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Stock-Based Compensation Plans | 12 Months Ended
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May 31, 2020
Stock-Based Compensation Plans [Abstract] |
Stock-Based Compensation Plans | Note F — Stock-Based Compensation Plans The Paychex, Inc. 2002 Stock Incentive Plan, as amended and restated effective on October 14, 2015 (the “2002 Plan”), authorizes grants of up to 44.1 million shares of the Company’s common stock. As of May 31, 2020, there were 17.3 million shares available for future grants under the 2002 Plan. All stock-based awards to employees are recognized as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized as an expense in the Consolidated Statements of Income and Comprehensive Income on a straight-line basis over the requisite service period and an increase in additional paid-in capital. Stock-based compensation expense was $47.4 million, $46.2 million, and $44.6 million for fiscal years 2020, 2019, and 2018, respectively. Additional stock-based compensation expense was recognized in fiscal 2018 when the Company decided to maximize its tax benefit by accelerating the vesting of restricted stock units (“RSUs”) into fiscal 2018 that would have otherwise vested in August 2018. Related income tax benefits recognized were $9.0 million, $8.9 million, and $14.5 million for the respective fiscal years. As of May 31, 2020, the total unrecognized compensation cost related to all unvested stock-based awards was $65.0 million and is expected to be recognized over a weighted-average period of 2.8 years. Black-Scholes fair value assumptions: The fair value of stock option grants and performance-based stock option grants was estimated at the date of grant using a Black-Scholes option pricing model. The weighted-average assumptions used for valuation under the Black-Scholes option pricing model are as follows:
| Year ended May 31,
| 2020 |  | 2019 |  | 2018
| Stock options
Risk-free interest rate |  | 2.0 | % |  |  | 2.9 | % |  |  | 2.1 | %
Dividend yield |  | 3.3 | % |  |  | 3.5 | % |  |  | 3.4 | %
Volatility factor |  | 0.18 |  |  |  | 0.18 |  |  |  | 0.17 |
Expected option life in years |  | 6.2 |  |  |  | 6.1 |  |  |  | 6.1 |
Weighted-average grant-date ‎ fair value of stock options granted (per share) | $ | 9.86 |  |  | $ | 8.87 |  |  | $ | 6.47 |
|  |  |  |  | Year ended May 31,
|  |  |  |  | 2019 |  | 2018
|  |  |  |  | Performance-based stock options
Risk-free interest rate |  |  |  |  |  | 2.9 | % |  |  | 2.4 | %
Dividend yield |  |  |  |  |  | 3.5 | % |  |  | 3.3 | %
Volatility factor |  |  |  |  |  | 0.18 |  |  |  | 0.18 |
Expected option life in years |  |  |  |  |  | 6.5 |  |  |  | 6.5 |
Weighted-average grant-date ‎ fair value of stock options granted (per share) |  |  |  |  | $ | 9.02 |  |  | $ | 7.45 |
No performance-based stock options were granted during fiscal 2020. Risk-free interest rates are yields for zero coupon U.S. Treasury notes maturing approximately at the end of the expected option life. The estimated volatility factor is based on a combination of historical volatility, using stock prices over a period equal to the expected option life, and implied market volatility. The expected option life is based on historical exercise behavior. Stock options: Stock options entitle the holder to purchase, at the end of the vesting term, a specified number of shares of Paychex common stock at an exercise price per share equal to the closing market price of the common stock on the date of grant. All stock options have a contractual life of ten year s from the date of the grant and a vesting schedule as established by the Board. The Company issues new shares of common stock to satisfy stock option exercises. Stock option grants to executives and outside directors are typically approved by the Board in July. Grants of stock options to executives vest one-third per annum. Grants to members of the Board vest after one year. Vesting is generally achieved on these dates with active employment or participation as a member of the Board on the date of vesting. The following table summarizes stock option activity for fiscal 2020:
|  |  |  |  |  |  | Weighted- |  |  |
