Paychex 2015 Annual Report Download - page 68

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PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock-based compensation expense was $31.4 million, $26.3 million, and $22.8 million for fiscal years
2015, 2014, and 2013, respectively. Related income tax benefits recognized were $11.7 million, $10.1 million,
and $8.5 million for the respective fiscal years. Capitalized stock-based compensation costs related to the
development of internal use software for these same fiscal years were not significant.
As of May 31, 2015, the total unrecognized compensation cost related to all unvested stock-based awards
was $58.1 million and is expected to be recognized over a weighted-average period of 2.9 years.
Black-Scholes fair value assumptions: The fair value of stock option grants and performance stock
options was estimated at the date of grant using a Black-Scholes option pricing model. There were no
performance stock options granted in fiscal 2015. The weighted-average assumptions used for valuation under
the Black-Scholes model are as follows:
Year ended May 31,
2014 2013 2015 2014 2013
Performance
stock options Stock options
Risk-free interest rate ........................... 1.5% 0.7% 2.1% 2.0% 1.0%
Dividend yield ................................. 3.9% 4.1% 3.7% 4.1% 4.3%
Volatility factor ................................ .20 .22 .21 .22 .23
Expected option life in years ...................... 4.5 4.8 6.0 6.4 6.4
Weighted-average grant-date fair value of stock options
granted (per share) ........................... $3.85 $3.55 $5.68 $4.90 $3.77
Risk-free interest rates are yields for zero coupon U.S. Treasury notes maturing approximately at the end of
the expected option life. The estimated volatility factor is based on a combination of historical volatility, using
stock prices over a period equal to the expected option life, and implied market volatility. The expected option
life is based on historical exercise behavior.
The Company has determined that the Black-Scholes option pricing model, as well as the underlying
assumptions used in its application, are appropriate in estimating the fair value of its stock option grants. The
Company periodically assesses its assumptions as well as its choice of valuation model, and will reconsider use
of this model if additional information becomes available in the future indicating that another model would
provide a more accurate estimate of fair value, or if characteristics of future grants would warrant such a change.
Stock options: Stock options entitle the holder to purchase, at the end of the vesting term, a specified
number of shares of Paychex common stock at an exercise price per share set equal to the closing market price of
the common stock on the date of grant. All stock options have a contractual life of ten years from the date of the
grant and a vesting schedule as established by the Board. The Company issues new shares of common stock to
satisfy stock option exercises. Non-qualified stock option grants to officers and outside directors are typically
approved by the Board in July. Grants of non-qualified stock options to officers vest 25% per annum and grants
to members of the Board vest after one year.
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