Advisory Resolution to Approve Executive Compensation (Proposal 2)

Consistent with the stockholders’ advisory vote at our 2011 Annual Meeting of Stockholders, we determined to hold the advisory say-on-pay vote to approve our named executive officer compensation on an annual basis. Therefore, we are asking our stockholders to approve, on an advisory basis, our named executive officer compensation for fiscal year 2016. Our stockholders will have the opportunity to approve, on an advisory basis, our named executive officer compensation for fiscal year 2017 at the 2017 Annual Meeting of Stockholders.

The board of directors recommends a vote FOR this resolution because it believes that the policies and practices described in the “Compensation Discussion and Analysis” section on page 22 of this proxy statement are effective in achieving the company’s goals of linking pay to performance and levels of responsibility, encouraging our executive officers to remain focused on both short-term and long-term operational and financial goals of the company and linking executive performance to stockholder value.

At our 2015 Annual Meeting of Stockholders, our stockholders approved the compensation of our fiscal year 2015 named executive officers by a vote of approximately 97% in favor.

Ratification of the Appointment of
Auditors (Proposal 3)

We are asking our stockholders to ratify the selection of Deloitte & Touche LLP as our independent certified public accountants for fiscal year 2017. A summary of fees paid to Deloitte & Touche LLP for services provided in fiscal years 2015 and 2016 is provided on page 62 of this proxy statement. The board of directors recommends a vote FOR this ratification.

Fiscal Year 2016 Business Highlights

Fiscal year 2016 was another exciting and dynamic year that showcased our agility as we continued to adapt to the evolving needs of our clients and the changing regulatory environment within our human capital management (HCM) industry. During fiscal year 2016, we continued to focus on our global HCM strategy and our results reflect the strength of our underlying business model, our success in the

market, and our focus on growth. This focus is evidenced by our investments in product innovation, service, and our sales force, as well as the disposition of the AdvancedMD^® business. Our key business metrics in fiscal year 2016 continued to reflect a strong business model with a high percentage of recurring revenues, good margins, the ability to generate consistent, healthy cash flows, strong client retention, and low capital expenditure requirements.

The compensation committee’s determination of incentive compensation under our cash bonus program for all of our executive officers, including our named executive officers, was based on fiscal year 2016 revenue growth of 6.9%, excluding the incremental impact of foreign currency fluctuations in excess of the fluctuations assumed in the target, compared to a target of 7.3%, fiscal year 2016 new business bookings growth of 11.5% compared to a target of 8.6%, and fiscal year 2016 operating income growth of 10.3%, excluding the impact of certain items consistent with our adjusted EBIT reported for fiscal year 2016 (i.e., taxes, certain interest expense and interest income, a gain on sale of the AdvancedMD business, a gain on sale of a building, and a severance charge related to a broad-based workforce optimization effort), compared to a target of 11.6%. The incentive compensation under our PSU program was based on fiscal year 2016 earnings per share growth of 12.8%, which excluded the impact of the gain on sale of the AdvancedMD business, the gain on sale of a building, and the severance charge related to a broad-based workforce optimization effort, compared to a target of 13.5%.

Compensation Principles

We believe that compensation should be designed to create a direct link between performance and stockholder value. Five principles that guide our decisions involving executive compensation are that compensation should be:

2016 Compensation Highlights

Consistent with our pay for performance philosophy, the compensation of our named executive officers is structured with a significant portion of their total compensation at risk

and paid based on the performance of the company and the applicable business unit. Our financial performance in fiscal year 2016 impacted the compensation for all of our executive officers, not just our named executive officers, in several ways, most notably through our annual cash bonus plan and performance-based restricted stock program. Please refer to the “Compensation Discussion and Analysis” section on page 22 of this proxy statement, and the tables and narratives that follow on page 39 of this proxy statement, for more detail concerning the compensation of our named executive officers.

The mix of target total direct compensation (base salary, cash bonus, and long-term incentive awards) for fiscal year 2016 was designed to deliver the following approximate proportions of total compensation to Mr. Rodriguez, our

chief executive officer, and the other named executive officers (on average) if company and individual target levels of performance are achieved:

Good Governance and Best Practices

We are committed to ensuring that our compensation programs reflect principles of good governance, including the following:

2016 Corporate Governance Highlights

We are committed to sound corporate governance practices that provide our stockholders with meaningful rights and foster strong independent leadership in our boardroom, such as:

We firmly believe that creating sustainable long-term value for stockholders is enabled through such strong governance practices and open dialogue with stockholders through continuous direct engagement.

Building upon our effective framework for corporate governance, our board of directors implemented proxy access in August 2016. Our proxy access by-law provision permits a stockholder, or a group of up to twenty stockholders, that owns 3% or more of our stock continuously for at least three years, to nominate and include in our proxy materials candidates for election as directors. Such stockholder or group may nominate up to the greater of two individuals or 20% of our board, subject to satisfaction of the eligibility, notice and other requirements specified in our by-laws. Stockholders may utilize proxy access beginning with the company’s 2017 Annual Meeting of Stockholders.

