[ADP logo]
AUTOMATIC DATA PROCESSING, INC.
One ADP Boulevard - Roseland, New Jersey 07068
NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
PLEASE TAKE NOTICE that the 2005 Annual Meeting of Stockholders of
AUTOMATIC DATA PROCESSING, INC. (the "Company") will be held at 10:00 a.m.,
Tuesday, November 8, 2005 at the Company's corporate headquarters, ONE ADP
BOULEVARD, ROSELAND, NEW JERSEY, for the following purposes:
1. To elect a Board of Directors (Proposal 1);
2. To ratify the appointment of Deloitte & Touche LLP, an independent
registered public accounting firm, to serve as the Company's
independent certified public accountants for the fiscal year that
began on July 1, 2005 (Proposal 2); and
3. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof. Only the holders
of record of Common Stock at the close of business on September 9,
2005 (the "Record Date") are entitled to vote at the meeting. Each
stockholder is entitled to one vote for each share of Common Stock
held on the Record Date.
To gain admission to the Annual Meeting of Stockholders, you will need to
show that you are a stockholder of the Company. If your shares are registered in
your name and you plan to attend the Annual Meeting of Stockholders, please
retain and bring the top portion of the proxy card as your admission ticket. If
your shares are in the name of your broker or bank or you received your proxy
materials electronically, you will need to bring evidence of your stock
ownership, such as your most recent brokerage account statement. All
stockholders will be required to show valid picture identification. If you do
not have valid picture identification and either an admission ticket or proof
that you own Company stock, you will not be admitted to the Annual Meeting of
Stockholders. Packages and bags will be inspected and they may have to be
checked, among other security measures that may be used for the security of
those attending the Annual Meeting of Stockholders. Please arrive early enough
to allow yourself adequate time to clear security.
By order of the Board of Directors
James B. Benson
Secretary
September 21, 2005
Roseland, New Jersey
The presence in person and/or the representation by proxy of the holders of
record of a majority of the issued and outstanding shares of stock entitled to
vote at the meeting is necessary and sufficient to constitute a quorum.
Accordingly, if you do not expect to be present at the meeting, you may vote
your shares of stock by phone, the Internet or by executing the accompanying
proxy and returning it promptly in the enclosed envelope, which requires no
postage if mailed in the United States.
[ADP logo]
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
AUTOMATIC DATA PROCESSING, INC.
One ADP Boulevard - Roseland, New Jersey 07068
TO BE HELD ON NOVEMBER 8, 2005
SOLICITATION AND REVOCATION OF PROXY
The accompanying proxy is being solicited by the Board of Directors of the
Company for use at the forthcoming Annual Meeting of Stockholders. Each
stockholder giving such a proxy has the power to revoke the same at any time
before it is voted by so notifying the Secretary of the Company in writing. All
expenses in connection with the solicitation will be borne by the Company. This
Proxy Statement and the accompanying proxy are being mailed to stockholders on
or about September 21, 2005.
The Company has one class of securities outstanding and entitled to vote at
the Annual Meeting of Stockholders, its common stock, par value $.10 per share
("Common Stock"). At the close of business on September 9, 2005, the record date
for determining stockholders entitled to notice of and to vote at the meeting,
the Company had 577,459,753 issued and outstanding shares of Common Stock
(excluding 61,242,916 treasury shares not entitled to vote). Each outstanding
share of Common Stock is entitled to one vote with respect to each matter to be
voted on at the meeting.
The representation in person or by proxy of a majority of the issued and
outstanding shares of stock entitled to vote at the meeting shall constitute a
quorum at the Annual Meeting of Stockholders. Under the Company's Amended and
Restated Certificate of Incorporation and By-Laws and under Delaware law,
abstentions and "non-votes" are counted as present in determining whether the
quorum requirement is satisfied. A non-vote occurs when a nominee holding shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power for that particular item and
has not received instructions from the beneficial owner. The affirmative vote of
the holders of a majority of the shares represented in person or by proxy and
entitled to vote thereon is required to elect a director, provided that if the
number of nominees exceeds the number of directors to be elected (a situation
that the Company does not anticipate), the directors shall be elected by the
vote of a plurality of the shares represented in person or by proxy. The
affirmative vote of the holders of a majority of the shares represented in
person or by proxy and entitled to vote thereon is required to ratify the
appointment of Deloitte & Touche LLP, an independent registered public
accounting firm, as the Company's independent certified public accountants. With
respect to the proposal to elect directors, votes may be cast in favor of all
nominees, withheld from all nominees or withheld from specifically identified
nominees. Votes that are withheld will have the effect of a negative vote,
provided that if the number of nominees exceeds the number of directors to be
elected, votes that are withheld will be excluded entirely from the vote and
will have no effect. With respect to the proposal to ratify the appointment of
Deloitte & Touche LLP as the Company's independent certified public accountants,
votes may be cast in favor of or against the proposal, or a stockholder may
abstain from voting on the proposal. Abstentions will have the effect of a
negative vote. Under applicable Delaware law, a non-vote will have no effect on
the outcome of any of the matters referred to in this Proxy Statement.
The Company's Board of Directors has adopted a policy whereby stockholders'
proxies are received by the Company's independent tabulators and the vote is
certified by independent inspectors of election. Proxies and ballots that
identify the vote of individual stockholders will be kept confidential from the
Company's management and directors, except as necessary to meet legal
requirements in cases where stockholders request disclosure or in a contested
election.
PROPOSAL 1
ELECTION OF DIRECTORS
Properly executed proxies will be voted as marked, and if not marked, will
be voted in favor of the election of the persons named below (each of whom is
now a director) as directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified. If any
nominee does not remain a candidate at the time of the meeting (a situation that
management does not anticipate), proxies solicited hereunder will be voted in
favor of those nominees who do remain as candidates and may be voted for
substitute nominees designated by the Board of Directors.
Served as a
Director
Continuously
Name Age Since Principal Occupation
------------------------------------------------------------------------------------------------------------------------------------
Gregory D. Brenneman 43 2001 Chairman and Chief Executive Officer of Burger King Corporation, a privately held
company (1)
Leslie A. Brun 53 2003 Founder and Chairman Emeritus of Hamilton Lane, a global private equity/advisor
company (2)
Gary C. Butler 58 1996 President and Chief Operating Officer of the Company (3)
Leon G. Cooperman 62 1991 Chairman and Chief Executive Officer of Omega Advisors, Inc., an investment
partnership (4)
R. Glenn Hubbard 47 2004 Dean of the Graduate School of Business at Columbia University (5)
John P. Jones 54 2005 Chairman, President and Chief Executive Officer of Air Products and Chemicals,
Inc.(6)
Ann Dibble Jordan 70 1993 Consultant (7)
Harvey M. Krueger 76 1967 Vice Chairman of Lehman Brothers, investment bankers (8)
Frederic V. Malek 68 1978 Chairman of Thayer Capital Partners, a merchant banking firm (9)
Henry Taub 78 1961 Honorary Chairman of the Board of the Company (10)
Arthur F. Weinbach 62 1989 Chairman of the Board and Chief Executive Officer of the Company (11)
(1) Mr. Brenneman has been Chief Executive Officer of Burger King Corporation
since July 2004. He was Chairman and Chief Executive Officer of TurnWorks,
Inc. from October 2002 to July 2004 and also from May 2001 to June 2002. He
was President and Chief Executive Officer of PwC Consulting from June 2002
to October 2002, and was the President and Chief Operating Officer of
Continental Airlines, Inc. from May 1995 to May 2001. Mr. Brenneman is also
a director of The Home Depot, Inc. and Burger King Corporation.
(2) Mr. Brun is the founder and Chairman Emeritus of Hamilton Lane. From 1991
until 2005 he was the Chairman of Hamilton Lane. He is also a director of
Episcopal Academy and a trustee of the University of Buffalo Foundation.
(3) Mr. Butler became President and Chief Operating Officer of the Company in
April 1998. He is also a director of Liberty Mutual Group and CIT Group
Inc.
(4) Mr. Cooperman has been Chairman and Chief Executive Officer of Omega
Advisors, Inc. since 1991.
(5) Mr. Hubbard was named the Dean of the Graduate School of Business at
Columbia University on July 1, 2004 and has been the Russell L. Carson
Professor of Finance and Economics in the Department of Economics and
Graduate School of Business at Columbia University since 1994. From
February 2001 until March 2003 he was Chairman of the U.S. Council of
Economic Advisors. He is also a director of Dex Media, Inc., Duke Realty
Corporation and KKR Financial Corporation.
2
(6) Mr. Jones has been Chairman, President and Chief Executive Officer of Air
Products and Chemicals, Inc. since 1998.
(7) Ms. Jordan is the former Director, Social Services Department, Chicago
Lying-In Hospital, University of Chicago Medical Center, a position she
assumed in 1970. She is also a director of Johnson & Johnson Corporation
and Citigroup Inc.
(8) Mr. Krueger is Vice Chairman of Lehman Brothers and has been a senior
officer of Lehman Brothers and its predecessor companies for more than the
past five years. He is also a director of Bernard Chaus, Inc. and Delta
Galil Industries Ltd.
(9) Mr. Malek has been Chairman of Thayer Capital Partners since 1992. He is
also a director of CB Richard Ellis Services, Inc., Northwest Airlines
Corporation and Federal National Mortgage Association.
(10) Mr. Taub has been Honorary Chairman of the Company's Board of Directors
since 1986.
(11) Mr. Weinbach became Chairman of the Board and Chief Executive Officer of
the Company in April 1998. He is also a director of First Data Corporation
and Schering Plough Corp.
Stockholder Approval Required
At the 2005 Annual Meeting of Stockholders, directors shall be elected by
the affirmative vote of the holders of a majority of the shares represented in
person or by proxy, provided that if the number of nominees exceeds the number
of directors to be elected (a situation that the Company does not anticipate),
the directors shall be elected by the vote of a plurality of the shares
represented in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES TO THE BOARD OF DIRECTORS.
3
Corporate Governance
During fiscal year 2005, the Board of Directors held five meetings. All
directors attended at least 75%, in the aggregate, of the meetings of the Board
of Directors and the committees of which they were members.
The Board of Directors' categorical standards of director independence are
attached as Appendix A to this Proxy Statement. Directors who meet these
standards are considered to be "independent." Messrs. Brenneman, Brun,
Cooperman, Hubbard, Jones, Malek and Ms. Jordan meet these standards and are,
therefore, considered to be independent directors. Messrs. Butler, Krueger, Taub
and Weinbach do not meet these standards and are, therefore, not considered to
be independent directors. Based on the foregoing categorical standards, all
current members of the Audit, Compensation and Nominating/Corporate Governance
Committees are independent.
The table below provides membership and meeting information for each of the
committees of the Board of Directors.
Nominating/Corporate
Name Audit Compensation Governance Executive
----------------------------------------------------------------------------------------------------------------------------
Gregory D. Brenneman X(FE) X(C) X
Leslie A. Brun X X(C) X
Gary C. Butler
Leon G. Cooperman X(C) (FE) X X
R. Glenn Hubbard X(FE) X
John P. Jones X
Ann Dibble Jordan X X
Harvey M. Krueger X(C)
Frederic V. Malek X X
Henry Taub X
Arthur F. Weinbach X
Meetings held in fiscal 2005 5 4 2 0
(C) Chairperson of the committee.
(FE) Audit Committee financial expert.
The Audit Committee acts under a written charter (the "Audit Committee
Charter"), which is required to be provided to stockholders every three fiscal
years, unless amended earlier. The Audit Committee Charter is attached as
Appendix B to this Proxy Statement and may also be viewed online on the
Company's website at www.adp.com under "Governance" in the "About ADP" section.