|  |  |  | Weighted- |  | average |  |  |
|  | Shares |  | average |  | remaining |  | Aggregate
|  | subject |  | exercise price |  | contractual |  | intrinsic
In millions, except per share amounts |  | to options |  | per share |  | term (years) |  | value(1)
Outstanding as of May 31, 2019 |  | 4.3 |  | $ | 49.23 |  |  |  |  |
Granted |  | 0.6 |  | $ | 85.22 |  |  |  |  |
Exercised |  | (0.5) |  | $ | 44.24 |  |  |  |  |
Forfeited |  | — |  | $ | 72.17 |  |  |  |  |
Expired |  | — |  | $ | 33.34 |  |  |  |  |
Outstanding as of May 31, 2020 |  | 4.4 |  | $ | 55.02 |  | 5.6 |  | $ | 83.7
Exercisable as of May 31, 2020 |  | 3.1 |  | $ | 46.73 |  | 4.5 |  | $ | 78.1
(1)Total shares valued at the market price of the underlying stock as of May 31, 2020 less the exercise price. Other information pertaining to stock option grants is as follows:
|  | Year ended May 31,
In millions |  | 2020 |  | 2019 |  | 2018
Total intrinsic value of stock options exercised |  | $ | 22.0 |  | $ | 25.7 |  | $ | 9.1
Total grant-date fair value of stock options vested |  | $ | 5.0 |  | $ | 4.3 |  | $ | 4.0
RSUs: The Board grants RSUs to certain executive and non-executive employees. An RSU is an agreement to issue shares at the time of vesting with no associated exercise cost for the employee. For each unit granted, the holder will receive one share of Paychex common stock at the time of vesting. If the recipient does not vest in the shares due to leaving Paychex, all shares or units of RSUs, and any dividends accrued thereon, when applicable, will be forfeited and returned to the Company. The Company made a decision in fiscal 2018 to accelerate the vesting of the August 2018 tranche into fiscal 2018. Time-based RSUs: Time-based RSUs granted to non-executives vest one-fifth per annum over five year s, while those granted to executives vest one-third per annum over three year s. Vesting is generally achieved on these dates with active employment. The fair value of time-based RSUs is equal to the closing market price of the underlying common stock as of the date of grant, adjusted for the present value of expected dividends over the vesting period. Time-based RSUs may, or may not, earn dividend equivalents depending on the terms of the specific grant. Performance-based RSUs: Performance-based RSUs primarily have a two-year performance period, after which the number of underlying RSUs earned will be determined based on achievement against pre-established performance targets. The RSUs earned are then subject to a one-year service period. Performance-based RSUs do not earn dividend equivalents during the performance period. The fair value of the RSUs is equal to the closing market price of the underlying common stock as of the date of grant, adjusted for the present value of expected dividends over the performance period. The following table summarizes RSU activity for fiscal 2020:
|  |  |  | Weighted- |  |  |  | Weighted-
|  |  |  | average |  |  |  | average
|  | Time- |  | grant-date |  | Performance- |  | grant-date
|  | Based |  | fair value |  | based |  | fair value
In millions, except per share amounts |  | RSUs |  | per share |  | RSUs |  | per share
Nonvested as of May 31, 2019 |  | 1.5 |  | $ | 53.45 |  | — |  | $ | —
Granted (1) |  | 0.5 |  | $ | 73.28 |  | 0.1 |  | $ | 80.59
Vested |  | (0.5) |  | $ | 49.49 |  | — |  | $ | —
Forfeited |  | (0.1) |  | $ | 60.26 |  | — |  | $ | —
Nonvested as of May 31, 2020 |  | 1.4 |  | $ | 61.60 |  | 0.1 |  | $ | 80.59
(1)For performance-based RSUs, granted number assumes achievement of performance goals at target. Actual number of shares to be earned may differ from this amount. Other information pertaining to RSUs is as follows:
|  | Year ended May 31,
In millions, except per share amounts |  | 2020 |  | 2019 |  | 2018
Time-based RSUs: |  |  |  |  |  |  |  |  |
Weighted-average grant-date fair value per share of RSUs granted |  | $ | 73.28 |  | $ | 62.20 |  | $ | 51.15
Weighted-average remaining vesting period (years) |  |  | 2.9 |  |  | 2.9 |  |  | 3.2
Total intrinsic value of RSUs vested |  | $ | 40.0 |  | $ | 1.2 |  | $ | 60.9
Aggregate intrinsic value of nonvested RSUs (1) |  | $ | 99.9 |  | $ | 127.0 |  | $ | 69.2
