Paychex bought growth. Shareholders are still waiting for returns.

Boardroom Alpha · Executive Brief

Paychex (PAYX) shareholders vote Thursday at a company that has grown. Profits are up, the dividend has risen at least 10% in each of the past four years, and the $4.1 billion purchase of Paycor lifted revenue 17% last fiscal year. The stock has not followed: it returned 4.1% over the five years to Oct. 12, against 91.9% for the S&P 500 and 82.6% for industrial stocks, Paychex’s sector.

The returns have barely registered in the votes: say on pay has passed with 93.8% or more for four years, and no director has drawn less than 88% in the past three.

This year the 2026 proxy asks shareholders to re-elect a board whose lead director has served on it for 26 years, approve CEO pay that rose 17% in the fiscal year to May, when the stock lost 36%, and decide whether holders of 10% of the shares may call a special meeting.

The record: bigger, not yet better

The lag is not an earnings miss. Over the five years to Oct. 12, earnings per share rose about 50%, but the stock’s price fell from about 35 times earnings to about 21 times. Its closest rival, ADP, returned 50.1%. Against the 16 companies its pay committee uses as peers, Paychex ranks seventh over five years, ahead of their median of −7%, a low bar in a bad stretch for the group.

Growth has slowed. Revenue growth fell from 13.7% in fiscal 2022 to 5.4% and 5.6% in the two years to May 2025; the second year included seven weeks of Paycor, bought that April. The deal then lifted fiscal 2026 to 16.9%. With Paycor in both years, Paychex expects 5% to 6% this year, and Management Solutions, its main business, grew 4% in the quarter to August, according to its first-quarter results.

The deal also raised borrowings to $4.6 billion from about $0.9 billion. In fiscal 2026 it lifted interest costs to $270 million from $105 million and amortization, a non-cash charge for the intangible assets bought, to $242 million from $41 million. So revenue rose 17% but diluted earnings per share only 7%, the company said in its year-end results.

Our read: Paychex got bigger. The evidence that it got better is thin so far: growth is back where it was before the deal, and shareholders have not been paid for the wait. That frames the votes: the board that oversaw the deal is up for re-election, and the pay plan has to show it pays less when returns lag.

Who decides

The largest holder is not a fund. Tom Golisano, the founder, who left the board in July 2025 after 46 years, owns about 10%. Index funds hold about 37% of the shares. Last year every large fund family that reported its votes backed the pay plan, every director and the auditor.

The board: long tenure at the top (Item 1)

Ten directors stand for re-election, eight of them independent. The chairman, Martin Mucci, was CEO from 2010 to 2022. The lead independent director, Joseph Tucci, joined in 2000, Joseph Velli in 2007 and Joseph Doody, the pay committee chair, in 2010. All four pay committee members have spent 16 years or more on the board, counting Pamela Joseph’s earlier term from 2005 to 2017.

The proxy sets no term limit or retirement age and says longer-serving directors bring “continuity and a deep understanding of Paychex’s business, strategy, and culture.”

The lowest director vote in each of the past four years went to Tucci or to Pamela Joseph, who chairs the nominating committee.

Four of the 10 joined in 2021 or later, most recently J. Michael Hansen, a former Cintas chief financial officer, in January. We found no director-specific failing, such as poor attendance or too many boards.

Some investors that publish votes early oppose the longest-serving directors. University Pension Plan Ontario said of Doody, Tucci, Velli and Mucci that “we do not consider them independent, and the board is less than 2/3 independent.” Others cite the non-independent chairman and the board’s gender mix.

Our read: A long-serving board is fine when it delivers. On returns, this one hasn’t: Paychex trails the S&P 500 over one, three and five years. Tucci, Velli and Doody, with 16 to 26 years each, were on the board that oversaw the Paycor deal and chose the CEO, and they sit on the committee that sets his pay.

We like that Thomas Bonadio and Doody each bought 1,000 shares at about $99 in February with their own money, the first open-market purchases by a current director since March 2020. Mucci, the board’s largest holder, exercised options in each of the past two Julys and sold some of the shares, ending each time with more than he started with. We would rather see him buy.

Still, no director has failed at a specific job, so the evidence leans toward re-electing the slate, but not firmly. A named successor to Tucci as lead director, and new members on the pay committee, would firm up our read.