The members of the Audit Committee satisfy the independence requirements of the
New York Stock Exchange (NYSE) rules currently in effect. The principal
functions of the Audit Committee are to:
(i) assist the Board of Directors in fulfilling its oversight
responsibilities with respect to (a) the Company's systems of internal
controls regarding finance, accounting, legal compliance and ethical
behavior, (b) the Company's auditing, accounting and financial
reporting processes generally, (c) the Company's financial statements
and other financial information provided by the Company to its
stockholders, the public and others, (d) the Company's compliance with
legal and regulatory requirements and (e) the performance of the
Company's corporate audit department and independent auditors;
(ii) appoint, compensate and oversee the work of the independent auditors
(including resolution of disagreements between management and the
independent auditors regarding financial reporting) for the purpose of
preparing its audit report or related work;
(iii)review in advance and pre-approve all services to be provided by the
independent auditors, as permitted by applicable rules and regulations
and the Auditor Independence Policy (which is discussed in further
detail below under "Independent Registered Public Accounting Firms'
Fees"), and in connection therewith to approve all fees and other
terms of engagement;
4
(iv) review and approve disclosures required to be included in the
Securities and Exchange Commission (the "SEC") periodic reports filed
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); and
(v) review the performance of the internal auditors and the independent
auditors on at least an annual basis.
The Compensation Committee acts under a written charter, which may be
viewed online on the Company's website at www.adp.com under "Governance" in the
"About ADP" section. The principal function of the Compensation Committee is to
assist the Board of Directors in discharging its responsibilities in respect of
compensation of the Company's executive officers by:
(i) evaluating the Chief Executive Officer's performance and setting the
Chief Executive Officer's compensation based on such evaluation; and
(ii) developing guidelines and reviewing the compensation and performance
of officers of the Company and other Company associates.
The Compensation Committee also develops plans for managerial succession.
The Nominating/Corporate Governance Committee acts under a written charter,
which may be viewed online on the Company's website at www.adp.com under
"Governance" in the "About ADP" section. The members of the Nominating/Corporate
Governance Committee satisfy the independence requirements of the NYSE rules
currently in effect. The principal functions of the Nominating/Corporate
Governance Committee are to:
(i) develop policies on the size and composition of the Board of
Directors;
(ii) identify individuals qualified to become members of the Board of
Directors and review candidates for Board membership;
(iii)recommend a slate of nominees to the Board of Directors annually;
(iv) ensure that the Audit, Compensation and Nominating/Corporate
Governance Committees of the Board of Directors have the benefit of
qualified and experienced independent directors;
(v) review and reassess the adequacy of the Board of Directors' corporate
governance principles (which principles may be viewed online on the
Company's website at www.adp.com under "Governance" in the "About ADP"
section) and recommend changes to such principles as appropriate; and
(vi) advise the full Board of Directors on corporate governance matters.
When the Board of Directors decides to recruit a new member it seeks strong
candidates who, ideally, meet all of its categorical standards of director
independence, and who are, preferably, senior executives of large companies who
have significant technology, international or marketing backgrounds directly
related to the Company's technologies, markets and/or clients. The Board of
Directors will consider any such strong candidate provided he or she possesses
the following personal characteristics: (i) business community respect for his
or her integrity, ethics, principles, insights and analytical ability; and (ii)
ability and initiative to frame insightful questions, speak out and challenge
questionable assumptions and disagree without being disagreeable. If the
Committee does not believe that a candidate possesses the above personal
characteristics, that candidate will not be considered. The Committee will also
consider director candidates recommended by the stockholders. Stockholders who
wish the Nominating/Corporate Governance Committee to consider their
recommendations for nominees for the position of director should submit their
recommendations in writing to the Nominating/Corporate Governance Committee in
care of the Secretary of the Company at the Company's principal executive
offices. Candidates recommended by the stockholders will be considered using the
same process and evaluation criteria as set forth above for proposed new members
recruited by the Board of Directors.
The Executive Committee acts under a written charter, which may be viewed
online on the Company's website at www.adp.com under "Governance" in the "About
ADP" section. The function of the Executive Committee is to act in the absence
of the Board of Directors.
5
During fiscal year 2005, all non-employee directors except for Mr. Jones
were paid an annual retainer of $55,000, which was paid in the form of
restricted stock units of Common Stock pursuant to the Company's 2003 Director
Stock Plan, plus $2,000 in cash for each Board of Directors meeting attended.
Mr. Jones, who became a member of the Board of Directors in January of 2005, was
paid an annual retainer of $33,000, reflecting a pro ration of the standard
annual retainer for members of the Board of Directors. In addition, non-employee
directors were paid $1,500 in cash for each committee meeting attended. Further,
the chairperson of the Audit Committee was paid an additional annual retainer of
$10,000 in cash and the chairperson of each of the Executive Committee,
Compensation Committee and Nominating/Corporate Governance Committee was paid an
additional annual retainer of $5,000 in cash.
During fiscal year 2005, the non-employee directors were entitled to
participate in the 2000 Stock Option Plan (the "2000 Stock Option Plan"). Under
the 2000 Stock Option Plan, upon initial election to the Board of Directors, a
non-employee director will receive a grant of options to purchase 5,000 shares
of Common Stock. Thereafter, a non-employee director will receive an annual
grant of options to purchase 5,000 shares of Common Stock. All options are
granted at the fair market value of the Common Stock, determined on the basis of
the closing price of the Common Stock in consolidated trading on the date of
grant, as reported in The Wall Street Journal. All options granted under the
2000 Stock Option Plan have a term of ten years. In fiscal year 2005, options to
purchase 5,000 shares of Common Stock were granted to each non-employee director
(other than Mr. Jones) at an exercise price of $44.875 per share under the 2000
Stock Option Plan. At the time he was appointed to the Board of Directors, Mr.
Jones received options to purchase 5,000 shares of Common Stock at an exercise
price of $43.24 per share under the 2000 Stock Option Plan. Twenty percent of
the options granted under the 2000 Stock Option Plan become exercisable on the
first anniversary of the date such options were granted, and twenty percent
become exercisable on each successive anniversary date thereafter until all such
options become exercisable, provided that options become exercisable only if the
director is then still serving in such capacity, unless certain specified events
occur, such as the death or disability of a director, in which case the options
shall immediately vest and become fully exercisable.
Any person who became a non-employee director after August 13, 1997 will
not be eligible to receive a pension from the Company. A non-employee director
(who was a director on August 13, 1997) who retires after 20 years of service in
such capacity and having attained the age of 70 will receive a pension of
$25,000 per year for the remainder of his or her life. If such non-employee
director retires after having attained the age of 65 with 15 years of service,
he or she will receive a pension of $12,500 per year.
The mandatory retirement age for directors is 72, except as noted below.
The Board of Directors may, upon the recommendation of the Nominating/Corporate
Governance Committee made annually, waive the mandatory retirement age
requirement for any director, except persons who first became directors after
May 14, 2002. The Board of Directors waived the mandatory retirement age
requirement for Messrs. Krueger and Taub based on their respective contributions
to and involvement in the Board of Directors so that they may be nominated at
this Annual Meeting of Stockholders to serve as directors for the upcoming year.
The then oldest member of the Board of Directors shall automatically retire at
the Company's 2006 Annual Meeting of Stockholders. This "then oldest director"
automatic retirement process shall continue until there are no directors over
the age of 72, provided that if a director who is not the oldest board member
decides to retire or resign from the Board of Directors during any year, then in
order to ensure overall board continuity, the "then oldest director" automatic
retirement policy will be suspended for that year only. Thereafter, all
directors will automatically retire from the Board of Directors at the Company's
Annual Meeting of Stockholders following the date he or she turns 72. This "then
oldest director" automatic retirement procedure portion of the Board of
Directors' retirement policy does not apply to Henry Taub, the Company's
founder. Management directors who are no longer officers of the Company are
required to resign from the Board of Directors. However, the Company's Chief
Executive Officer may, provided the Board of Directors approves, continue to
serve as a director following the date he or she ceases to be the Company's
Chief Executive Officer until the next annual meeting of stockholders and, if
re-elected at such meeting, for an additional one year thereafter.
Executive sessions of the non-management directors are held during each
Board of Directors and committee meeting. The Company has adopted a procedure by
which the presiding director at such executive sessions of the
6
Board of Directors shall change each meeting and shall rotate, consecutively,
among the independent chairpersons of the Audit, Compensation and Nominating/
Corporate Governance Committees.
Security Ownership of Certain Beneficial Owners and Management
The following table contains information as of August 31, 2005 with respect
to the beneficial ownership of Common Stock by (i) each director and nominee for
director of the Company, (ii) each of the named executive officers of the
Company named in the Summary Compensation Table, (iii) all directors and
executive officers of the Company as a group (including the named individuals)
and (iv) all stockholders known to the Company to be the beneficial owners of
more than 5% of the outstanding shares of Common Stock. Unless otherwise noted
in the footnotes following the table, the persons as to whom the information is
given had sole voting and investment power over the shares of Common Stock shown
as beneficially owned. The address of each person named is P.O. Box 34,
Roseland, New Jersey, 07068, unless otherwise noted.
Shares of Common Stock
Name Beneficially Owned (1) Percent
--------------------------------------------------------------------------------------------------------------------------
Gregory D. Brenneman 21,627 *
Leslie A. Brun 18,627 *
Gary C. Butler 1,160,548 *
Leon G. Cooperman (2) 85,110 *
Richard J. Daly 348,628 *
John Hogan 433,638 *
R. Glenn Hubbard 6,658 *
John P. Jones 763 *
Ann Dibble Jordan 32,027 *
Harvey M. Krueger 108,307 *
Frederic V. Malek (3) 30,627 *
S. Michael Martone 302,429 *
Henry Taub (4) 5,563,317 *
Arthur F. Weinbach (5) 1,631,725 *
Capital Research and Management Company (6) 39,323,400 6.8097%
Directors and executive officers as a group (25 persons,
including those directors and executive 11,913,849 2.0631%
officers named above) (7)
* Indicates less than one percent.
(1) Includes shares that may be acquired upon the exercise of options granted
by the Company that are exercisable on or prior to October 30, 2005. The
shares beneficially owned include: (i) the following shares subject to such
options granted to the directors and executive officers indicated: 19,000
(Mr. Brenneman), 14,000 (Mr. Brun), 739,899 (Mr. Butler), 2,700 (Mr.
Cooperman), 253,164 (Mr. Daly), 385,364 (Mr. Hogan), 5,000 (Mr. Hubbard),
29,000 (Ms. Jordan), 20,000 (Mr. Krueger), 20,000 (Mr. Malek), 172,834 (Mr.
Martone) and 995,123 (Mr. Weinbach); and (ii) 3,724,859 shares subject to
such options granted to the directors and executive officers as a group.
(2) Includes 30,483 shares, representing the gain resulting from the exercise
of an option to purchase 38,000 shares of Common Stock on October 15, 2001.
Mr. Cooperman has elected to defer receipt of the shares representing such
gain.
(3) Excludes an aggregate of 3,200 shares of Common Stock that are owned
outright by members of Mr. Malek's immediate family or by charitable trusts
of which members of Mr. Malek's immediate family were potential
beneficiaries. Mr. Malek disclaims beneficial ownership of such shares.
(4) Excludes an aggregate of 313,665 shares of Common Stock that are owned
outright by members of Mr. Taub's immediate family or by charitable trusts
of which members of Mr. Taub's immediate family were potential
beneficiaries. Mr. Taub disclaims beneficial ownership of such shares.
7
(5) Includes 78,616 shares, representing (i) a gain of 42,877 shares resulting
from the exercise of an option to purchase 50,000 shares of Common Stock on
August 19, 1999 and (ii) a gain of 35,739 shares resulting from the
exercise of an option to purchase 40,000 shares of Common Stock on October
6, 2000. In each case, Mr. Weinbach has elected to defer receipt of the
shares representing such gain.