Total grant-date fair value of RSUs vested |  | $ | 23.6 |  | $ | 0.8 |  | $ | 42.4
Performance-based RSUs(2): |  |  |  |  |  |  |  |  |
Weighted-average grant-date fair value per share of RSUs granted |  | $ | 80.59 |  | $ | — |  | $ | —
Weighted-average remaining vesting period (years) |  |  | 2.1 |  |  | — |  |  | —
Total intrinsic value of RSUs vested |  | $ | — |  | $ | — |  | $ | —
Aggregate intrinsic value of nonvested RSUs (1) |  | $ | 4.4 |  | $ | — |  | $ | —
Total grant-date fair value of RSUs vested |  | $ | — |  | $ | — |  | $ | —
(1)Based on the market price of the underlying common stock as of May 31, 2020, 2019 and 2018. (2)No performance-based RSUs were granted during fiscal 2019 and fiscal 2018. Restricted stock awards: The Board approves grants of restricted stock awards to the Company’s executives and outside directors. All shares underlying awards of restricted stock are restricted in that they are not transferable until they vest. Recipients of the restricted stock earn dividends, which are paid to the recipient at the time the awards vest. If the recipient does not vest in the shares due to leaving Paychex, all shares of restricted stock, and the dividends accrued thereon, when applicable, will be forfeited and returned to the Company. Time-based restricted stock awards: Time-based restricted stock awards granted to executives vest one-third per annum. Time-based restricted stock awards granted to outside directors vest on the one-year anniversary of the grant date. Vesting is generally achieved on these dates with active employment or participation as a member of the Board on the date of vesting. The fair value of time-based restricted stock awards is equal to the closing market price of the underlying common stock as of the date of grant. Performance-based restricted stock awards: Performance-based restricted stock awards primarily have a two-year performance period, after which the number of shares earned will be determined based on achievement against pre-established performance targets. The restricted shares earned are then subject to a one-year service period. Performance-based shares do not earn dividend equivalents during the performance period. The fair value of performance-based shares is equal to the closing market price of the underlying common stock as of the date of grant, adjusted for the present value of expected dividends over the performance period. The following table summarizes time-based and performance-based restricted stock award activity for fiscal 2020:
|  |  |  | Weighted- |  |  |  | Weighted-
|  |  |  | average |  |  |  | average
|  |  |  | grant-date |  | Performance- |  | grant-date
|  | Time-based |  | fair value |  | based |  | fair value
In millions, except per share amounts |  | shares |  | per share |  | shares |  | per share
Nonvested as of May 31, 2019 |  | 0.1 |  | $ | 64.32 |  | 0.4 |  | $ | 58.09
Granted (1) |  | 0.1 |  | $ | 84.46 |  | — |  | $ | 80.59
Vested |  | (0.1) |  | $ | 63.63 |  | (0.1) |  | $ | 56.97
Forfeited |  | — |  | $ | 73.82 |  | — |  | $ | 63.07
Nonvested as of May 31, 2020 |  | 0.1 |  | $ | 73.20 |  | 0.3 |  | $ | 61.97
(1)For performance-based shares, granted number assumes achievement of performance goals at target. Actual number of shares to be earned may differ from this amount. Other information pertaining to time-based and performance-based restricted stock awards is as follows:
|  | Year ended May 31,
In millions, except per share amounts |  | 2020 |  | 2019 |  | 2018
Weighted-average grant-date fair value per share of time-based shares granted |  | $ | 84.46 |  | $ | 69.80 |  | $ | 57.50
Total grant-date fair value of time-based restricted stock vested |  | $ | 3.2 |  | $ | 3.0 |  | $ | 3.0
Weighted-average grant-date fair value per share of performance-based shares granted |  | $ | 80.59 |  | $ | 65.17 |  | $ | 53.08
Total grant-date fair value of performance-based restricted stock vested |  | $ | 5.8 |  | $ | 5.3 |  | $ | 6.6
