, over (ii) Total Service
Revenue for the Performance Period.




          (e) Calculation. In determining the Potential Value of the Award, “Total Service Revenue,”
“Operating Income” and “Interest on Funds Held for Clients” for a specified period shall mean the
total service revenue, operating income and interest on funds held for clients for such period,
respectively, each as reported in the Company’s annual audited financial statements for such
period, but in each case excluding the following (each, an “Exclusion Item”): asset write-downs;
litigation or claim judgments or settlements; changes in tax law, accounting principles or other
such laws or provisions affecting reported results; severance, contract termination and other costs
related to entering or exiting certain business activities; and gains or losses from the
acquisition or disposition of businesses or assets or from the early extinguishment of debt, or
other unusual items. In addition to its general authority to reduce the Potential Value, when
determining the Actual Value of the Award, the Committee may, in its sole discretion, take into
consideration the effect of the inclusion of one or more of the Excluded Items, provided, however,
that the Actual Value may not exceed the Potential Value as determined pursuant to this Section 4.




          (f) Committee’s Determinations Final. The Committee’s determination of the Revenue Value,
Operating Income Value, Operating Income to Revenue Ratio Value,




2









 







Potential Value and Actual Value pursuant to this Award Agreement shall be final, binding and
conclusive upon you and all persons claiming under or through you.




     5. Payment of Award. The Actual Value, as determined pursuant to Section 4, if any,
shall become payable to you in cash as promptly as practicable following the determination of such
amount by the Committee, but in no event later than the March 15th of the calendar year following
the calendar year in which the Performance Period ends (the “Payment Date”). Any payment made in
respect of the Award will be reduced by the amount of all taxes required by any governmental
authority to be withheld and paid over by the Company or any Affiliate to the governmental
authority on account of such payment.



     6. Miscellaneous.



          (a) Qualified Performance-Based Compensation. The Award is intended to qualify as “qualified
performance-based compensation” for purposes of Section 162(m) of the Code, and this Award
Agreement shall be interpreted and the Award shall be administered consistent with such intention.




          (b)
Section 409A. The Award is intended to be exempt from the requirements of Section 409A of
the Code, and this Award Agreement shall be interpreted and the Award shall be administered
consistent with such intention.




          (c) Amendment. Except as otherwise provided by the Plan, the Company may only alter, amend or
terminate the Award with your consent.




          (d) No Right to Employment. Neither the Plan, the granting of the Award nor this Award
Agreement gives you any right to remain in the employment of the Company or any Affiliate.




          (e) Nontransferable. The Award may not be sold, assigned, transferred, pledged or encumbered
in any way prior to the payment thereof, whether by operation of law or otherwise.




          (f) Governing Law. This Award Agreement shall be governed by and construed in accordance with
the laws of the State of New York, except as superseded by applicable federal law, without giving
effect to its conflicts of law provisions.




* * * * *




3









 








EXHIBIT A




(dollars in thousands)




Revenue Payment Percentage




	 	 	 
	Revenue	 	Payment Percentage
	$1,904,000
	 	7.50%
	$1,962,900
	 	25.00%
	$2,277,000
	 	45.00%






Operating Income Payment Percentage




	 	 	 
	Operating Income	 	Payment Percentage
	$675,500
	 	7.50%
	$696,400
	 	25.00%
	$807,800
	 	45.00%






Operating Income to Revenue Ratio Payment Percentage




	 	 	 
	Operating Income to Revenue Ratio	 	Payment Percentage
	34.4%
	 	15.00%
	35.5%
	 	50.00%
	41.2%
	 	90.00%






If an actual performance level falls between two performance levels shown on the above grids, then

the applicable payment percentage will be determined using straight-line interpolation.





4