Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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On November 23, 2020, Paycom Software, Inc. (“Paycom” or the “Company”) granted a new performance-based equity award to the Company’s founder and chief executive officer, Chad Richison, with vesting contingent on achieving stock price milestones.
Background
This award, designed with the feedback and interests of stockholders in mind, is in lieu of any future equity awards to Mr. Richison for the next five years, and is structured to further align Mr. Richison’s total compensation with the Company’s sustained growth and to motivate him to continue building the value of the Company. The milestones, set at $1,000 per share and $1,750 per share, are intended to be challenging to achieve, and would require significant value creation that would accrue to all stockholders’ benefit before any value from the grant can be realized by Mr. Richison.
Leading Paycom to Continued Growth
Since the Company’s initial public offering in April 2014, Paycom has delivered strong stockholder returns. Paycom’s stock price, as of the award’s grant date, is more than 25 times the 2014 initial public offering price. Paycom’s Board of Directors (the “Board”) believes that Mr. Richison’s leadership is a key factor to the Company’s ongoing success, that the Company continues to have tremendous growth potential, and that a long-term program motivating Mr. Richison to realize that growth potential is in the interests of all stockholders.
In approving the award, the Company recognized, among other things, the unique blend of leadership, experience, and knowledge of our industry and business that Mr. Richison brings to Paycom and the continued importance of Mr. Richison’s role as the individual who identifies strategic priorities, leads the execution of Paycom’s long-term strategy, and drives long-term value for Paycom and its stockholders.
Aligned with Stockholders
Because the award motivates extraordinary long-term performance, is entirely at risk, and correlates directly with stockholder outcomes, the Board believes that it is structured to directly align with stockholder interests. The Board believes that, because the award represents only approximately 2.7% of the shares outstanding as of the date of grant (after giving effect to the issuance of the award), the dilutive effect on stockholders is reasonable given the increase in stockholder value that would be represented by achievement of the stock price milestones. In addition, earned awards may be subject to an additional post-vesting holding period. Finally, the Board believes that the award’s provisions concerning change in control and termination are in keeping with stockholders’ interests.
Terms of the Performance Award
The award consists of 1,610,000 shares of restricted stock eligible for vesting in two equal tranches. The first tranche vests if, within six years of the date of grant, the Company’s stock price (determined based on the arithmetic average of the volume weighted average price of a share of the Company’s common stock over 20 consecutive trading days (the “VWAP Value”)) equals or exceeds $1,000 per share. The second tranche vests if, within ten years of the date of grant, the Company’s VWAP Value equals or exceeds $1,750 per share.
Mr. Richison’s award was granted pursuant to the Paycom Software, Inc. 2014 Long-Term Incentive Plan. Mr. Richison will not be eligible to receive any additional long-term incentive awards, including any equity or equity-based compensation awards, through the end of 2025. All awarded shares that vest must be held by Mr. Richison until the earlier of (i) the fifth anniversary of the date of grant and (ii) one year after the vesting date. Mr. Richison will be entitled to vote the unvested shares of restricted stock, which will increase his total beneficial ownership of the Company’s common stock to approximately 14.3%, based on 58,512,531 shares outstanding as of October 27, 2020, as disclosed in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020, as increased to include the 1,610,000 shares issued in connection with the award.