Stockholder Engagement Process

We value stockholder engagement and feedback as we continue to deliver strong financial performance and sustained value creation for our investors. This year, at the direction of our board of directors, we expanded our investor engagement program to include outreach to our largest investors’ governance teams. These meetings are designed to keep our board of directors attuned to our stockholders’ views, which provide useful context as we seek to ensure the interests of our stockholders continue to be addressed. Senior members of ADP’s management team contacted investors representing more than a third

of our shares outstanding, and we anticipate being able to meet with stockholders representing about 20% of shares outstanding as part of this outreach. We have begun open and informative discussions about our strategy, governance, and executive compensation practices and plan to continue to engage our stockholders to better understand and consider their views. What we learn from our stockholders through our ongoing discussions will be regularly shared with our board of directors.

Important Dates for the 2017 Annual Meeting of Stockholders

Please refer to the “Stockholder Proposals” section on page 64 of this proxy statement for more information regarding the applicable requirements for submission of stockholder proposals.

If a stockholder intends to submit any proposal (including pursuant to our proxy access by-law) for inclusion in the company’s proxy statement for the company’s 2017 Annual Meeting of Stockholders in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, the proposal must be received by the corporate secretary of the company no later than May 25, 2017.

Separate from the requirements of Rule 14a-8 relating to the inclusion of a stockholder proposal in the company’s proxy statement, the company’s amended and restated by-laws require that notice of a stockholder nomination for candidates for our board of directors (other than pursuant to our proxy access by-law) or any other business to be considered at the company’s 2017 Annual Meeting of Stockholders must be received by the company no earlier than July 11, 2017, and no later than August 10, 2017.

The board of directors of Automatic Data Processing, Inc. is soliciting your proxy to vote at the 2016 Annual Meeting of Stockholders to be held on November 8, 2016 at 10:00 a.m. Eastern Standard Time, and at any postponement(s) or adjournment(s) thereof. The meeting will be held at our corporate headquarters, One ADP Boulevard, Roseland, New Jersey.

Under rules adopted by the Securities and Exchange Commission, we are furnishing proxy materials to our stockholders primarily via the Internet, instead of mailing printed copies of those materials to each stockholder. On September 22, 2016, we commenced the mailing to our stockholders (other than those who previously requested electronic or paper delivery of printed proxy materials) of a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy materials, including our proxy statement and our annual report on Form 10-K (which is not a part of the proxy soliciting material). This process is designed to expedite stockholders’ receipt of proxy materials, lower the cost of the Annual Meeting, and help conserve natural resources.

However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise.

The only outstanding class of securities entitled to vote at the meeting is our common stock, par value $0.10 per share. At the close of business on September 9, 2016, the record date for determining stockholders entitled to notice of, to attend, and to vote at the meeting, we had 454,375,205 issued and outstanding shares of common stock (excluding 184,337,237 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.

This proxy statement and our annual report on Form 10-K are also available on our corporate website at www.adp.com under “Financials” in the “Investor Relations” section.

The board of directors’ categorical standards of director independence are consistent with NASDAQ Stock Market (“NASDAQ”) listing standards and are available in the company’s corporate governance principles on our corporate website at www.adp.com under “Investor Relations” in the “Corporate Governance” section. The board of directors has determined that Ms. Gooden, Ms. Wijnberg and Messrs. Bisson, Clark, Fast, Gregoire, Hubbard, Jones and Ready meet these standards and are independent directors for purposes of the NASDAQ listing standards. All current members of the audit, compensation and nominating/corporate governance committees are independent.

It is our policy that our directors attend the Annual Meetings of Stockholders. All of our directors then in office attended our 2015 Annual Meeting of Stockholders.

During fiscal year 2016, our board of directors held five meetings. All of our incumbent directors attended at least 75%, in the aggregate, of the meetings of the board of directors and the committees of which they were members during the periods that they served on our board of directors during fiscal year 2016.

Executive sessions of the non-management directors are held during each board of directors and committee meeting. Mr. Jones, our independent non-executive chairman of the board, presided at each executive session of the board of directors.

Our corporate governance principles do not require the separation of the roles of chairman of the board and chief executive officer because the board believes that effective board leadership can depend on the skills and experience of, and personal interaction between, people in leadership roles. Our board of directors is currently led by Mr. Jones, our independent non-executive chairman of the board. Mr. Rodriguez, our chief executive officer, serves as a member of the board of directors. The board of directors

believes this leadership structure is in the best interests of the company’s stockholders at this time. Separating these positions allows our chief executive officer to focus on developing and implementing the company’s business plans and supervising the company’s day-to-day business operations, and allows our chairman of the board to lead the board of directors in its oversight, advisory, and risk management roles.