(6) On February 11, 2005, Capital Research and Management Company, located at
333 South Hope Street, Los Angeles, California 90071, filed a statement on
Schedule 13G with the Securities and Exchange Commission to report that
Capital Research and Management Company beneficially owns more than 5% of
the outstanding shares of Common Stock.
(7) Excludes an aggregate of 2,632 shares of Common Stock owned by members of
the immediate families of non-director officers of the Company. The non-
director officers of the Company disclaim beneficial ownership of such
shares.
8
COMPENSATION OF EXECUTIVE OFFICERS
The following sections of this Proxy Statement cover the components of the
total compensation of the Company's Chief Executive Officer and the four other
most highly compensated executive officers of the Company. These sections
include: (i) a series of tables covering annual and long-term compensation; (ii)
a pension plan table summarizing the annual benefits payable under the Company's
defined benefit retirement plans; and (iii) a report by the Compensation
Committee of the Board of Directors describing the Company's compensation
policies for fiscal year 2005 for its executive officers and the rationale upon
which its Chief Executive Officer's compensation for fiscal year 2005 was based.
Also included is a performance graph comparing the Company's total stockholder
return to the S&P 500 and a Peer Group Index over a five year period.
Summary Compensation Table
The following table summarizes the compensation of the Company's Chief
Executive Officer and the four other most highly compensated executive officers
for services in all capacities to the Company for the three years ended June 30,
2005.
Annual
Compensation Long-Term Compensation
---------------------------------------- ------------------------------
Number of
Securities
Year Other Restricted Underlying
Name and Ended Annual Stock Options All other
Principal Position June 30 Salary($) Compensation($) Bonus($) Awards Granted Compensation
---------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
Arthur F. Weinbach 2005 $816,250 $ 15,595 $990,000 $1,417,149 170,000 $ 7,541
Chairman and Chief 2004 $784,750 $ 11,694 $840,000 $1,940,748 340,000 $ 5,916
Executive Officer 2003 $759,438 $ -- $167,500 $ 844,240 184,998 $20,664
Gary C. Butler 2005 $690,755 $ 11,695 $737,000 $2,329,560 90,000 $ 7,541
President and Chief 2004 $663,776 $ 15,334 $650,000 $ 748,992 200,000 $ 5,916
Operating Officer 2003 $641,882 $ -- $120,000 $1,425,520 109,899 $ 6,312
S. Michael Martone 2005 $508,668 $211,010 $370,100 $1,496,160 33,500 $ 7,419
Group President 2004 $398,231 $ 14,189 $275,790 $ 351,090 50,000 $ 8,410
2003 $375,754 $ -- $113,145 $ 622,800 30,459 $ 6,082
Richard J. Daly 2005 $428,751 $ 9,049 $242,600 $ -- 20,000 $ 7,446
Group President 2004 $413,450 $ 7,641 $280,400 $1,106,904 50,000 $ 6,324
2003 $403,004 $ -- $ 62,677 $ -- 30,039 $ 6,165
John Hogan 2005 $428,751 $ 10,250 $235,400 $ -- 20,000 $ 7,541
Group President 2004 $413,450 $ 10,250 $269,100 $1,106,904 50,000 $ 5,916
2003 $403,004 $ -- $ 60,993 $ -- 30,039 $ 6,115
(1) For the year ended June 30, 2005, other annual compensation consists of (i)
a Company car allowance in the following amounts: Mr. Weinbach, $8,938, Mr.
Butler, $9,195, Mr. Martone, $8,507, Mr. Daly, $6,049 and Mr. Hogan,
$10,250; (ii) the amount paid by the Company on behalf of executives'
spouses that accompanied such executives on business travel in the
following amounts: Mr. Weinbach, $4,900, Mr. Butler, $2,000, and Mr. Daly,
$2,500; and associated tax payments related thereto, in the following
amounts: Mr. Weinbach, $1,757, Mr. Butler, $500 and Mr. Daly, $500; (iii)
relocation expenses for Mr. Martone of $20,547 and associated tax payments
related thereto of $12,206; and (iv) personal use of an aircraft leased by
the Company in the following amounts: Mr. Martone, $169,750. The personal
use of Company-leased aircraft benefit is valued at the actual cost to the
Company of providing the benefit to the executive. Actual cost is equal to
the cost paid by the Company for use of the aircraft of $157,048, plus
additional amounts paid to the named executive officer to compensate the
executive for the taxable income reportable by such executive for such use
of $12,702.
(2) The dollar values shown in the Restricted Stock Awards column are based on
the closing market price of the Common Stock on the date the restricted
shares were granted. Restricted shares may not be transferred or pledged,
but such Company-imposed restrictions lapse with the passage of time
(generally over periods of up to six years) and continued employment with
the Company.
9
As of June 30, 2005, the aggregate number of shares of restricted stock
held by a named executive officer and the aggregate fair market value of
such shares (calculated by multiplying the aggregate number of shares held
by such named executive officer by the difference between $41.97, the
closing price of the Common Stock on June 30, 2005, and $.10, the
consideration paid per share of restricted stock) was: Mr. Weinbach, 65,700
shares ($2,750,859); Mr. Butler, 81,000 shares ($3,391,470); Mr. Martone,
24,000 shares ($1,004,880); Mr. Daly, 24,000 shares ($1,004,880); and Mr.
Hogan, 24,000 shares ($1,004,880).
The restricted stock awards to the named executive officers reported in the
table that vest, in whole or in part, in under three years from the date of
grant, together with their vesting schedule, are as follows:
(i) Mr. Weinbach received a grant of 32,850 shares of restricted stock in
fiscal year 2005, all of which will vest in fiscal year 2007. Mr.
Weinbach received a grant of 49,750 shares of restricted stock in
fiscal year 2004, 8,450 of which vested in fiscal year 2004, 8,450 of
which vested in fiscal year 2005 and 32,850 of which will vest in
fiscal year 2006. Mr. Weinbach received a grant of 24,400 shares of
restricted stock in fiscal year 2003, all of which vested in fiscal
year 2005.
(ii) Mr. Butler received a grant of 54,000 shares of restricted stock in
fiscal year 2005, 27,000 of which will vest in fiscal year 2007 and
27,000 of which will vest in fiscal year 2008. Mr. Butler received a
grant of 19,200 shares of restricted stock in fiscal year 2004, 6,400
of which vested in fiscal year 2004, 6,400 of which vested in fiscal
year 2005 and 6,400 of which will vest in fiscal year 2006. Mr. Butler
received a grant of 41,200 shares of restricted stock in fiscal year
2003, 20,600 of which vested in fiscal year 2005 and 20,600 of which
will vest in fiscal year 2006.
(iii)Mr. Martone received a grant of 36,000 shares of restricted stock in
fiscal year 2005, 8,000 of which vested in fiscal year 2005, 8,000 of
which will vest in fiscal year 2006 and 20,000 of which will vest in
fiscal year 2007. Mr. Martone received a grant of 9,000 shares of
restricted stock in fiscal year 2004, 3,000 of which vested in fiscal
year 2004, 3,000 vested in fiscal year 2005 and 3,000 of which will
vest in fiscal year 2006. Mr. Martone received a grant of 18,000
shares of restricted stock in fiscal year 2003, 9,000 of which vested
in fiscal year 2005 and 9,000 of which will vest in fiscal year 2006.
(iv) Mr. Daly received a grant of 26,400 shares of restricted stock in
fiscal year 2004, 1,200 of which vested in fiscal year 2004, 1,200 of
which vested in fiscal year 2005, and 12,000 of which will vest in
each of fiscal year 2006 and 2007.
(v) Mr. Hogan received a grant of 26,400 shares of restricted stock in
fiscal year 2004, 1,200 of which vested in fiscal year 2004, 1,200 of
which vested in fiscal year 2005, and 12,000 of which will vest in
each of fiscal year 2006 and 2007.
Dividends are paid on restricted stock at the same rate as other
outstanding shares of Common Stock. In the event of a termination of their
employment following a change in control of the Company, the unvested
portion of the restricted stock of Messrs. Weinbach and Butler will be
subject to accelerated vesting as further described in this Proxy Statement
under the heading "Employment Agreements." In the event of a termination of
their employment following a change in control of the Company, the unvested
portion of the restricted stock of Messrs. Martone, Daly and Hogan will be
subject to accelerated vesting as further described in this Proxy Statement
under the heading "Change in Control Severance Plan for Corporate
Officers."
(3) The Company does not award Stock Appreciation Rights (SARs).
(4) For the year ended June 30, 2005, all other compensation consists of (i)
Company matching contributions to the Company's Retirement and Savings Plan
(401(k)) in the following amounts: Mr. Weinbach, $5,916, Mr. Butler,
$5,916, Mr. Martone, $5,916, Mr. Daly, $5,916 and Mr. Hogan, $5,916 and
(ii) an extraordinary one-time bonus paid to all associates of the Company,
in the following amounts: Mr. Weinbach, $1,625, Mr. Butler, $1,625, Mr.
Martone, $1,503, Mr. Daly, $1,530 and Mr. Hogan, $1,625.
10
Stock Option Plans
The Company has in effect a 1990 Key Employees' Stock Option Plan (the
"1990 Stock Option Plan") and a 2000 Stock Option Plan. The 1990 Stock Option
Plan and the 2000 Stock Option Plan collectively are referred to as the "Option
Plans." Officers and key employees are eligible to participate in the Option
Plans, which permit the issuance, in addition to non-qualified options, of
"incentive stock options" ("ISOs") within the meaning of section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company has ceased
granting options under the 1990 Stock Option Plan, but outstanding options under
the 1990 Stock Option Plan remain valid. In the event of a termination of their
employment following a change in control of the Company, the unvested portion of
the stock options of Messrs. Weinbach and Butler will be subject to accelerated
vesting as further described in this Proxy Statement under the heading
"Employment Agreements." In the event of a termination of their employment
following a change in control of the Company, the unvested portion of the stock
options of Messrs. Martone, Daly and Hogan will be subject to accelerated
vesting as further described in this Proxy Statement under the heading "Change
in Control Severance Plan for Corporate Officers."
The Option Plans are administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has the authority to determine
the employees to whom options will be granted and, subject to the Option Plans,
the terms and amount of options granted.
ISOs and non-qualified options expire no more than ten years from their
date of grant, with an exercise price no less than 100% of the fair market value
on the date of grant. The Board of Directors has resolved that, once granted, no
ISO or non-qualified option may be repriced.
An optionee has no rights as a stockholder with respect to any shares
covered by his or her options until the date of issuance of a stock certificate
to him or her for such shares. During the life of the optionee, the option is
exercisable only by him or her. Except as otherwise provided in the applicable
award agreement or as described herein, no option is exercisable more than 60
days after termination of employment. Notwithstanding the foregoing, if
termination is due to the total and permanent disability of the optionee, vested
options remain exercisable for 12 months after termination (unless such person
dies during such 12-month period, in which case the period applicable in case of
death applies) or, if termination is due to the death of an optionee, vested
options remain exercisable until the earlier of six months after the appointment
and qualification of an executor or administrator of the deceased optionee's
estate or 12 months after the death of the optionee. In addition, if the
optionee is at least 55 years of age at the time of retirement and has at least
10 years of service with the Company, then vested options will remain
exercisable for a period of 36 months from the date of such person's retirement
(unless such person dies during such 36-month period, in which case other
periods apply), or, if such retiree has five (but less than 10) years of service
with the Company, then vested options will remain exercisable for a period of 12
months from the date of such person's retirement (unless such person dies during
such 12-month period, in which case other periods apply).
The following table sets forth certain information concerning stock option
grants to the named executive officers during the fiscal year ended June 30,
2005.