Say on pay: the formula cut, the committee raised (Item 2)

CEO John Gibson’s reported pay rose 17% to $10.27 million in the year to May. The pay committee raised his salary about 3% to $925,000 and his target stock award to $8.5 million, to bring it “closer to market.”

The formulas pulled the other way. Revenue, operating income and new sales each missed target, so the bonus paid 64% of target, though the committee paid the full 20% of salary set aside for personal goals. No performance shares came due, because the measurement period moved to three years after investor comments.

On the SEC’s other measure, “compensation actually paid,” which values stock awards at the year-end price, his pay was −$3.35 million: the stock fell from $157.91 to $96.98 over the fiscal year, cutting the value of awards he already held.

The performance shares are measured on revenue and operating income growth, then adjusted up or down by as much as 25% for Paychex’s return against the S&P 500. Since June 2024, when the first three-year awards began, Paychex has beaten about a quarter of S&P 500 members by our estimate, close to the level where the formula takes the full 25% off.

Vision Super, an Australian pension fund that publishes its votes, opposes the plan, citing “Excessive CEO compensation.”

Our read: The evidence leans moderately toward the plan: the bonus paid well under target, and the stock awards lost value with the stock. But the committee raised the CEO’s target pay at the start of a fiscal year in which the stock went on to lose more than a third of its value, and after the fall, in July, granted him time-vested shares worth about $1.6 million, up from $1.3 million a year earlier.

Gibson has done well from Paychex stock: he sold about $43 million of it from 2014 to 2021, mostly by exercising options, while the stock was rising. Since he became CEO in October 2022 his sales have been small, about $3 million, tied to tax on vesting shares, and holders have made about 8% including dividends, against 124% for the S&P 500.

He holds about $6 million of shares outright, a little more than six times his salary, plus options on about 305,000 more. While returns lag, we would like to see him own more of the stock outright.

The real test is the first three-year performance shares, measured through May 2027. If the market adjustment cuts them as the formula says, the plan is working, but only technically: it pays less when returns lag. The point of pay for performance is outperformance, and that has yet to show up.

Special meetings at 10% (Item 4)

At Paychex, calling a special meeting, which lets shareholders put an issue to a vote between annual meetings, takes holders of a majority of the shares outstanding. John Chevedden, an individual shareholder, asks the board to lower that to 10%, arguing the right would “help the Board adopt new strategies when PAYX underperforms.”

The board says a majority bar ensures “meaningful, substantial stockholder support,” that 10% could let “a single large stockholder” pursue narrow interests, and that holders can already act by written consent, without a meeting, with the votes a meeting would require.

Proposals for a 10% bar at large US companies drew 15.5% to 44.5% over the past two seasons; none of the seven we found passed. Several pension funds that publish early votes back this one; BCI, the British Columbia pension manager, said it “enhances shareholders rights.”

Our read: 10% is too low here, and Paychex’s majority bar is too high. A special meeting costs real time and money, so calling one should take a meaningful group of shareholders.

At Paychex, 10% is about one shareholder’s stake: the founder alone holds roughly that much. A majority, by contrast, is not a bar to calling a meeting but the outcome of one; the four holders of 5% or more that the proxy lists own 33% together.

A threshold near 25% would fit our view: meaningful, but not out of reach. If the board offered one, the case for this proposal would fall away.

The auditor (Item 3)

Shareholders also vote on ratifying PricewaterhouseCoopers, Paychex’s auditor since 2013. Ratification drew 98.7% last year, and fees were $3.4 million. We see no reason for shareholders to object.

What to watch

• Oct. 15
  The annual meeting. Paychex must report the results in an 8-K within four business days.
• December
  Second-quarter results: whether Management Solutions, the main business, grows faster than the 4% of the first quarter.
• May 31, 2027
  The first three-year performance shares close, with the S&P 500 adjustment applied.
• 2027 proxy
  Whether the board names a new lead director or adds pay committee members, and the full value of the July 2026 grants.

Sources: Paychex’s 2026 proxy statement, its 10-K, 10-Q and 8-K filings and Form 4 filings; Boardroom Alpha data on vote results, fund vote reports, 13F holdings and prices; and votes investors published before the meeting.Industrial stocks are the Industrial Select Sector SPDR fund. The S&P 500 percentile is our estimate from total returns of index members. Returns run to the Oct. 12, 2026 close. Boardroom Alpha is an independent research and analytics company and does not invest. This brief is for information only and is not investment advice or a proxy solicitation.