When the board of directors decides to recruit a new member, or when the board of directors considers any director candidates submitted for consideration by our stockholders, 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 backgrounds directly related to our technologies, markets and/or clients. Additionally, candidates should possess 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. The nominating/corporate governance committee will not consider candidates who lack the foregoing personal

characteristics. In addition, the nominating/corporate governance committee considers a wide range of other factors in determining the composition of our board of directors, including age, diversity of background, diversity of thought, and other individual qualities such as professional experience, skills, education, and training. The nominating/corporate governance committee retains a third-party search firm from time to time to identify and evaluate, as appropriate, potential nominees to the board, including in connection with the appointment of Mr. Ready and Ms. Wijnberg in fiscal year 2016.

Nominations of candidates for our board of directors by our stockholders for consideration at our 2016 Annual Stockholder Meeting are subject to the deadlines and other requirements described under “Stockholder Proposals” on page 64 of this proxy statement.

Our director retirement policy provides that, subject to such exceptions on a case by case basis as the board of directors shall determine, no person will be nominated by the board of directors to serve as a director following the date he or

she turns 72. Management directors who are no longer officers of the company are required to offer to resign from the board of directors.

Our board of directors provides oversight with respect to the company’s enterprise risk assessment and risk management activities, which are designed to identify, prioritize, assess, monitor and mitigate the various risks confronting the company, including risks that are related to the achievement of the company’s operational and financial strategy. The board of directors performs this oversight function periodically as part of its meetings and also through its committees, each of which examines various components of enterprise risk as part of its assigned responsibilities. Management is responsible for implementing and supervising day-to-day risk management processes and reporting to the board of directors and its committees as necessary.

Our audit committee focuses on financial risks, including reviewing with management, the company’s internal auditors, and the company’s independent auditors the company’s major financial risk exposures, the adequacy and effectiveness of accounting and financial controls, and the steps management has taken to monitor and control financial risk exposures. In addition, our audit committee reviews risks related to compliance with applicable laws, regulations, and ethical standards, and also operational risks related to information security and system disruption. Our audit committee regularly receives, reviews and discusses with management presentations and analyses on various risks confronting the company.

Our nominating/corporate governance committee oversees risks associated with board structure and other corporate governance policies and practices, including review and approval of any related-person transactions under our Related Persons Transaction Policy. Our compensation committee oversees risks related to compensation matters. Our committees report on risk oversight matters directly to the board of directors on a regular basis.

All interested parties who wish to communicate with the board of directors, the audit committee, 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. We will relay any such communication 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, it is 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.

We have a written “Related Persons Transaction Policy” pursuant to which any transaction between the company and a “related person” in which such related person has a direct or indirect material interest, and where the amount involved exceeds $120,000, must be submitted to our nominating/corporate governance committee for review, approval, or ratification.

A “related person” means a director, executive officer or beneficial holder of more than 5% of the company’s outstanding common stock, or any immediate family member of the foregoing, as well as any entity at which any such person is employed, is a partner or principal (or holds a similar position), or is a beneficial owner of a 10% or greater direct or indirect equity interest. Our directors and executive officers must inform our general counsel at the earliest practicable time of any plan to engage in a potential related person transaction.

This policy requires our nominating/corporate governance committee to be provided with full information concerning the proposed transaction, including the benefits to the company and the related person, any alternative means by which to obtain like benefits, and terms that would prevail in a similar transaction with an unaffiliated third party. In considering whether to approve any such transaction, the nominating/corporate governance committee will consider all relevant factors, including the nature of the interest of the related person in the transaction and whether the transaction may involve a conflict of interest.

Specific types of transactions are excluded from the policy, such as, for example, transactions in which the related person’s interest derives solely from his or her service as a director of another entity that is a party to the transaction.

Our Corporate Governance Principles and Related Persons Transaction Policy may be viewed online on the company’s website at www.adp.com under ”Investor Relations” in the “Corporate Governance” section. Our Code of Business Conduct & Ethics and Code of Ethics for Principal Executive Officer and Senior Financial Officers may be

found at www.adp.com under “Investor Relations” in the “Corporate Governance” section. In addition, these documents are available in print to any stockholder who requests them by writing to Investor Relations at the company’s headquarters.

Messrs. Clark, Fast and Hubbard are the three independent directors who sit on the compensation committee. No compensation committee member has ever been an officer of the company. During fiscal year 2016 and as of the date of this proxy statement, no compensation committee member has been an employee of the company or eligible to participate in our employee compensation programs or

plans, other than the company’s 2008 Omnibus Award Plan under which non-employee directors have received stock option grants and deferred stock units. None of the executive officers of the company have served on the compensation committee or on the board of directors of any entity that employed any of the compensation committee members or directors of the company.