Option Grants in Last Fiscal Year
----------------------------------------------------------------------------
Number of Percent of Total
Securities Options
Underlying Granted
Options to Employees Price Expiration Grant Date
Name Granted (1) in Fiscal Year ($/Share) Date Value (2)
----------------------------------------------------------------------------------------------------------------------------
Arthur F. Weinbach 170,000 1.95% $39.0300 8/11/2014 $1,935,717
Gary C. Butler 90,000 1.03% $39.0300 8/11/2014 $1,024,791
S. Michael Martone 33,500 0.39% $39.0300 8/11/2014 $381,450
Richard J. Daly 20,000 0.23% $43.2400 1/27/2015 $190,869
John Hogan 20,000 0.23% $43.2400 1/27/2015 $190,869
(1) 333,500 options were granted pursuant to the 2000 Stock Option Plan. The
options were granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant. The options were granted for terms
of ten years, and vest during periods of up to six years subsequent to the
date of grant.
11
(2) During fiscal year 2005 the Company reviewed and refined the assumptions
utilized in determining its total stock compensation expense and changed
the fair value option-pricing model from the Black-Scholes model to a
binomial model for all options granted after January 1, 2005. The reason
for this change and its effect on the Company's consolidated financial
statements are described in Note 1R to the Company's Consolidated Financial
Statements included in the Company's 2005 Annual Report. Accordingly, the
grant date values for the grants to Messrs. Weinbach, Butler and Martone
were calculated on the basis of the Black-Scholes option pricing model,
using the following assumptions: (i) options were assumed to be exercised
6.5 years after the date of grant, based on historical experience; (ii) a
risk-free interest rate of 3.97%; (iii) stock price volatility of 29.09%;
and (iv) a dividend yield of 1.15%. The grant date values for the grants to
Messrs. Daly and Hogan were calculated on the basis of the binomial option
pricing model, using the following assumptions: (i) options were assumed to
be exercised 5.5 years after the date of grant, based on historical
experience; (ii) a risk-free rate of 2.05% to 4.22%; (iii) stock price
volatility of 26.17%; and (iv) a dividend yield of 1.35%. An annual
discount factor of 3% was applied to the calculated value for all option
grants to reflect the risk of forfeiture during the option term. The actual
value of the options will depend on the market value of the Common Stock on
the dates the options are exercised. No realization of value from the
options is possible without an increase in the price of the Common Stock
from the date of grant, which increase would benefit all stockholders
commensurately.
Aggregated Option Exercises
For Fiscal Year Ended June 30, 2005
And Option Values As Of June 30, 2005
The following table sets forth certain information concerning option
exercises during fiscal year 2005 by the named executive officers and
unexercised options held by such officers at the end of fiscal year 2005.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 6/30/05 at 6/30/05
--------------------------------------------------------------
Shares Acquired
On Exercise Value Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------------
Arthur F. Weinbach 160,000 $4,746,376 797,123 990,000 $9,850,906 $2,794,600
Gary C. Butler 0 $ 0 585,899 512,000 $4,251,668 $2,017,050
S. Michael Martone 0 $ 0 163,834 143,500 $ 834,119 $ 463,725
Richard J. Daly 60,000 $1,486,989 274,164 166,000 $3,501,709 $ 294,785
John Hogan 32,000 $ 917,600 351,364 166,000 $5,660,686 $ 294,785
12
Equity Compensation Plan Information
The following table sets forth information as of June 30, 2005 regarding
compensation plans under which the Company's equity securities are authorized
for issuance:
Number of securities
Number of securities remaining available for
to be issued upon Weighted average future issuance under
exercise of exercise price of equity compensation
outstanding outstanding plans (excluding
options, warrants options, warrants securities reflected
Plan category and rights and rights in Column (a))
----------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
-----------------------------------------------------------------
Equity compensation plans approved by security holders 70,395,047 $42.23 23,959,032(1)
Equity compensation plans not approved by security 283,500 $38.81 4,011,849(3),(4),(5)
holders (2)
-----------------------------------------------------------------
Total 70,678,547 $42.22 27,970,881
=================================================================
(1) Includes 5,776,032 shares of Common Stock remaining available for future
issuance under the Company's Employees' Savings-Stock Purchase Plan, which
shares and weighted average exercise prices are not reflected in Columns
(a) and (b) of this table.
(2) Represents (i) the 1989 Non-Employee Director Stock Option Plan (the "1989
Directors' Option Plan"), (ii) the Key Employees' Restricted Stock Plan,
and (iii) the French Employees' Saving-Stock Option Plan (the "French
Plan"), none of which have been approved by the Company's stockholders. The
material terms of the Key Employees' Restricted Stock Plan are described in
Note 12 to the Company's Consolidated Financial Statements included in the
Company's 2005 Annual Report and the material terms of the French
Employees' Saving-Stock Option Plan are described in footnote (5) below.
Prior to 2004, the non-employee directors of the Company were entitled to
participate in the 1989 Directors' Option Plan pursuant to which options to
purchase 12,500 shares of Common Stock were automatically granted to
persons who become non-employee directors. In addition, each non-employee
director was granted an additional option to purchase 12,500 shares on the
first business day after each fifth anniversary of the date of the initial
grant to each such non-employee director, provided that he or she was then
still serving in such capacity. All options granted under the 1989
Directors' Option Plan were granted at the fair market value of the Common
Stock, determined on the basis of the closing price of the Common Stock in
consolidated trading on the date of grant, as reported in The Wall Street
Journal. Twenty percent of the options granted under the 1989 Directors'
Option Plan became exercisable on each anniversary of the date such options
were granted until all such options were exercisable, provided that options
became exercisable only if the director was then still serving in such
capacity, unless certain specified events occurred such as the death,
disability or retirement of a director, in which case the options
immediately vested and became fully exercisable. All options granted under
the 1989 Directors' Option Plan have a term of ten years.
(3) Following stockholder approval of the amendment to the 2000 Stock Option
Plan at the Company's 2003 Annual Meeting of Stockholders, the 1989
Directors' Option Plan was amended to prohibit any future stock option
grants thereunder.
(4) Includes 2,942,434 shares of Common Stock reserved for issuance pursuant to
the Key Employees' Restricted Stock Plan.
(5) Includes 1,069,415 shares of Common Stock reserved for issuance pursuant to
the French Plan. The French Plan is similar to the Company's Employees'
Savings-Stock Purchase Plan; French tax law prevents employees based in
France from participating in the Company's Employees' Savings-Stock
Purchase Plan. In January 1996, the Board of Directors adopted the French
Plan. Employees of the Company based in France are entitled to purchase
shares of Common Stock (such rights referred to as "Stock Options") under
the French Plan under annual offerings that commence on January 1 of each
calendar year and close on
13
December 31 of the following calendar year (each, an "Offering"). In
October 2002, the French Employees' Saving-Stock Option Plan Committee
(appointed by the Board of Directors) (the "French Stock Option Committee")
amended the French Plan to extend the offering period from 24 months to 48
months for the Offering commencing on January 1, 2003 and each Offering
commenced thereafter. Each eligible employee is granted Stock Options in
each Offering that would generally entitle such employee to purchase a
whole number of shares of Common Stock equivalent in value to 10% of his or
her base salary, based upon a price per share (in U.S. dollars) determined
in advance of such Offering by the French Stock Option Committee, subject
to adjustment for currency rate changes over the term of the Offering.
Participating employees pay for the exercise of the Stock Options through
monthly payroll deductions taken during the two-year period or four-year
period, as the case may be, of each Offering, and have the opportunity upon
the close of the Offering to exercise their Stock Options (or any portion
thereof) and purchase the associated number of shares of Common Stock. To
the extent a participating employee elects to purchase fewer shares of
Common Stock than would be available under his or her full allotment of
Stock Options, such employee would receive the cash remaining from the
aggregate payroll deductions after taking into account his or her purchase
of shares of Common Stock.
Defined Benefit Plans
The Company sponsors a tax-qualified defined benefit cash balance pension
plan, the Automatic Data Processing, Inc. Pension Retirement Plan (the "Pension
Plan"). Under the Pension Plan, the company credits participants' notional
accounts with annual contributions, which are determined based upon base salary
and years of service. The contributions range from 2.1% to 10% of base salary
and the accounts earn interest based upon the 10-year Treasury constant maturity
rates.
The Company also sponsors the Supplemental Officers' Retirement Plan (the
"Supplemental Retirement Plan"). The following table shows the estimated annual
retirement benefits payable under the Pension Plan and the Supplemental
Retirement Plan to persons in specified average compensation and credited
service classifications, assuming retirement at age 65.
Years of Credited Service at Retirement
-----------------------------------------------------------------------------------------
Final
5-Year Average
Compensation 10 15 20 25 30
----------------------------------------------------------------------------------------------------------------------------
$500,000 83,000 129,000 153,000 172,000 201,000
750,000 121,000 185,000 216,000 235,000 264,000
1,000,000 158,000 241,000 278,000 297,000 326,000
1,500,000 233,000 354,000 403,000 422,000 451,000
2,000,000 308,000 466,000 528,000 547,000 576,000
2,500,000 383,000 579,000 653,000 672,000 701,000
3,000,000 458,000 691,000 778,000 797,000 826,000
Compensation covered by the Pension Plan is limited to January 1 base
salary up to the current compensation limit in effect for the plan year.
Compensation covered under the Supplemental Retirement Plan includes base salary
and bonus amounts (paid or deferred) and compensation from restricted stock
vesting during the year. Benefits under the Supplemental Retirement Plan are
subject to reduction for social security, Pension Plan and 401(k) benefits under
certain circumstances.
Messrs. Weinbach, Butler, Martone, Daly and Hogan have 24, 29, 17, 15 and
11 years of credited service, respectively, under the Pension Plan and 16, 16,
10, 11 and 10 years of credited service, respectively, under the Supplemental
Retirement Plan. In addition, unless his employment is terminated for cause, Mr.
Weinbach will receive the maximum benefits available under the Supplemental
Retirement Plan, and his benefit will not be reduced for retirement prior to age
65 as long as the Compensation Committee deems his retirement prior to age 65 is
in the Company's best interest. The figures shown on the table above are for a
straight-life annuity commencing at age 65. Reduced benefits are available at
earlier ages and in other forms of benefits.
14
Change in Control Severance Plan for Corporate Officers
To aid the Company in retaining its officers, the Company has in effect the
Automatic Data Processing, Inc. Change in Control Severance Plan for Corporate
Officers (the "CIC Plan"), which provides for the payment of specified benefits
to officers selected by the Board of Directors if their employment terminates
after a "change in control" (as defined below) of the Company. All corporate
officers of the Company ("Participants") participate in the CIC Plan. As of
August 31, 2005, there were 28 Participants in the CIC Plan.
The CIC Plan provides that Participants who are terminated by the Company
without "cause" (as defined in the CIC Plan) or by the Participant for "good
reason" (as defined in the CIC Plan) (a "Qualifying Termination") during the
two-year period following the occurrence of a change in control will receive a
payment equal to 150% of such Participant's "current total annual compensation."
Participants who have a Qualifying Termination during the third year following
the occurrence of a change in control will receive a payment equal to 100% of
such Participant's current total annual compensation. A Participant's "current
total annual compensation" equals his or her highest rate of annual salary
during the calendar year in which his or her employment terminates or the year
immediately prior to the year of such termination plus his or her average annual
bonus compensation earned in respect of the two most recent calendar years
immediately preceding the calendar year in which his or her employment
terminates.
In addition to the payments described in the preceding paragraph, options
to purchase Company stock held by Participants who have a Qualifying Termination
during the two-year period following the occurrence of a change in control will
become fully vested and exercisable. Options to purchase Company stock held by
Participants who have a Qualifying Termination during the third year following
the occurrence of a change in control will become fully vested and exercisable
to the extent that such options would have otherwise vested within one year
after the Qualifying Termination.
