Business Context and Reporting Period
This Form 8-K Current Report was filed by Automatic Data Processing, Inc. (ADP) on August 11, 2006, regarding events occurring on August 10, 2006. The filing primarily addresses the approval of executive compensation plans for fiscal year 2007, the retirement of a long-serving director, and amendments to the company's By-laws.
Key Financial Metrics
The filing does not report consolidated revenue, profit, cash flow, margins, debt, or liquidity metrics for the company. It focuses exclusively on executive compensation targets and governance changes.
Executive Compensation Targets (Fiscal Year 2007)
| Executive | Role | Base Salary (FY2007) | Max Bonus Target |
|---|---|---|---|
| Gary C. Butler | President, COO, CEO-elect | $850,000 | $2,400,000 |
| S. Michael Martone | Group President (Employer Services) | $578,000 | $908,250 |
| Christopher R. Reidy | CFO-elect | $500,000 | $700,000 |
| Richard J. Daly | Group President (Brokerage Services) | $472,000 | $575,050 |
| John Hogan | Group President (Brokerage Services) | $472,000 | $575,050 |
Note: Base salaries listed are effective April 2007, not July 1, 2006. Actual FY2007 earnings will be lower.
Material Changes
- Executive Compensation Structure: The Compensation Committee approved performance criteria for cash bonuses and Performance-Based Restricted Stock (PBRS) for FY2007. Criteria include EPS growth, revenue growth, return on equity, and client retention.
- Accelerated Revenue Program (ARP): A new two-year program (FY2007-2008) was approved to incentivize revenue growth, with awards paid in restricted stock.
- Board Composition: Harvey M. Krueger, a director since 1967, retired from the Board of Directors.
- Governance Changes: The Board dissolved the Executive Committee and adopted amended By-laws to reflect this change.
Guidance, Outlook, and Risks
Outlook and Performance Objectives: Executive compensation is tied to specific future performance metrics, including earnings per share growth, revenue growth, and net operating income growth for fiscal years 2007 and 2008.
Contingencies and Risks:
- Stockholder Approval: The bonus plans, PBRS awards, and ARP awards are conditioned upon stockholder re-approval of the 2001 Executive Incentive Compensation Plan at the 2006 annual meeting.
- Discretionary Adjustments: Cash bonuses are subject to downward (but not upward) discretionary adjustments by the Compensation Committee.
- Employment Continuity: Restricted stock awards under PBRS and ARP are contingent upon the executive's continued employment at the time of grant and vesting.
Investor Verification Checklist
- Verify the outcome of the stockholder vote on the re-approval of the 2001 Executive Incentive Compensation Plan at the 2006 annual meeting.
- Confirm the actual base salary earned by executives for FY2007 in the 2007 annual proxy statement, noting the April 2007 effective date.
- Monitor the dissolution of the Executive Committee and its impact on Board decision-making processes.
- Review future filings for the actual achievement of the revenue and EPS growth targets set for the ARP and PBRS programs.