The annual retainer for non-employee directors is $260,000, $155,000 of which is paid in the form of deferred stock units and $105,000 of which may, at the election of each director, be paid in cash or in deferred stock units. In addition, the chairman of our board of directors receives an incremental retainer of $165,000, $82,500 of which is paid in the form of deferred stock units and $82,500 of which may, at the election of the chairman, be paid in cash or in deferred stock units. This incremental retainer results in a total annual retainer of $425,000 for the chairman of our board of directors. The chair of the audit committee was paid an additional annual retainer of $20,000, the chair of the compensation committee was paid an additional annual retainer of $15,000, and the chair of each of the nominating/corporate governance committee and the corporate development and technology advisory committee was paid an additional annual retainer of $10,000. Meeting fees are not paid in respect of the first seven meetings of the board of directors or of any individual committee. Non-employee directors receive $2,000 for each board of directors meeting attended and $1,500 for each committee meeting attended beginning with the eighth meeting of the board of directors or any individual committee, as applicable. Meeting fees and the additional annual retainer may, at the election of each director, be paid in cash, deferred, or paid in deferred stock units. Directors who are employees of the company or any of our subsidiaries receive no remuneration for services as a director.

The nominating/corporate governance committee is responsible for reviewing, evaluating, and making recommendations to the board on an annual basis with respect to all aspects of non-employee director compensation. The full board then reviews these recommendations and makes a final determination on the compensation of our non-employee directors. During fiscal year 2016, the nominating/corporate governance committee engaged Frederic W. Cook & Co., Inc., compensation consultant to the compensation committee, to review the design and competitiveness of our non-employee director compensation program. In connection with this annual review, the board of directors approved an annual retainer increase to $290,000 for non-employee directors, to be effective at the time of the 2016 Annual Meeting of Stockholders, $175,000 of which will be paid in the form of deferred stock units and $115,000 of which may, at the election of each director, be paid

in cash or in deferred stock units. The board of directors also approved an annual retainer increase for the chair of each of the nominating/corporate governance committee and the corporate development and technology advisory committee by $5,000 to $15,000, to be effective at the time of the 2016 Annual Meeting of Stockholders. All of our non-employee directors chose to receive the entire elective portion of their annual retainers in the form of deferred stock units. Under our 2008 Omnibus Award Plan, a director may specify whether, upon separation from the board, he or she would like to receive the deferred cash amounts in such director’s deferred account in a lump sum payment or in a series of substantially equal annual payments over a period ranging from two to ten years.

Pursuant to our 2008 Omnibus Award Plan, each non-employee director is credited with an annual grant of deferred stock units on the date established by the board for the payment of the annual retainer equal in number to the quotient of $155,000, or $237,500 in the case of the chairman of the board of directors, divided by the closing price of a share of our common stock on the date this amount is credited. Deferred stock units are fully vested when credited to a director’s account. When a dividend is paid on our common stock, each director’s account is credited with an amount equal to the cash dividend. When a director ceases to serve on our board, such director will receive a number of shares of common stock equal to the number of deferred stock units in such director’s account and a cash payment equal to the dividend payments accrued, plus interest on the dividend equivalents from the date such dividend equivalents were credited. The interest will be paid with respect to each twelve-month period beginning on November 1 of such period to the date of payment and will be equal to the rate for five-year U.S. Treasury Notes published in The Wall Street Journal® on the first business day of November of each such twelve-month period plus 0.50%. Non-employee directors do not have any voting rights with respect to their deferred stock units.

Non-employee directors no longer receive annual stock option grants. Prior to our 2010 Annual Meeting of Stockholders, upon initial election to the board of directors, a non-employee director received a grant of options to purchase 5,000 shares of common stock if such director attended a regularly scheduled board of directors meeting prior to the next Annual Meeting of Stockholders. Thereafter, a non-employee director received an annual grant of options to purchase 5,000 shares of common

stock. All such options were granted under the 2008 Omnibus Award Plan, have a term of ten years, and were granted at the fair market value of the common stock as determined by the closing price of our common stock on the NASDAQ Global Select Market on the date of the grant.

In addition, non-employee directors who have been non-employee directors for at least ten years will have all of their options vested upon retirement from the board of

directors and will have 36 months to exercise their options. Non-employee directors who have served as non-employee directors for fewer than ten years at the time they retire or otherwise leave the board will not qualify for accelerated vesting, but will have 60 days to exercise their then-vested options. Notwithstanding the foregoing, all options will expire no more than ten years from their date of grant.

The following table contains information regarding the beneficial ownership of the company’s common stock by (i) each director and nominee for director of the company, (ii) each of our named executive officers included in the Summary Compensation Table below (we refer to such executive officers as “named executive officers”), (iii) all company directors and executive officers as a group (including the named executive officers) and (iv) all stockholders that are known to the company to be the

beneficial owners of more than 5% of the outstanding shares of the company’s common stock. Unless otherwise noted in the footnotes following the table, each person listed below has sole voting and investment power over the shares of common stock reflected in the table. Unless otherwise noted in the footnotes following the table, the information in the table is as of August 31, 2016 and the address of each person named is P.O. Box 34, Roseland, New Jersey, 07068.

We are asking stockholders to approve the following advisory resolution at the Annual Meeting:

RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the company’s named executive officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure in the company’s proxy statement for the 2016 Annual Meeting of Stockholders.