Likewise, restricted shares of Company stock ("Restricted Shares") held by
Participants who have a Qualifying Termination during the two-year period
following the occurrence of a change in control will become fully vested as to
those Restricted Shares for which vesting restrictions would otherwise have
lapsed within two years after the Qualifying Termination. Restricted Shares held
by Participants who have a Qualifying Termination during the third year
following the occurrence of a change in control will become fully vested to the
extent that vesting restrictions would have lapsed within one year after the
Qualifying Termination.
Generally, the CIC Plan supersedes any other change in control severance
plans, policies and practices of the Company with respect to the Participants.
Messrs. Weinbach and Butler are entitled to receive the greater of the benefits
and payments and more favorable conditions provided under their employment
agreements and the CIC Plan on an item-by-item basis.
A "change in control" as defined in the CIC Plan will have occurred if (i)
any "Person" (as defined in Section 3(a)(9) of the Exchange Act), excluding the
Company, any subsidiary of the Company, or any employee benefit plan sponsored
or maintained by the Company (including any trustee of any such plan acting in
its capacity as trustee), becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 35% or
more of the total combined voting power of the Company's then outstanding
securities; (ii) there occurs a merger, consolidation or other business
combination of the Company (a "Transaction"), other than a Transaction
immediately following which the stockholders of the Company immediately prior to
the Transaction continue to be the beneficial owners of securities of the
resulting entity representing more than 65% of the voting power in the resulting
entity, in substantially the same proportions as their ownership of Company
voting securities immediately prior to the Transaction; or (iii) there occurs
the sale of all or substantially all of the Company's assets, other than a sale
immediately following which the stockholders of the Company immediately prior to
the sale are the beneficial owners of securities of the purchasing entity
representing more than 65% of the voting power in the purchasing entity, in
substantially the same proportions as their ownership of Company voting
securities immediately prior to the Transaction. If instructed by a Participant,
the Company will reduce payments under the CIC Plan to avoid the application of
excise taxes pursuant to section 4999 of the Code.
15
Employment Agreements
Mr. Weinbach entered into an employment agreement with the Company as of
April 28, 2005. The agreement provides for successive one-year terms unless
terminated by the Company or Mr. Weinbach at least six months prior to the end
of the applicable one-year term. Mr. Weinbach's annual base salary is to be no
less than $850,000, and his annual target bonus is to be no less than $750,000.
The actual bonus paid to Mr. Weinbach is based upon his accomplishment of
pre-established business performance goals established by the Compensation
Committee of the Board of Directors. The agreement provides that Mr. Weinbach is
to be granted performance-based restricted stock awards for a number of shares
so that restrictions may lapse in each fiscal year of the Company on shares with
a market value on the date of the award of at least $1,000,000. The agreement
also provides that Mr. Weinbach will at all times own sufficient shares of
restricted stock such that restrictions may lapse during each of the following
two fiscal years on a number of shares having a market value on the date of
their award of at least $1,000,000. In the event of Mr. Weinbach's retirement,
he will continue to own his restricted stock, and the restrictions on such stock
will continue to lapse in the same manner as would have occurred had he
continued to be an employee of the Company. The agreement further provides that
Mr. Weinbach is to be granted, on an annual basis, a minimum of 170,000 options
to purchase shares of Common Stock, which options shall vest on the schedule
determined by the Compensation Committee of the Board of Directors, and that all
options to purchase Common Stock not yet vested at the time of Mr. Weinbach's
retirement would fully vest upon his retirement. Mr. Weinbach is also entitled
to participate in all of the Company's then-current pension, 401(k), medical and
health, life, accident, disability and other insurance programs, stock purchase
and other plans and arrangements that are generally available to other Company
executives. If the Company terminates Mr. Weinbach's employment without cause,
then he is entitled to receive his base salary for 18 months and continue to
vest in his restricted stock awards and stock options. If Mr. Weinbach's
employment is terminated following a "change in control" (as defined below) of
the Company, he will receive a termination payment equal to a percentage,
ranging from 300% if such termination occurs within two years after such change
in control to 100% if it occurs after the third year, of his annual base salary
and his "current total annual compensation" (as defined below). In addition, all
of his stock options will become fully vested and all of his restricted stock
having restrictions lapsing within three years after such termination shall have
such restrictions automatically removed. In the event Mr. Weinbach elects to
retire, the Company will provide Mr. Weinbach with office and secretarial
support until his 72nd birthday, provided that such office will not be located
in any Company facility; in addition, Mr. Weinbach will be allowed to keep his
Company car and to use the Company's travel group's services to make personal
travel arrangements using his own funds.
Under the Supplemental Retirement Plan, if Mr. Weinbach's employment
terminates for any reason other than cause (as defined in his employment
agreement), he shall be deemed to have 17 years of credited service as of the
date of his termination, his "final average annual pay," as calculated under the
plan, shall be deemed to include the applicable compensation attributable to the
periods covered by the termination payments made to him under his employment
agreement and, if the Compensation Committee of the Board of Directors deems it
to be in the Company's best interests that he retire prior to his 65th birthday,
any early retirement benefit payment under the Supplemental Retirement Plan will
not be actuarially reduced to reflect the payment of benefits before such date.
The definition of a "change in control" in Mr. Weinbach's employment
agreement is the same as the definition of a "change in control" under the CIC
Plan except for the percentage in clause (i) of such CIC Plan definition which
is 25% under Mr. Weinbach's employment agreement.
Mr. Weinbach's "current total annual compensation" equals his highest rate
of annual salary during the calendar year in which his employment terminates or
the year immediately prior to the year of such termination plus his average
annual bonus compensation earned in respect of the two most recent calendar
years immediately preceding the calendar year in which his employment
terminates. Mr. Weinbach's employment agreement provides that in the event any
payment from the Company to him results in the imposition of an excise tax under
section 4999 of the Code, he will receive an additional payment such that after
the payment of all such excise taxes and any taxes on the additional payments he
will be in the same after-tax position as if no excise tax had been imposed.
16
Mr. Butler entered into an agreement with the Company that provides that if
his employment is terminated following a "change in control" (as defined below)
of the Company, he will receive a termination payment equal to a percentage,
ranging from 200% if such termination occurs within two years of such change in
control to 100% if it occurs after the third year, of his annual base salary and
his average annual bonus for the prior two years. In addition, all of his stock
options will become fully vested and all of his restricted stock having
restrictions lapsing within three years after such termination shall have such
restrictions automatically removed.
The definition of a "change in control" in Mr. Butler's employment
agreement, as modified by the CIC Plan, is the same as the definition of a
"change in control" under Mr. Weinbach's employment agreement noted above.
Mr. Butler's employment agreement provides that in the event any payment
from the Company to him results in the imposition of an excise tax under section
4999 of the Code, he will receive an additional payment such that after the
payment of all such excise taxes and any taxes on the additional payments he
will be in the same after-tax position as if no excise tax had been imposed.
Certain Transactions
Mr. Krueger, a director of the Company, is Vice Chairman of Lehman
Brothers, which provided various investment banking and brokerage services to
the Company in fiscal year 2005.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Compensation Committee of the Board of Directors is comprised of four
independent directors: Messrs. Brenneman, Brun, Jones and Malek.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's executive compensation program. The Committee is
responsible for setting, on an annual basis, on behalf of the Board of
Directors, the base salaries and the total compensation levels of the Chairman
and Chief Executive Officer, the President and Chief Operating Officer, the
Group Presidents of the Employer Services and Brokerage Services business and
the Presidents of the Dealer Services and Claims Services businesses, as well as
the compensation strategy for other key executives of the Company. The Committee
approves all stock option grants and grants of restricted stock to these and
other key executives.
The current members of the Committee are: Messrs. Brenneman, Brun, Jones
and Malek. Each member of the Committee has been determined to be independent
under the Categorical Standards of Director Independence adopted by the Board of
Directors. In addition, each member of the Committee is a "Non-Employee
Director" as defined in Rule 16b-3 of the U.S. Securities and Exchange Act of
1934 and an "outside director" as defined in the regulations under Section
162(m) of the Internal Revenue Code. None of the Committee members has ever been
an employee of the Company or eligible to participate in any of the Company's
compensation programs or plans for Company employees. The Committee acts under a
written charter adopted by the Board of Directors, which may be viewed online on
the Company's website at www.adp.com under "Governance" in the "About ADP"
section. There were four meetings of the Committee in fiscal year 2005, all of
which involved executive sessions with no Company executives present.
The Committee is authorized to engage the services of outside advisors,
experts and others to assist the Committee. For fiscal year 2005, the Committee
evaluated several reports regarding prevailing competitive executive
compensation practices prepared by an external compensation consultant,
including the competitiveness of base pay, incentive bonus and long-term
incentives. The Committee has been advised by the consultant that the Company's
compensation programs for the Named Executive Officers are targeted to deliver a
competitive total compensation package that ties pay to the overall performance
of the Company.
It is the policy of the Committee to maximize the tax deductibility of
compensation payments to executive officers. Our stockholders have approved our
incentive plans designed and administered to qualify compensation awarded
thereunder as "performance-based," and therefore not subject to the deduction
limits of 162(m) of the
17
Internal Revenue Code and the regulations thereunder. The Committee may,
however, from time to time award compensation that is non-deductible under
162(m) when, in the exercise of the Committee's business judgment, such award
would be in the best interest of the Company and its stockholders.
Compensation Policies
The Committee believes that compensation paid to executive officers should
be closely aligned with the performance of the Company on both a short-term and
long-term basis, and that such compensation should assist the Company in
attracting and retaining key executives critical to its long-term success. The
Company's executive compensation policies for fiscal year 2005, which were
reviewed by the Committee, were designed to emphasize market competitive
compensation, with direct links to business objectives. Accordingly, the primary
components of the compensation package for key executives for fiscal year 2005
were:
o base salary;
o bonus;
o restricted stock; and
o stock options.
Total annual compensation consists of base salary, cash bonus, yearly
vesting of restricted stock and projected value of stock options. The Company
sets its total annual compensation target for its executives by evaluating the
compensation arrangements of comparable sized companies, which the Committee
defines as publicly traded companies with annual revenues between $3 and $12
billion, as surveyed by the compensation consultant. In addition to reviewing
executive officers' compensation against the comparative group, the Committee
also considers recommendations from the Chairman and CEO regarding total
compensation for those executives reporting directly to him.
Base Salary and Bonus
The base salaries for executives for fiscal year 2005 were determined based
upon the job grade of the position, the salary range of the salary grade and the
performance of the executive and are set forth in the "Salary" column of the
Summary Compensation Table. To determine the appropriate salary grade for a
position, the Company uses a market-pricing model that compares the Company's
salary levels to the peer group of Company's discussed above. Increases in
salary are based on the Committee's subjective evaluation of such factors as the
individual's level of responsibility and performance. Merit increases normally
take effect in April of each year.
Key executives also earned cash bonuses in fiscal year 2005 based upon both
individual and business annual accomplishments compared to pre-established
goals. The amounts of such bonuses are set forth in the "Bonus" column of the
Summary Compensation Table. Factors considered by the Committee in assessing
individual performance included, but were not limited to:
o Financial Results: earnings per share growth, revenue growth,
achievement of a return on equity target, net operating income growth,
achievement of sales targets and achievement of client retention
targets.
o Strategic Planning: strategic planning and implementation, capital
allocation, technology and product creation and implementation
objectives.
o Leadership and Effectiveness: management development and succession
planning, personal leadership and the achievement of "Employer of
Choice" objectives.
The Committee considers all factors collectively in determining the
executive officers' cash bonus. Each executive officer's primary areas of
responsibility vary within the performance criteria and not every executive
officer is allocated responsibility for each criteria. In addition, the weight
of a particular factor may vary from year to year depending on the
pre-established goals and objectives of the organization, thus ensuring the
alignment of annual financial objectives with strategic leadership initiatives.
18
Long-Term Compensation-Restricted Stock and Stock Options
The Committee believes that equity based compensation in the form of
restricted stock and stock options is vital in linking management to stockholder
interests and ensures that the Company's executive officers have a continuing
stake in the long-term success of the Company.
