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Stock-Based Compensation Plans | 12 Months Ended
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May 31, 2025
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation Plans | Note F — Stock-Based Compensation Plans The Paychex, Inc. 2002 Stock Incentive Plan, as last amended and restated effective October 15, 2020 (the “2002 Plan”), authorizes grants of u p to 46.5 million shares of the Company’s common stock. As of May 31, 2025, there were 12.0 million shares available for future grants under the 2002 Plan. The Company issues new shares of common stock to satisfy stock option exercises, issuances under the Company’s employee stock purchase plan, and stock awards. 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 $111.8 million, $61.1 million, and $62.6 million for fiscal years 2025, 2024, and 2023, respectively. Related income tax benefits recognized were $17.7 million, $12.7 million, and $12.1 million for the respective fiscal years. As of May 31, 2025, the total unrecognized compensation cost related to all unvested stock-based awards was $136.2 million and is expected to be recognized over a weighted-average period of 2.4 years. Stock options: Stock options entitle the holder to purchase, at the end of the vesting term, a specified number of shares of the Company’s common stock at an exercise price per share equal to the closing market price of the Company’s common stock on the date of grant. All stock options have a contractual life of ten years from the date of grant and vest one-third per annum for executives and after one year for outside directors. Vesting is generally achieved 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 2025:
|  |  |  |  |  |  |  |  | Weighted- |  |  |  |  |
|  |  |  |  | Weighted- |  |  | average |  |  |  |  |
|  | Shares |  |  | average |  |  | remaining |  |  | Aggregate |
|  | subject |  |  | exercise price |  |  | contractual |  |  | intrinsic |
In millions, except per share amounts |  | to options(1) |  |  | per share |  |  | term (years) |  |  | value(2) |
Outstanding as of May 31, 2024 |  |  | 3.3 |  |  | $ |  | 78.05 |  |  |  |  |  |  |  |
Granted |  |  | 0.3 |  |  | $ |  | 122.56 |  |  |  |  |  |  |  |
Exercised |  |  | (0.6 | ) |  | $ |  | 68.54 |  |  |  |  |  |  |  |
Forfeited |  |  | (0.0 | ) |  | $ |  | 120.11 |  |  |  |  |  |  |  |
Outstanding as of May 31, 2025 |  |  | 3.0 |  |  | $ |  | 84.33 |  |  |  | 4.4 |  |  | $ |  | 217.8 |
Exercisable as of May 31, 2025 |  |  | 2.5 |  |  | $ |  | 76.81 |  |  |  | 3.6 |  |  | $ |  | 199.4 |
(1) Includes the activity related to long-term incentive plan stock options granted in July 2016, which vested in fiscal 2021. (2) Total shares valued at the market price of the underlying stock as of May 31, 2025 less the exercise price. Other information pertaining to stock option grants is as follows:
|  | Year ended May 31, |
In millions, except per share amounts |  | 2025 |  | 2024 |  | 2023 |
Weighted-average grant-date fair value per share of stock options granted |  | $ |  | 27.54 |  | $ |  | 27.21 |  | $ |  | 27.58 |
Total intrinsic value of stock options exercised |  | $ |  | 42.0 |  | $ |  | 40.3 |  | $ |  | 11.0 |
Black-Scholes fair value assumptions: The fair value of stock option grants was estimated at the date of grant using a Black-Scholes option pricing model. The weighted-average assumptions used for valuation are as follows:
| Year ended May 31,
| 2025 |  | 2024 |  | 2023
Risk-free interest rate |  |  | 4.2 |  | % |  |  |  | 4.1 |  | % |  |  |  | 3.2 |  | %
Dividend yield |  |  | 3.2 |  | % |  |  |  | 3.1 |  | % |  |  |  | 2.6 |  | %
Volatility factor |  |  | 0.25 |  |  |  |  |  | 0.25 |  |  |  |  |  | 0.27 |  |
Expected option life in years |  |  | 6.5 |  |  |  |  |  | 6.6 |  |  |  |  |  | 6.6 |  |
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. Restricted Stock Units and Restricted Stock Awards: An RSU is an agreement to issue shares at the time of vesting with no associated exercise cost for the recipient. For each unit granted, the holder will receive one share of Paychex common stock at the time of vesting. Prior to fiscal 2023, the Company also granted RSAs to certain executives and outside directors. All shares underlying RSAs are restricted in that they are not transferable until they vest. If the recipient does not vest in the awards, due to leaving Paychex, all shares or units, and any dividends accrued thereon, when applicable, will be forfeited and returned to the Company. Time-Based RSUs and RSAs: Time-based RSUs and RSAs granted to executives vest one-third per annum over three years. Time-based RSUs and RSAs granted to non-executive employees vest on a graded basis over a four- or five-year period. Time-based RSUs and RSAs 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. Paycor Replacement Awards: In connection with the acquisition of Paycor, the Company exchanged certain unvested Paycor employee equity awards for Paychex RSUs or RSAs based on an exchange ratio of approximately 1 to 0.15 calculated in accordance with the Merger Agreement (the "Replacement Awards"). The fair value of the Replacement Awards wa s $105.2 million as of the date of acquisition, of which $15.9 million was related to pre-combination expense and was included in the purchase price. The remaining portion of $89.3 m illion relates to post-combination expense, of whic h $39.1 m illion was expensed due to the acceleration of awards as of May 31, 2025. As of May 31, 2025, the total unrecognized compensation cost related to the Replacement Awards was ap proximately $42.5 million and is expected to be recognized over a weighted-average period of 1.9 years. Refer to Not e D of this Item 8 for further information related to the Company’s acquisition of Paycor. The following table summarizes time-based RSU and RSA activity for fiscal 2025:
|  |  |  |  |  |  |  |  |  |  | Weighted- |
|  |  |  |  |  |  |  |  |  |  | average |
|  |  |  |  |  |  |  | Total |  |  | grant-date |
|  |  |  |  |  |  |  | RSUs and |  |  | fair value |
In millions, except per share amounts |  | RSUs |  |  | RSAs |  |  | RSAs |  |  | per share |
Nonvested as of May 31, 2024 |  |  | 1.3 |  |  |  | 0.0 |  |  |  | 1.3 |  |  | $ |  | 110.54 |
Granted (1) |  |  | 0.8 |  |  |  | 0.1 |  |  |  | 0.9 |  |  | $ |  | 116.67 |
Vested |  |  | (0.4 | ) |  |  | (0.0 | ) |  |  | (0.4 | ) |  | $ |  | 102.12 |
Forfeited |  |  | (0.2 | ) |  |  | — |  |  |  | (0.2 | ) |  | $ |  | 114.64 |
Nonvested as of May 31, 2025 |  |  | 1.5 |  |  |  | 0.1 |  |  |  | 1.6 |  |  | $ |  | 123.30 |
(1) Grant number includes Replacement Awards of 0.3 million RSUs and 0.1 million RSAs granted in connection with the Paycor acquisition. Other information pertaining to time-based RSUs and RSAs is as follows:
|  | Year ended May 31, |
In millions, except per share amounts |  | 2025 |  |  | 2024 |  |  | 2023 |
Weighted-average grant-date fair value per share of RSUs/RSAs granted |  | $ |  | 116.67 |  |  | $ |  | 114.95 |  |  | $ |  | 127.75 |
Total fair value of RSUs/RSAs vested |  | $ |  | 54.7 |  |  | $ |  | 60.1 |  |  | $ |  | 63.7 |
The grant date fair value of time-based RSUs and RSAs 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 and RSAs may, or may not, earn dividends or dividend equivalents depending on the terms of the specific grant. Performance-Based RSUs and RSAs: Performance-based RSUs granted in fiscal 2025 primarily include awards that have a three-year performance period, after which the number of underlying RSUs earned will be determined based on achievement against pre-established performance targets and a market-based condition. Performance-based RSUs and RSAs granted prior to fiscal 2025 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 and are then subject to a one-year service period. Performance-based RSUs and RSAs do not earn dividends or dividend equivalents during the performance period. The following table summarizes performance-based RSU and RSA activity for fiscal 2025:
|  |  |  |  |  |  |  |  |  |  | Weighted- |
|  |  |  |  |  |  |  |  |  |  | average |
|  |  |  |  |  |  |  | Total |  |  | grant-date |
|  |  |  |  |  |  |  | RSUs and |  |  | fair value |
In millions, except per share amounts |  | RSUs |  |  | RSAs |  |  | RSAs |  |  | per share |
Nonvested as of May 31, 2024 |  |  | 0.3 |  |  |  | 0.1 |  |  |  | 0.4 |  |  | $ |  | 109.87 |
Granted (1) |  |  | 0.2 |  |  |  | — |  |  |  | 0.2 |  |  | $ |  | 125.17 |
Vested |  |  | (0.1 | ) |  |  | (0.1 | ) |  |  | (0.2 | ) |  | $ |  | 107.73 |
Forfeited |  |  | (0.1 | ) |  |  | — |  |  |  | (0.1 | ) |  | $ |  | 113.37 |
Nonvested as of May 31, 2025 |  |  | 0.3 |  |  |  | — |  |  |  | 0.3 |  |  | $ |  | 118.49 |
(1) 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 performance-based RSUs and RSAs is as follows:
|  | Year ended May 31, |
In millions, except per share amounts |  | 2025 |  |  | 2024 |  |  | 2023 |
Weighted-average grant-date fair value per share of RSUs/RSAs granted |  | $ |  | 125.17 |  |  | $ |  | 114.23 |  |  | $ |  | 108.31 |
Total fair value of RSUs/RSAs vested |  | $ |  | 14.6 |  |  | $ |  | 0.4 |  |  | $ |  | 13.1 |
Monte Carlo simulation fair value assumptions: T he fair value of performance-based RSUs, that include a market condition, was estimated at the date of grant using a Monte Carlo simulation. The weighted-average assumptions used for valuation are as follows:
|  | Year ended May 31,
|  |  |  |  |  |  |  |  | 2025
Risk-free interest rate |  |  |  |  |  |  |  |  |  |  | 4.2 |  | %
Dividend yield |  |  |  |  |  |  |  |  |  |  | 3.3 |  | %
Volatility factor |  |  |  |  |  |  |  |  |  |  | 0.24 |  |
Measurement period in years |  |  |  |  |  |  |  |  |  |  | 2.9 |  |
Risk-free interest rates are yields based on the U.S. Treasury Constant Maturity Treasury Yield Curve as of the grant date, based on the award measurement period. The estimated volatility factor is estimated based on historical volatility, using stock prices over a period equal to the measurement period. The measurement period is based on the remaining term from the date of grant to the end of the performance period. The fair value of performance-based RSUs and RSAs with a performance condition and no market condition 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. 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 2025, 2024, and 2023 the discount was set at 5% of the market price. 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 2025, 2024, or 2023 related to the plan.

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