The board of directors recommends a vote FOR this resolution because it believes that the policies and practices described in the Compensation Discussion and Analysis are effective in achieving the company’s goals of linking pay to

performance and levels of responsibility, encouraging our executive officers to remain focused on both short-term and long-term operational and financial goals of the company and linking executive performance to stockholder value.

We urge stockholders to read the Compensation Discussion and Analysis section appearing on pages 22 through 37 of this proxy statement, as well as the “Summary Compensation Table For Fiscal Year 2016” and related compensation tables and narrative appearing on pages 39 through 59 of this proxy statement, which provide detailed information on the company’s compensation policies and practices and the compensation of our named executive officers.

The affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote thereon at the meeting of stockholders is required to approve the advisory resolution on named executive compensation. Because the vote on this proposal is advisory in nature, it will not affect any compensation already paid or awarded to any named executive officer and will not be binding on or overrule any decisions by the compensation committee or the board of directors. Because we value our

stockholders’ views, however, the compensation committee and the board of directors will consider the results of this advisory vote when formulating future executive compensation policy.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION.

Strong Stockholder Support for our Compensation Programs

The compensation committee continuously evaluates the degree to which our compensation programs link pay to performance, and takes steps to ensure that the program encourages our executive officers to remain focused on both the short-term and long-term operational and financial goals of the company.

At our 2015 Annual Meeting of Stockholders, our stockholders approved the compensation of our fiscal year 2015 NEOs by a vote of approximately 97% in favor. Given this strong support and the company’s continued strong performance, the compensation committee retained the basic foundation of our overall compensation program during fiscal year 2016, but made certain changes to ensure that the program continued to support our key human resource, financial and strategic objectives.

Fiscal Year 2016 Business Highlights

Fiscal year 2016 was another exciting and dynamic year that showcased our agility as we continued to adapt to the evolving needs of our clients and the changing regulatory

environment within our human capital management (HCM) industry. During fiscal year 2016, we continued to focus on our global HCM strategy and our results reflect the strength of our underlying business model, our success in the market, and our focus on growth. This focus is evidenced by our investments in product innovation, service, and our sales force, as well as the divestiture of the AdvancedMD business. Our key business metrics in fiscal year 2016 continued to reflect a strong business model with a high percentage of recurring revenues, good margins, the ability to generate consistent, healthy cash flows, strong client retention, and low capital expenditure requirements.

Our financial performance impacted the compensation of our executive officers in several ways, most notably our annual cash bonus plan and performance stock unit (“PSU”) program. The compensation committee’s determination of incentive compensation under our cash bonus program for all of our executive officers, including our named executive officers, was based on fiscal year 2016 revenue growth of 6.9%, excluding the incremental impact of foreign currency fluctuations in excess of the fluctuations assumed in the target, compared to a target

of 7.3%, fiscal year 2016 new business bookings growth of 11.5% compared to a target of 8.6%, and fiscal year 2016 operating income growth of 10.3%, excluding the impact of certain items consistent with our adjusted EBIT reported for fiscal year 2016 (i.e., taxes, certain interest expense and interest income, a gain on sale of the AdvancedMD business, a gain on sale of a building, and a severance charge related to a broad-based workforce

optimization effort), compared to a target of 11.6%. The incentive compensation under our PSU program was based on fiscal year 2016 earnings per share growth of 12.8%, which excluded the impact of the gain on sale of the AdvancedMD business, the gain on sale of a building, and the severance charge related to a broad-based workforce optimization effort, compared to a target of 13.5%.

For fiscal year 2016, our named executive officers received cash bonuses that averaged approximately 101.8% of target. As a result of our one-year earnings per share growth for fiscal year 2016, our executive officers achieved a payout percentage of 88% under our PSU program. This percentage payout applied to year 1 of the fiscal year 2016 award, which will be earned and issued at the end of the corresponding three-year performance period ending in fiscal year 2018, to year 2 of the fiscal year 2015 award, which will be earned and issued at the end of the

corresponding three-year performance period ending in fiscal year 2017, and to year 3 of the fiscal year 2014 award, which was earned and issued at the end of the corresponding three-year performance period ending in fiscal year 2016. As described on page 33 of this proxy statement under “Performance-Based Stock Awards,” the payout percentages achieved for each of the individual three fiscal years in the performance period are averaged to obtain the award level earned and issued as a percentage of target.

As part of our commitment to principles of good governance, we do not engage in the following practices:

Looking Forward

Commencing with fiscal year 2017 awards granted under our PSU program, we will replace earnings per share with net income as the key performance metric used to calculate such awards. The compensation committee implemented this change because, like earnings per share, net income holds management accountable for the execution of our growth strategy and our focus on profitability but, unlike earnings per share, is unaffected by our share repurchase program. By eliminating the impact of share repurchases on our performance, and accordingly, on the determination of payouts under the PSU program, the committee believes that the program fosters greater management objectivity with regard to alternative uses of excess capital and a stronger line of sight between operational excellence and payout.