The Company from time to time grants restricted stock to executive officers
and other key employees in recognition of their individual levels of relative
responsibility and prospective contributions to the business. Company-imposed
restrictions on transfer or pledge of the restricted stock generally lapse over
a period of up to six years, and are subject to continued employment. The
restricted stock plan is designed to encourage stock ownership, longevity and
long-term performance. The Named Executive Officers were awarded the number of
shares of restricted stock set forth in footnote 2 to the Summary Compensation
Table.
The Committee granted stock options to each executive officer during fiscal
year 2005 under the Company's 2000 Stock Option Plan. Stock options are granted
to executive officers and other key employees in amounts based upon their job
grade and individual performance. Stock options are granted with an exercise
price equal to the fair market value of the Company's common stock as of the
date of grant, and have a term of up to ten years. Stock options provide
incentive for the creation of stockholder value over the long-term, and also
significantly aid in executive recruiting and retention. The Named Executive
Officers were awarded the number of stock options shown in the table headed
"Option Grants in 2005." The stock option grants vest ratably over a 5 year
period, beginning on the second anniversary of the grant date, subject to
continued employment.
Benefits
Executives participate in the broad-based benefit plans offered generally
to Company employees (broad-based retirement, 401(k), health insurance and other
employee benefits) on the same terms as those offered to all other employees.
The Company also provided certain supplemental benefits to key executives during
fiscal year 2005 to ensure that it could compete effectively for executive
talent. These supplemental benefits include supplemental retiree medical
coverage and certain other additional retirement benefits described in the
"Defined Benefit Plans" section of this Proxy Statement.
CEO Compensation
The Committee meets annually in executive session to evaluate the
performance of the Chief Executive Officer and to determine his compensation.
Mr. Weinbach earned a base salary of $816,250 and a bonus of $990,000
during fiscal year 2005. Mr. Weinbach's compensation is based on the
satisfaction of specific performance objectives and the terms of his employment
agreement, including for fiscal year 2005, the Company's achievement of
pre-determined earnings per share growth, net operating income growth and other
financial metrics.
The long-term incentives provided to the Chief Executive Officer are
provided in the form of restricted stock and stock options. This ensures that
the Chief Executive Officer and the Company's stockholders have a commonality of
purpose in enhancing stockholder value. In fiscal year 2005, the Committee
awarded Mr. Weinbach 170,000 options to purchase Common Stock of the Company.
These options were awarded under the Company's 2000 Stock Option Plan and carry
an exercise price of $39.03, which is equal to 100% of the fair market value of
the Company's Common Stock on the date of grant. The options will expire in
August of 2014 and become exercisable in increments of 20% beginning on the
second anniversary of the grant date. Under the terms of Mr. Weinbach's
employment agreement with the Company, all options to purchase Company common
stock not yet vested at the time of his retirement would fully vest upon his
retirement. During fiscal year 2005, Mr. Weinbach was also awarded 32,850 shares
of restricted stock to further align his interests with the interests of the
stockholders. This restricted stock award vests in 2007. Under the terms of Mr.
Weinbach's employment agreement, in the event of Mr. Weinbach's retirement, he
will continue to own his restricted stock, and the restrictions on such stock
will continue to lapse in the same manner as would have occurred had he
continued to be an employee of the Company.
19
Mr. Weinbach's total compensation including the long-term component
approximates the market median of chief executive officers at companies with
annual revenues between $3 and $12 billion, as reported in surveys conducted by
an external consultant.
Compensation Committee
of the Board of Directors
Gregory D. Brenneman, Chairman
Leslie A. Brun
John P. Jones
Frederic V. Malek
20
PERFORMANCE GRAPH
The following graph compares the cumulative return on the Common Stock for
the most recent five years with the cumulative total return on the S&P 500 Index
and a Peer Group Index* comprised of industry participants over the same period,
assuming an initial investment of $100 on June 30, 2000, with all dividends
reinvested.
AUTOMATIC DATA PROCESSING, INC. S&P 500 INDEX PEER GROUP
6/30/00 100.00 100.00 100.00
6/30/01 93.43 85.21 130.09
6/30/02 82.59 69.92 108.83
6/30/03 65.10 70.11 107.07
6/30/04 81.62 83.49 122.36
6/30/05 82.95 88.74 131.18
*The Peer Group Index is comprised of the following companies:
Ceridian Corp. Fiserv, Inc.
Computer Sciences Corporation Paychex, Inc.
DST Systems, Inc. SunGard Data Systems Inc.
Electronic Data Systems Corporation Total System Services, Inc.
First Data Corporation
21
AUDIT COMMITTEE REPORT
The Audit Committee (the "Committee") is comprised of the four independent
members of the Board of Directors named below. Each member of the Audit
Committee satisfies the independence requirements of the NYSE rules currently in
effect. The Board of Directors has determined that Messrs. Brenneman, Cooperman
and Hubbard are audit committee financial experts. The Committee acts under a
written charter, which may be viewed online on the Company's website at
www.adp.com under "Governance" in the "About ADP" section.
The Committee oversees the financial management of the Company, the
Company's independent auditors and financial reporting procedures of the Company
on behalf of the Board of Directors. In fulfilling its oversight
responsibilities, the Committee reviewed and discussed the Company's audited
financial statements with management, which has primary responsibility for the
preparation of the financial statements. In performing its review, the Committee
discussed the propriety of the application of accounting principles by the
Company, the reasonableness of significant judgments and estimates used in the
preparation of the financial statements, and the clarity of disclosures in the
financial statements. Management represented to the Committee that the Company's
financial statements were prepared in accordance with generally accepted
accounting principles. The Committee also reviewed and discussed the Company's
audited financial statements with Deloitte & Touche LLP, an independent
registered public accounting firm, the Company's independent auditors for fiscal
year 2005, which is responsible for expressing an opinion on the conformity of
the Company's audited financial statements with generally accepted accounting
principles.
During the course of fiscal year 2005, management completed the
documentation, testing and evaluation of the Company's system of internal
control over financial reporting in response to the requirements set forth in
Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit
Committee was kept apprised of the progress of the evaluation and provided
oversight and advice to management during the process. In connection with this
oversight, the Audit Committee received periodic updates provided by management
and Deloitte & Touche LLP at each Audit Committee meeting. At the conclusion of
the process, management provided the Audit Committee with, and the Audit
Committee reviewed, a report on the effectiveness of the Company's internal
control over financial reporting. The Audit Committee also reviewed the report
of management contained in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2005 filed with the SEC, as well as Deloitte & Touche
LLP's Report of Independent Registered Public Accounting Firm included in the
Company's Annual Report related to its audit of (i) the consolidated financial
statements and financial statement schedule, (ii) management's assessment of the
effectiveness of the Company's internal control over financial reporting and
(iii) the effectiveness of internal control over financial reporting. The Audit
Committee continues to oversee the Company's efforts related to its internal
control over financial reporting and management's preparations for the
evaluation in fiscal 2006.
The Committee has discussed with Deloitte & Touche LLP the matters that are
required to be discussed by Statement on Auditing Standards No. 61
(Communication With Audit Committees), as amended. Deloitte & Touche LLP has
provided to the Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and the Committee discussed with Deloitte & Touche LLP the firm's
independence, including the matters in those written disclosures. The Committee
also considered whether Deloitte & Touche LLP's provision of non-audit services
to the Company and its affiliates and the fees and costs billed and expected to
be billed by Deloitte & Touche LLP for those services, is compatible with
Deloitte & Touche LLP's independence. The Committee has discussed with the
Company's internal and independent auditors, with and without management
present, their evaluations of the Company's internal accounting controls and the
overall quality of the Company's financial reporting.
In addition, the Committee discussed with management, and took into
consideration when issuing this report, the Auditor Independence Policy, which
prohibits the Company or any of its affiliates from entering into most non-audit
related consulting arrangements with its independent auditors on a going-forward
basis. The Auditor Independence Policy is discussed in further detail below
under "Independent Registered Public Accounting Firms' Fees."
22
Based on the considerations referred to above, the Committee recommended to
the Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for fiscal year 2005. In addition, the
Committee appointed Deloitte & Touche LLP as the independent auditors for the
Company for fiscal year 2006.
Audit Committee
of the Board of Directors
Leon G. Cooperman, Chairman
Gregory D. Brenneman
R. Glenn Hubbard
Ann Dibble Jordan
23
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS' FEES
In addition to retaining Deloitte & Touche LLP, an independent registered
public accounting firm, to audit the consolidated financial statements for
fiscal year 2005, Deloitte & Touche LLP were retained by the Audit Committee to
provide various services in fiscal year 2005 and fiscal year 2004. The aggregate
fees billed by Deloitte & Touche LLP in fiscal year 2005 and fiscal year 2004
for these various services were:
Type of Fees FY 2005 FY 2004
--------------------------------------------------------------------------------
($ in thousands)
Audit Fees $6,277 $4,605
Audit-Related Fees 2,435 3,560
Tax Fees 960 1,453
All Other Fees 0 0
--------------------------------------------------------------
Total $9,672 $9,618
==============================================================
In the above table, in accordance with SEC definitions, "audit fees" are
fees the Company paid Deloitte & Touche LLP for professional services for the
audit of the Company's consolidated financial statements included in the
Company's Annual Report on Form 10-K and review of financial statements included
in the Company's Quarterly Reports on Form 10-Q, services that are normally
provided by Deloitte & Touche LLP in connection with statutory and regulatory
filings or engagements or any other services performed by Deloitte & Touche LLP
to comply with generally accepted auditing standards; for fiscal year 2005,
"audit fees" also included the audit of management's assessment of internal
control over financial reporting, as required by the Sarbanes-Oxley Act of 2002,
Section 404; "audit-related fees" are fees billed by Deloitte & Touche LLP for
assurance and related services that are typically performed by the independent
public accountant (e.g., due diligence services, employee benefit plan audits
and internal control reviews); "tax fees" are fees for tax compliance, tax
advice and tax planning; and "all other fees" are fees billed by Deloitte &
Touche LLP to the Company for any services not included in the first three
categories.
The Board of Directors has adopted a policy (the "Auditor Independence
Policy") that prohibits the Company's independent auditors from providing: (i)
bookkeeping or other services related to the accounting records or financial
statements of the Company; (ii) financial information systems design and
implementation services; (iii) appraisal or valuation services, fairness
opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal
audit outsourcing services; (vi) management functions or human resources; (vii)
broker or dealer, investment adviser or investment banking services; (viii)
legal services and expert services unrelated to the audit; and (ix) any other
service that the Public Company Accounting Oversight Board determines, by
regulation, is impermissible. The independent auditors are only permitted to
provide services to the Company that have been pre-approved by the Audit
Committee. All services provided to the Company by the independent auditors in
fiscal year 2005 and fiscal year 2004 were pre-approved by the Audit Committee.
The independent auditors may only perform non-prohibited non-audit services that
have been specifically approved in advance by the Audit Committee, regardless of
the dollar value of the services to be provided. In addition, before the Audit
Committee will consider granting its approval, the Company's management must
have determined that such specific non-prohibited non-audit services can be best
performed by the independent auditors based on its in-depth knowledge of the
Company's business, processes and policies. The Audit Committee, as part of its
approval process, considers the potential impact of any proposed work on the
independent auditors' independence.
24
PROPOSAL 2
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
At the Annual Meeting of Stockholders, the stockholders will vote on the
ratification of the appointment by the Audit Committee of Deloitte & Touche LLP,
an independent registered public accounting firm, as the independent auditors to
audit the accounts of the Company and its subsidiaries for the fiscal year that
began on July 1, 2005. Deloitte & Touche LLP is a member of the SEC Practice
Section of the American Institute of Certified Public Accountants. A
representative of Deloitte & Touche LLP will be present at the Annual Meeting of
Stockholders and will have an opportunity to make a statement if he or she
desires. He or she will be available to answer appropriate questions.