Long-term Incentive Plan (“LTIP”): The Company has two long-term incentive performance-based stock awards under its LTIP. In July 2011, the Board approved a special award of performance-based non-qualified stock options. Subsequent grants of this award were made upon the hire of new executives. Under this award, stock options were granted to executives with vesting dependent on achievement against long-term strategic and financial objectives. Total stock options earned and vested were based on achievement against pre-established targets for the fiscal year ended May 31, 2016 (”fiscal 2016”). The performance period was completed in fiscal 2016. Although the performance period was completed and the stock options were earned and vested, there are still stock options outstanding as of May 31, 2020. In July 2016, the Board approved an LTIP award comprised of both performance-based non-qualified stock options and performance-based restricted stock. This award was granted to executives down to the vice president level with vesting dependent on achievement against long-term strategic and financial objectives. Total stock options and restricted shares to be earned are based on achievement against pre-established targets for the fiscal year ending May 31, 2020. The following table summarizes LTIP performance-based stock option activity for fiscal 2020:
|  |  |  |  |  |  | Weighted- |  |  |
|  |  |  | Weighted- |  | average |  |  |
|  | Shares |  | average |  | remaining |  | Aggregate
|  | subject |  | exercise price |  | contractual |  | intrinsic
In millions, except per share amounts |  | to options |  | per share |  | term (years) |  | value(1)
Outstanding as of May 31, 2019 |  | 1.9 |  | $ | 51.09 |  |  |  |  |
Granted |  | — |  | $ | — |  |  |  |  |
Exercised |  | (0.5) |  | $ | 31.35 |  |  |  |  |
Forfeited |  | (0.1) |  | $ | 63.17 |  |  |  |  |
Expired |  | — |  | $ | — |  |  |  |  |
Outstanding as of May 31, 2020 |  | 1.3 |  | $ | 56.13 |  | 5.3 |  | $ | 21.8
Exercisable as of May 31, 2020 |  | 0.2 |  | $ | 31.63 |  | 1.1 |  | $ | 9.0
(1)Shares valued at the market price of the underlying stock as of May 31, 2020 less the exercise price. Other information pertaining to LTIP performance-based stock options is as follows:
|  | Year ended May 31,
In millions |  | 2020 |  | 2019 |  | 2018
Total intrinsic value of stock options exercised |  | $ | 23.0 |  | $ | 8.2 |  | $ | 7.9
No performance-based stock options vested in fiscal years 2020, 2019, or 2018. LTIP performance-based restricted stock do not earn dividend equivalents during the performance period. The fair value of LTIP performance-based restricted stock is equal to the closing market price of the underlying common stock as of the date of grant, adjusted for the present value of expected dividends over the performance period. If the recipient leaves Paychex prior to the vesting date for any reason, the shares of performance-based restricted stock will be forfeited and returned to the Company. The following table summarizes LTIP performance-based restricted stock activity for fiscal 2020:
|  |  |  | Weighted-
|  |  |  | average grant
|  | Restricted |  | date fair value
In millions, except per share amounts |  | shares |  | per share
Nonvested as of May 31, 2019 |  | 0.2 |  | $ | 54.31
Granted |  | — |  | $ | —
Exercised |  | — |  | $ | —
Forfeited |  | (0.1) |  | $ | 56.97
Expired |  | — |  | $ | —
Nonvested as of May 31, 2020 |  | 0.1 |  | $ | 53.97
Non-compensatory employee benefit plan: The Company offers a qualified Employee Stock Purchase Plan (“ESPP”) to all employees. The Company’s common stock can be purchased through a payroll deduction at a discount to the market price. The qualified ESPP allows for a discount of up to 15% based on the sole discretion of the committee established to administer the plan. For offering periods during fiscal years 2020, 2019, and 2018 the discount was set at 5% of the market price. Transactions under the non-qualified ESPP occurred directly through the Company’s transfer agent and no brokerage fees were charged to employees. Transactions under the qualified ESPP occur through the Company’s third-party stock plan administrator. The plans have been deemed non-compensatory and therefore, no stock-based compensation costs have been recognized for fiscal years 2020, 2019, or 2018 related to the plan.

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