Our compensation programs are designed so that target pay reflects relative levels of responsibility among our key executives, and such that the proportion of pay tied to operating performance and changes in stockholder value varies directly with the level of responsibility and accountability to stockholders. We assign all executives to pay grades by comparing their position-specific duties and responsibilities with market data and our internal management structure. Each pay grade has ranges for base salaries, total annual cash compensation and annual equity grants. Executives are positioned within these ranges based on a variety of factors, most notably their experience and skill set and their performance over time.

We design our performance-based compensation so that actual, realized compensation will vary relative to the target award opportunity based on performance. As such, actual compensation amounts may vary above or below targeted levels depending on the overall performance of the company, performance of a business unit and achievement of individual performance goals. We have adopted this compensation design to provide meaningful incentives for our key executives to achieve excellent results. We also believe that it is important for our executive officers to have an ongoing long-term investment in the company as outlined on page 37 of this proxy statement under “Stock Ownership Guidelines.”

Growth in revenue, operating income and new business bookings are important performance measures in annual cash bonus determinations, and earnings per share growth has been used to determine the number of shares earned in a performance period under our PSU program. The earnings per share measurement we use is diluted earnings per share from continuing operations. Commencing with fiscal year 2017 PSU awards, the earnings per share measurement will be replaced with net income as the key performance metric used to calculate such awards, as described above under “Looking Forward”. These performance criteria were chosen for the variable incentive plans because they focus our executive officers on the company’s long-term strategic goals of increasing the growth and profitability of our business, which are the key drivers of sustainable increases in stockholder value.

Consistent with our pay for performance philosophy, our named executive officers’ compensation is structured with a significant portion of their total compensation at risk. This at-risk portion includes long-term incentive awards, which are paid based on the performance of the company as a whole, and annual cash bonuses, which are paid on the basis of the bonus objectives established by the compensation committee as described below under “Fiscal Year 2016 Target Bonus Objectives”.

The mix of target total direct compensation (base salary, cash bonus and long-term incentive awards) for fiscal year 2016 was designed to deliver the following approximate proportions of total compensation to Mr. Rodriguez, our chief executive officer, and the other named executive officers (on average) if company and individual target

levels of performance are achieved. The target pay mix reflects the PSU target award based on the three-year target opportunity. Mr. Rodriguez’s higher portion of at-risk compensation reflects his greater responsibility for overall company performance.

Compensation Consultant

The compensation committee has engaged FW Cook to provide assistance with the design of our compensation programs, the development of comparative market-based compensation data for the chief executive officer position and the determination of the chief executive officer’s target compensation awards. The specific matters on which FW Cook provided advice in fiscal year 2016 were the market trends and regulatory developments in executive compensation and the design of executive compensation programs and practices, including the changes to chief executive officer pay levels and reviewing long-term incentive guidelines. In June 2015, FW Cook delivered to our compensation committee the results of a competitive assessment of compensation for use in determining fiscal year 2016 target compensation for Mr. Rodriguez. FW Cook also examined the mix of proposed performance-based stock awards and stock option grants for our named executive officers in fiscal year 2016 and confirmed that the proposals for the named executive officers were reasonable and customary, given the company’s size and structure.

As part of its ongoing support to the compensation committee, FW Cook also reviews executive compensation disclosures (including this Compensation Discussion and Analysis), reviews and provides comments on changes to the committee’s charter, advises on emerging trends and the implications of regulatory and governance

developments, and reviews and provides commentary on materials and proposals prepared by management that are presented at the compensation committee’s meetings.

The compensation committee determined that the work of FW Cook did not raise any conflicts of interest in fiscal year 2016. In making this assessment, the compensation committee considered the independence factors enumerated in Rule 10C-1(b) under the Securities Exchange Act of 1934 and applicable Nasdaq listing standards, including the fact that FW Cook does not provide any other services to the company, the level of fees received from the company as a percentage of FW Cook’s total revenue, policies and procedures employed by FW Cook to prevent conflicts of interest, and whether the individual FW Cook advisers to the compensation committee own any stock of the company or have any business or personal relationships with members of the compensation committee or our executive officers.

Compensation Review and Determination

In fiscal year 2016, we introduced a customized peer group for use in the analysis of compensation levels and practices. With the spin-off of our former Dealer Services business in fiscal year 2015, and as ADP focuses on becoming a leading global provider of Human Capital Management solutions, we believe that it is important to have a customized peer group to benchmark our executive officers’ pay levels

and our financial performance in connection with pay-for-performance evaluations, as well as our practices concerning equity compensation and other executive compensation programs. The customized peer group was developed with assistance from FW Cook based upon the following criteria: comparable business model, company size, executive talent sources, competition for investor capital, companies considered to be our peers by investors, and overall reasonableness. The companies included in our 20-company peer group for fiscal year 2016 are as follows:

In benchmarking the total cash and long-term incentive compensation for the named executive officers, the compensation committee reviewed the market compensation data from the customized peer group at its June 2015 meeting. The compensation committee

considered that, compared with the peer group, the company compares at the 55^th percentile of revenue and the 75^th percentile of market capitalization. Based on the four most recently reported quarters as of January 31, 2015, revenue among companies in the peer group ranged from approximately $2.6 billion to $32.4 billion, and market capitalization ranged from approximately $3.1 billion to $157.0 billion. The compensation committee also considered third-party survey data (including the Radford Global Technology Survey, the Towers Watson^® U.S. General Industry Executive Database, the Hewitt Associates^® Executive Total Compensation by Industry Survey, the Mercer U.S. General Industry Executive Database and the Equilar Inc.^® Top 25 Database) as a reference point to understand general industry compensation practices.

The compensation committee examines summary compensation sheets detailing the amounts and mix of base salary, cash bonus, and long-term equity incentives for each of our named executive officers, which compare the amounts and mix to competitive compensation practices. We generally target base salary, annual cash bonus and long-term equity incentives at the median of competitive compensation levels, but we will set targets above or below the median when warranted in the judgment of the compensation committee. The degree to which target compensation ranges above or below the median competitive rate is primarily based on each executive’s skill set and experience relative to market peers. Executives who are new in their roles and therefore less experienced than market peers are typically positioned lower in the range, whereas executives with more experience in their roles may be positioned higher in the range. The competitive positioning of Mr. Rodriguez’s target compensation continues to compare below the median of our customized peer group.

Differences in Compensation of Our Named Executive Officers

The compensation committee approved the pay mix for our chief executive officer, which is designed to be competitive when measured against the pay packages of other chief executive officers as indicated by the compensation study.

We have found that due to the broad responsibilities and the experience required for the chief executive officer position, compensation for chief executive officers in public companies that are similar in size to ours is significantly higher than compensation for their other named executive officers.

When determining the compensation level for each of our executive officers, the compensation committee reviews each individual compensation element based on the

previous year’s level, as well as how the proposed level of that individual compensation element for each executive officer would compare to the other executive officers. The aggregate level for each executive officer’s compensation is then compared against the executive’s previous year’s totals and against compensation of other executive officers of the company.

Base Salary

Base salaries are a fixed amount paid to each executive for performing his or her normal duties and responsibilities. We determine the amount based on the executive’s overall

performance, level of responsibility, pay grade, competitive compensation practices data, and comparison to other company executives. Based on these criteria, our named executive officers received the following annual salary increases in fiscal year 2016:

Salary increases for the named executive officers were made effective July 1, 2015, the first day of the 2016 fiscal year. Our named executive officers’ salary increases for fiscal year 2016 reflected a closing of the gap to the median market rate. As a result of the 16.7% salary increase received by Mr. Flynn during the second half of fiscal year 2015, he did not receive a further salary increase for fiscal year 2016.

Annual Cash Bonus

Overview

We paid our named executive officers cash bonuses for fiscal year 2016 based on the attainment of company-wide, business unit, and strategic performance goals established at the beginning of the fiscal year.

For each executive officer, we establish a target bonus amount, which is initially expressed as a percentage of projected year-end annual base salary. This target bonus percentage ranges from 80% to 160% of base salary for the named executive officers. We also assign a percentage value to each bonus component of each named executive officer’s annual cash bonus plan and then determine the target bonus amount linked to each component. We establish these performance ranges to provide our named executive officers with a strong incentive to exceed the targets. The maximum bonus payment for our named executive officers is 200% of the target bonus level. There is no minimum payment level, and no award is payable if threshold performance goals are not achieved.

The compensation committee establishes and approves annual target bonus objectives and award opportunities for each of our named executive officers. In making these determinations, the compensation committee considers a variety of factors including market data, each officer’s relative level of responsibility, and the chief executive officer’s recommendations for executives other than himself. Our named executive officers participated in the discussions surrounding their bonus objectives so that they could provide input and understand the expectations of each bonus plan component, but they did not participate in the setting of the target award opportunities nor did they participate in the committee’s voting or deliberations regarding their individual compensation amounts. Each named executive officer receives a final version of his individualized bonus plan after it is approved by the compensation committee. Except in extraordinary circumstances, bonus objectives are not modified during the fiscal year, and no bonus objectives were modified for fiscal year 2016.

In September 2015, the compensation committee established a threshold corporate performance target based on earnings before interest expense and taxes (“EBIT”) margin. This metric must be met or exceeded before annual incentive awards are made to our named executive officers. Once the threshold corporate performance target is achieved, each named executive officer becomes eligible to receive up to the maximum potential annual bonus. When

making final payout determinations, the Compensation Committee may exercise negative discretion to award less than the maximum potential bonus. This process allows the entire amount of the annual incentive award to be considered performance-based and tax deductible under Section 162(m) of the Internal Revenue Code.