Stockholder Approval Required
The affirmative vote of the holders of a majority of the shares present in
person or by proxy and entitled to vote thereon at the meeting of stockholders
is required to ratify Deloitte & Touche LLP's appointment as the Company's
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
OTHER MATTERS
So far as the Board of Directors is aware, only the aforementioned matters
will be acted upon at the meeting. If any other matters properly come before the
meeting, the accompanying proxy may be voted on such other matters in accordance
with the best judgment of the person or persons voting said proxy.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended June 30, 2005, the Company believes that all
filing requirements under Section 16(a) of the Exchange Act applicable to its
officers, directors and beneficial owners have been complied with, except that
there was an inadvertent omission to report the sale of shares of Company Common
Stock in fiscal year 2005 on a Form 4 on behalf of Mr. Sheldon, an executive
officer, which was subsequently reported in a Form 4 filed on behalf of Mr.
Sheldon in December 2004.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2006 Annual Meeting
of Stockholders must be received by the Company for inclusion in the 2006 Proxy
Statement no later than May 24, 2006.
For any stockholder proposal that is not submitted for inclusion in the
2006 Proxy Statement (as described in the preceding paragraph) but is instead
sought to be presented directly at the 2006 Annual Meeting of Stockholders, SEC
rules permit management to vote proxies in its discretion if the Company (a)
receives notice of the proposal before the close of business on August 8, 2006
and advises stockholders in next year's Proxy Statement about the nature of the
matter and how management intends to vote on such matter, or (b) does not
receive notice of the proposal prior to the close of business on August 8, 2006.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended June 30, 2005, which
is not a part of the proxy soliciting material, is being mailed to the Company's
stockholders together with this Proxy Statement.
ACCESS TO PROXY MATERIALS, ANNUAL REPORT AND OTHER DOCUMENTS
This Proxy Statement and the Company's Annual Report may be viewed online
at www.adp.com under "Investor Information" in the "About ADP" section.
Stockholders of record may elect to view future proxy statements and annual
reports over the Internet rather than receiving paper copies in the mail and can
thereby
25
save the Company the cost of producing and mailing these documents. If you vote
your shares over the Internet this year, you will be given the opportunity to
choose electronic access at the time you vote. You can also choose electronic
access by following the instructions that you will receive in connection with
next year's Annual Meeting of Stockholders. Stockholders who choose electronic
access will receive an e-mail next year containing the Internet address to use
to access the proxy statement and annual report. Your choice will remain in
effect until you cancel it. You do not have to elect Internet access each year.
The Company has established Corporate Governance Principles, a Code of
Business Conduct and Ethics, and a Code of Ethics for its Principal Executive
Officer and Senior Financial Officers. In addition, each committee of the
Company's Board of Directors-Audit, Compensation, Nominating/Corporate
Governance and Executive-acts under a written charter. All of these documents
may be viewed online on the Company's website at www.adp.com under "Governance"
in the "About ADP" section, except for the Code of Business Conduct and Ethics
and Code of Ethics for its Principal Executive Officer and Senior Financial
Officers, which may be found under "Ethics" in the "About ADP" section. In
addition, these documents are available in print to any stockholder who requests
then by writing to Investor Relations at the Company's headquarters.
IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS
In accordance with notices previously sent to stockholders, the Company is
delivering one annual report and Proxy Statement in one envelope addressed to
all stockholders who share a single address unless they have notified the
Company that they wish to "opt out" of the program known as "householding."
Householding is intended to reduce the Company's printing and postage costs.
If you are a registered stockholder and you choose not to have the
aforementioned disclosure documents sent to a single household address as
described above, you must "opt-out" by writing to ADP Investor Communication
Services, Householding Department, 51 Mercedes Way, Edgewood, New York 11717 or
by calling 1-800-542-1061 and we will cease householding all such disclosure
documents within 30 days. If we do not receive instructions to remove your
account(s) from this service, your account(s) will continue to be "householded"
until we notify you otherwise.
If you own Common Stock in nominee name (such as through a broker),
information regarding householding of disclosure documents should have been
forwarded to you by your broker.
MISCELLANEOUS
Stockholders who wish to communicate with the Board of Directors or the
non-management directors, individually or as a group, may do so by sending a
detailed letter to P.O. Box 34, Roseland, New Jersey 07068, leaving a message
for a return call at 973-974-5770 or sending an email to
adp_audit_committee@adp.com. Communications from stockholders will be relayed to
the non-management director to which such communication is addressed, if
applicable, or to the most appropriate committee chairperson, the Chairman of
the Board or the full Board of Directors, unless, in any case, they are outside
the scope of matters considered by the Board of Directors or duplicative of
other communications previously forwarded to the Board of Directors.
Communications to the Board of Directors, the non-management directors or to any
individual director that relate to the Company's accounting, internal accounting
controls or auditing matters are referred to the chairperson of the Audit
Committee.
It is the Company's policy that members of the Board of Directors attend
the Annual Meetings of Stockholders. All of the current members of the Board of
Directors that were elected at last year's meeting attended the Company's 2004
Annual Meeting of Stockholders.
For the Board of Directors
James B. Benson
Secretary
Roseland, New Jersey
September 21, 2005
26
APPENDIX A
AUTOMATIC DATA PROCESSING, INC.
CATEGORICAL STANDARDS OF DIRECTOR INDEPENDENCE
A director who meets all of the following categorical standards shall be
presumed to be "independent":
o During the past five years, the Company has not employed the director,
and has not employed (except in a non-officer capacity) any of his or
her immediate family members.
o During any twelve-month period within the past five years, neither the
director nor any of his or her immediate family members has received
more than $60,000 per year in direct compensation from the Company,
other than director and committee fees and pension or other forms of
deferred compensation (provided such compensation is not contingent in
any way on continued service).
o During the past five years, the director has not been employed (or
affiliated with) the Company's present or former internal or external
auditors, nor has any of his or her immediate family members been so
employed or affiliated in a professional capacity.
o During the past five years, neither the director, nor any of his or
her immediate family members, has been employed by a company where an
executive officer of the Company serves on such company's compensation
(or equivalent) committee.
o The director does not (directly or indirectly as a partner,
shareholder or officer of another company) provide consulting, legal
or financial advisory services to the Company or the Company's present
or former auditors.
o During the past five years, the director has not been an employee or
executive officer, nor has any of his or her immediate family members
been an executive officer, of a company that makes payments to, or
receives payments from, the Company of property or services in an
amount which, in any fiscal year of such company, exceeds, 1% of such
company's consolidated gross revenues.
o During the past five years, the director has not had a personal
services contract with the Company, its chairman, chief executive
officer or other executive officer, or any affiliate of the Company.
o During the past five years, the director has not been an employee,
officer or director of a foundation, university or other non-profit
organization to which the Company gave directly, or indirectly through
the provision of services, more than $100,000 per annum or 1% of the
total annual donations received (whichever is less).
o The director does not, either directly or indirectly as a partner,
shareholder or officer of another company, own more than 5% of the
Company's common stock.
A-1
APPENDIX B
AUTOMATIC DATA PROCESSING, INC.
AUDIT COMMITTEE CHARTER
I. Purpose
The primary functions of the Audit Committee are to assist the Board of
Directors in fulfilling its oversight responsibilities with respect to: (i) the
Company's systems of internal controls regarding finance, accounting, legal
compliance and ethical behavior; (ii) the Company's auditing, accounting and
financial reporting processes generally; (iii) the Company's financial
statements and other financial information provided by the Company to its
stockholders, the public and others; (iv) the Company's compliance with legal
and regulatory requirements; and (v) the performance of the Company's Corporate
Audit Department and independent auditors. Consistent with these functions, the
Committee will encourage continuous improvement of, and foster adherence to, the
Company's policies, procedures and practices at all levels.
Although the Committee has the powers and responsibilities set forth in
this Charter, the role of the Committee is oversight. The members of the
Committee are not full-time employees of the Company and may or may not be
accountants or auditors by profession or experts in the fields of accounting or
auditing and, in any event, do not serve in such capacity. Consequently, it is
not the duty of the Committee to conduct audits or to determine that the
Company's financial statements and disclosures are complete and accurate and are
in accordance with generally accepted accounting principles and applicable rules
and regulations. These are the responsibilities of Management and the
independent auditors.
II. Organization
The Audit Committee shall be comprised of three or more directors as
determined by the Board of Directors, each of whom shall satisfy the
independence, financial literacy and experience requirements of Section 10A of
the Securities Exchange Act of 1934, The New York Stock Exchange and any other
regulatory requirements.
Committee members shall be elected by the Board at the annual
organizational meeting of the Board of Directors on the recommendation of the
Nominating/Corporate Governance Committee; members shall serve until their
successors shall be duly elected and qualified. The Committee's chairperson
shall be designated by the full Board or, if it does not do so, the Committee
members shall elect a chairperson by vote of a majority of the full Committee.
The Committee may form and delegate authority to subcommittees when
appropriate.
III. Meetings
The Audit Committee shall meet four times per year on a quarterly basis, or
more frequently as circumstances require. The Committee shall require members of
Management, the Corporate Audit Department, the independent auditors and others
to attend meetings and to provide pertinent information, as necessary. As part
of its job to foster open communications, the Committee shall meet in separate
executive sessions during each of its four regularly scheduled meetings with
Management, the head of the Corporate Audit Department and the Company's
independent auditors to discuss any matters that the Committee (or any of these
groups) believes should be discussed privately.
IV. Responsibilities and Duties
In recognition of the fact that the Company's independent auditors are
ultimately accountable to the Audit Committee, the Committee shall have the sole
authority and responsibility to select, evaluate, and, where appropriate,
replace the independent auditors or nominate the independent auditors for
shareholder approval.
B-1
The Committee shall approve all audit engagement fees and terms and all
non-audit engagements with the independent auditors. The Committee shall consult
with Management but shall not delegate these responsibilities.
To fulfill its responsibilities and duties, the Audit Committee shall:
With respect to the independent auditors:
----------------------------------------
1. Be directly responsible for the appointment, compensation and oversight of
the work of the independent auditors (including resolution of disagreements
between Management and the independent auditors regarding financial
reporting) for the purpose of preparing its audit report or related work.
2. Have the sole authority to review in advance, and grant any appropriate
pre-approvals of, (i) all auditing services to be provided by the
independent auditors and (ii) all non-audit services to be provided by the
independent auditors as permitted by Section 10A of the Securities Exchange
Act of 1934, and in connection therewith to approve all fees and other
terms of engagement. The Committee shall also review and approve
disclosures required to be included in Securities and Exchange Commission
periodic reports filed under Section 13(a) of the Securities Exchange Act
of 1934 with respect to non-audit services.
3. Review the performance of the Company's independent auditors on at least an
annual basis.
4. On an annual basis, review and discuss with the independent auditors all
relationships the independent auditors have with the Company in order to
evaluate the independent auditors' continued independence. The Committee:
(i) shall ensure that the independent auditors submit to the Committee on
an annual basis a written statement (consistent with Independent Standards
Board Standards No. 1) delineating all relationships and services that may
impact the objectivity and independence of the independent auditors; (ii)
shall discuss with the independent auditors any disclosed relationship or
services that may impact the objectivity and independence of the
independent auditors; and (iii) shall satisfy itself as to the independent
auditors' independence.
5. At least annually, obtain and review an annual report from the independent
auditors describing (i) the independent auditors' internal quality control
procedures and (ii) any material issues raised by the most recent internal
quality control review, or peer review, of the independent auditors, or by
any inquiry or investigation by governmental or professional authorities,
within the preceding five years, respecting one or more independent audits
carried out by the independent auditors, and any steps taken to deal with
any such issues.
6. Confirm that the lead audit partner, or the lead audit partner responsible
for reviewing the audit, for the Company's independent auditors has not
performed audit services for the Company for each of the five previous
fiscal years.
7. Review all reports required to be submitted by the independent auditors to
the Committee under Section 10A of the Securities Exchange Act of 1934.
8. Review, based upon the recommendation of the independent auditors and the
Corporate Audit Department, the scope and plan of the work to be done by
the independent auditors for each fiscal year.
With respect to financial statements:
------------------------------------
9. Review and discuss with Management, the Corporate Audit Department and the
independent auditors the Company's quarterly financial statements
(including disclosures made in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the independent
auditors' review of the quarterly financial statements) prior to submission
to stockholders, any governmental body, any stock exchange or the public.
10. Review and discuss with Management, the Corporate Audit Department and the
independent auditors the Company's annual audited financial statements
(including disclosures made in "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
B-2
11. Discuss with the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61, as amended, relating to the
conduct of the audit.
12. Recommend to the Board of Directors, if appropriate, that the Company's
annual audited financial statements be included in the Company's annual
report on Form 10-K for filing with the Securities and Exchange Commission.
13. Prepare the report required by the Securities and Exchange Commission to be
included in the Company's annual proxy statement and any other Committee
reports required by applicable securities laws or stock exchange listing
requirements or rules.
Periodic and Annual Reviews:
---------------------------
14. Periodically review separately with each of Management, the independent
auditors and the Corporate Audit Department (i) any significant
disagreement between Management and the independent auditors or the
Corporate Audit Department in connection with the preparation of the
financial statements, (ii) any difficulties encountered during the course
of the audit (including any restrictions on the scope of work or access to
required information), and (iii) Management's response to each.
15. Periodically discuss with the independent auditors, without Management
being present, (i) their judgments about the quality, appropriateness, and
acceptability of the Company's accounting principles and financial
disclosure practices, as applied in its financial reporting, and (ii) the
completeness and accuracy of the Company's financial statements.
16. Consider and approve, if appropriate, significant changes to the Company's
accounting principles and financial disclosure practices as suggested by
the independent auditors, Management or the Corporate Audit Department.
Review with the independent auditors, Management and the Corporate Audit
Department, at appropriate intervals, the extent to which any changes or
improvements in accounting or financial practices, as approved by the
Committee, have been implemented.
17. Review with Management, the independent auditors, the Corporate Audit
Department and the Company's counsel, as appropriate, any legal, regulatory
or compliance matters that could have a significant impact on the Company's
financial statements, including significant changes in accounting standards
or rules as promulgated by the Financial Accounting Standards Board, the
Securities and Exchange Commission or other regulatory authorities with
relevant jurisdiction.
18. Obtain and review an annual report from Management relating to the
accounting principles used in preparation of the Company's financial
statements (including those policies for which Management is required to
exercise discretion or judgments regarding the implementation thereof).
Discussions with Management:
---------------------------
19. Review and discuss with Management the Company's earnings press releases
(including the use of "pro forma" or "adjusted" non-GAAP information) as
well as financial information and earnings guidance provided to analysts
and rating agencies.
20. Review and discuss with Management all material off-balance sheet
transactions, arrangements, obligations (including contingent obligations)
and other relationships of the Company with unconsolidated entities or
other persons, that may have a material current or future effect on
financial condition, changes in financial condition, results of operations,
liquidity, capital resources, capital reserves or significant components of
revenues or expenses.
21. Inquire about the application of the Company's accounting policies and its
consistency from period to period, and the compatibility of these
accounting policies with generally accepted accounting principles, and
(where appropriate) the Company's provisions for future occurrences which
may have a material impact on the financial statements of the Company.
B-3
22. Review and discuss with Management (i) the Company's major financial risk
exposures and the steps Management has taken to monitor and control such
exposures (including Management's risk assessment and risk management
policies), and (ii) the program that Management has established to monitor
compliance with its code of business ethics and conduct for directors,
officers and employees.
23. Review and discuss with Management all disclosures made by the Company
concerning any material changes in the financial condition or operations of
the Company.
24. Obtain explanations from Management for unusual variances in the Company's
annual financial statements from year to year, and review annually the
independent auditors' letter of the recommendations to Management and
Management's response.
With respect to the internal audit function and internal controls:
-----------------------------------------------------------------
25. Review, based upon the recommendation of the independent auditors and the
head of the Corporate Audit Department, the scope and plan of the work to
be done by the Corporate Audit Department.
26. Review and approve the appointment and replacement of the head of the
Corporate Audit Department, and review on an annual basis the performance
of the Corporate Audit Department.
27. In consultation with the independent auditors and the Corporate Audit
Department, (a) review the adequacy of the Company's internal control
structure and system, and the procedures designed to insure compliance with
laws and regulations, and (b) discuss the responsibilities, budget and
staffing needs of the Corporate Audit Department.
28. Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
Other:
-----
29. Review and approve all related-party transactions.
30. Review and approve (i) any change or waiver in the Company's code of
business conduct and ethics for directors or executive officers, and (ii)
any disclosure made on Form 8-K regarding such change or waiver.
31. Establish the policy for the Company's hiring of employees or former
employees of the independent auditors who were engaged on the Company's
account.
32. Review any Management decision to seek a second opinion from independent
auditors other than the Company's regular independent auditors with respect
to any significant accounting issue.
33. Review with Management and the independent auditors the sufficiency and
quality of the Corporate Audit Department staff and other financial and
accounting personnel of the Company.
34. Review and reassess the adequacy of this Charter annually and recommend to
the Board any changes the Committee deems appropriate.
35. The Committee shall conduct an annual performance evaluation of itself.
36. Perform any other activities consistent with this Charter, the Company's
By-laws and governing law as the Committee or the Board deems necessary or
appropriate.
37. This Charter will be made available on the Company's website at
www.adp.com.
B-4
V. Resources
The Audit Committee shall have the authority to retain independent legal,
accounting and other consultants to advise the Committee. The Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent auditors to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall determine the extent of funding necessary for payment
of compensation to the independent auditors for purpose of rendering or issuing
the annual audit report and to any independent legal, accounting and other
consultants retained to advise the Committee.
B-5
Dear Stockholder:
You are cordially invited to join us at the 2005 Annual Meeting of
Stockholders of Automatic Data Processing, Inc. This year's meeting will be held
at the corporate offices of the Company at One ADP Boulevard, Roseland, New
Jersey, on Tuesday, November 8, 2005, starting at 10:00 a.m. I hope you will be
able to attend. At the meeting we will (i) elect directors, (ii) vote on the
appointment of Deloitte & Touche LLP as the Company's independent certified
public accountants.
It is important that your shares be voted, whether or not you plan to be
present at the meeting. You should specify your choices by marking the
appropriate boxes on the proxy form on the reverse side, and date, sign and
return your proxy form in the enclosed, postage-paid return envelope as promptly
as possible. Alternatively, you may vote by phone or the Internet, as described
on the reverse side. If you date, sign and return your proxy form without
specifying your choices, these shares will be voted in accordance with the
recommendation of your directors.
Please retain and present this top portion of the proxy card as your
admission ticket together with a valid picture identification to gain admittance
to the meeting. This ticket will admit only the stockholder listed on the
reverse side and is not transferable. If these shares are in the name of your
broker or bank or you received your proxy materials electronically, you will
need to bring evidence of your stock ownership, such as your most recent
brokerage account statement.
As in the past years, we will discuss the business of the Company and its
subsidiaries during the meeting. I welcome your comments and suggestions, and we
will provide time during the meeting for questions from stockholders. I am
looking forward to seeing you at the meeting.
Sincerely,
/s/ Arthur F. Weinbach
----------------------
Arthur F. Weinbach
Chairman and Chief Executive Officer
--------------------------------------------------------------------------------
[ADP logo]
Proxy
This proxy is solicited on behalf of the Board of Directors
Properly executed proxies received by the day before the cut-off date or the
meeting date will be voted as marked and, if not marked, will be voted FOR the
election of the nominees listed in the accompanying Proxy Statement and FOR
proposal (2) on the reverse side.
The undersigned hereby appoints Arthur F. Weinbach and Gary C. Butler, and each
of them, attorneys and proxies with full power of substitution, in the name,
place and stead of the undersigned, to vote as proxy at the 2005 Annual Meeting
of Stockholders of Automatic Data Processing, Inc. to be held at the corporate
offices of the Company, ONE ADP BOULEVARD, ROSELAND, NEW JERSEY, on Tuesday,
November 8, 2005 at 10:00 a.m., or at any adjournment or adjournments thereof,
according to the number of votes that the undersigned would be entitled to cast
if personally present.
If shares of Automatic Data Processing, Inc. Common Stock are issued to or held
for the account of the undersigned under employee plans and voting rights attach
to such shares (any of such plans, a "Voting Plan"), then the undersigned hereby
directs the respective fiduciary of each applicable Voting Plan to vote all
shares of Automatic Data Processing, Inc. Common Stock in the undersigned's name
and/or account under such Voting Plan in accordance with the instructions given
herein, at the Annual Meeting and at any adjournments or postponements thereof,
on all matters properly coming before the Annual Meeting, including but not
limited to the matters set forth on the reverse side.
Either of said attorneys and proxies or substitutes, who shall be present at
such meeting or at any adjournment or adjournments thereof, shall have all the
powers granted to such attorneys and proxies.
Please date, sign and mail the proxy promptly in the self-addressed return
envelope which requires no postage if mailed in the United States. When signing
as an attorney, executor, administrator, trustee or guardian, please give your
full title as such. If shares are held jointly, both owners should sign.
Alternatively, you may vote by phone or the Internet, as described in the
instructions on the reverse side.
[ADP logo] VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
AUTOMATIC DATA PROCESSING, INC. instructions and for electronic delivery
PROXY SERVICES of information up until 11:59 P.M. Eastern
P.O. BOX 9162 Time the day before the cut-off date or
FARMINGDALE, NY 11735 meeting date. Have your proxy card in hand
when you access the web site and follow
the instructions to obtain your records
and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59
P.M. Eastern Time the day before the
cut-off date or meeting date. Have your
proxy card in hand when you call and then
follow the instructions.
ADMISSION TICKET VOTE BY MAIL
---------------- Mark, sign, and date your proxy card and
Please retain and present this top return it in the postage-paid envelope we
portion of the proxy card as your have provided or return it to Automatic
admission ticket together with a Data Processing, Inc. c/o ADP, 51 Mercedes
valid picture identification to Way, Edgewood, NY 11717. All proxy cards
gain admittance to the Annual must be received by the day before the
Meeting. cut-off date or the meeting date.
--------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
AUTOMATIC DATA PROCESSING, INC.
The Board of Directors recommends a vote
FOR the proposals regarding:
(1) Election of Directors
Nominees: For Withhold For All To withhold authority to vote, mark
01) Gregory D. Brenneman 07) Ann Dibble Jordan All All Except "For All Except" and write the
02) Leslie A. Brun 08) Harvey M. Krueger nominee's number on the line below.
03) Gary C. Butler 09) Frederic V. Malek
04) Leon G. Cooperman 10) Henry Taub [ ] [ ] [ ] -----------------------------------
05) R. Glenn Hubbard 11) Arthur F. Weinbach
06) John P. Jones
To vote against all nominees, mark "Withhold All" above. To vote against an individual nominee, mark "For All Except"
and write the nominee's number on the line above.
For Against Abstain
(2) Appointment of Deloitte & Touche LLP [ ] [ ] [ ]
The proxies will vote in their discretion upon any and all other matters which
may properly come before the meeting or any adjournment thereof.
Please sign below exactly as the name(s) appear on your stock certificate (as
indicated hereon). If the shares are issued in the names of two or more persons,
all such persons must sign the proxy.
HOUSEHOLDING ELECTION - Please indicate if you consent to
receive certain future investor communications in a single Yes No
package per household [ ] [ ]
---------------------------------- ------- ----------------------- ------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date