The compensation committee reviews the performance of each of our named executive officers relative to his annual fiscal year bonus plan objectives at its regularly scheduled August meeting, which is the first meeting following the end of our fiscal year. Based on this review, the compensation committee determines and approves the annual cash bonuses for our executive officers.

Named Executive Officers’ Fiscal Year 2016 Bonuses

Fiscal year 2016 target bonuses, as a percentage of base salary, increased from fiscal year 2015 levels for all our named executive officers except for Mr. Rodriguez. The target bonus percentage for each of Messrs. Siegmund, Benjamin and Flynn increased from 80% to 100%, and from 70% to 80% for Mr. O’Brien. The threshold corporate performance goal for fiscal year 2016 was EBIT margin of 15%. As the threshold performance level was achieved, the annual bonuses were based on the performance of the company, the business units and the individual named executive officers for the 2016 fiscal year against the named executive officers’ bonus objectives. The approved annual cash bonuses are as follows:

Fiscal Year 2016 Target Bonus Objectives

The table below indicates the degree to which each target bonus objective for our named executive officers was satisfied. The percentage of target bonus paid to each named executive officer is calculated as a weighted average of the percentages achieved for each individual objective.

Mr. Rodriguez requested a reduction of his bonus from the calculated payout, which was 105.9% of target, to recognize the challenges faced by certain business units during fiscal year 2016. The compensation committee approved this request and determined that Mr. Rodriguez’s bonus would be 100% of target.

The bonus objectives were designed to reward achievement of goals that are aligned with the key components of our operational and strategic success, the degree to which the named executive officers have responsibility for overall company performance or individual business unit results, and to provide a set of common objectives that facilitate collaborative engagement. The compensation committee established the following financial and strategic goals for our named executive officers in September 2015:

Revenue Growth: 7.3% as a target objective (which includes assumed impact of foreign currency fluctuations anticipated at the time the target was established), 200% of target was to be awarded for revenue growth of 10.3% or greater, and 0% of target was to be awarded for revenue growth below 3.0%.

Operating Income Growth: 11.6% as a target objective before taxes and excluding one-time events other than acquisitions, 200% of target was to be awarded for operating income growth of 15.6% or greater, and 0% of target was to be awarded for operating income growth below 6.0%.

New Business Bookings Growth: 8.6% as a target objective, 200% of target was to be awarded for new business bookings growth of 12.0% or greater, and 0% of target was to be awarded for new business bookings growth below 2.0%.

Business Unit Performance: For Mr. Benjamin, achieve net operating income and client retention goals for his business units.

Strategic Objectives: Strategic objectives for our named executive officers are aligned with our key strategic and operational goals for fiscal year 2016. The percentage of

target awarded for achievement of strategic objectives equals the average of the percentages achieved for each strategic objective category set forth below:

We believe that long-term incentive compensation is a significant factor in attracting and retaining key executives and in aligning their interests directly with the interests of our stockholders. For fiscal year 2016, long-term incentives were awarded in the form of performance-based stock and stock option grants. In special situations, we selectively award time-based restricted stock. The compensation committee selected these awards because they ensure that the overall long-term incentive program is closely tied to changes in stockholder value and the degree to which critical operating objectives are attained and support our talent retention objectives.

For all of our named executive officers except our chief executive officer, we target a long-term incentive compensation mix of 70% performance-based stock awards and 30% stock options. For fiscal year 2016, the compensation committee approved a long-term incentive mix for the chief executive officer of 60% performance-based stock awards and 40% stock options. The compensation committee believes that this incentive mix is appropriate for the chief executive officer because of his greater role in driving long-term stockholder value creation.

The compensation committee may also from time to time grant discretionary awards of time-based restricted stock to our executive officers. These awards are for special

situations and are not considered in the target allocation of total long-term incentive compensation between performance-based stock awards and stock option grants. In fiscal year 2016, each of our named executive officers except for Messrs. Rodriguez and Flynn received a time-based restricted stock award, which is discussed below under “Time-Based Restricted Stock”.

As part of our annual market analysis of compensation data, we compare our long-term equity incentive grant values with competitive levels. We establish target long-term incentive award values and ranges for each executive level and set the midpoints of such ranges at the market median levels. The compensation committee reviews the target award values and ranges annually to ensure that the resulting awards remain generally consistent with our median compensation philosophy.

Prior to the beginning of each fiscal year, we analyze the target performance stock award and stock option grant levels to confirm that our desired target long-term incentive compensation values are appropriate in the context of the compensation studies referred to under “Compensation Review and Determination” above. When comparing our desired values to these compensation studies, we look at both equity elements in total.

At its June 2015 meeting, the compensation committee approved target awards of PSUs and stock options for all named executive officers for fiscal year 2016, which were granted in September 2015. The PSU awards (based on the

three-year target opportunity) will be earned and issued in fiscal year 2019. The PSUs and stock option grants for fiscal year 2016 are summarized in the table below:

Performance-Based Stock Awards

In fiscal year 2014, we introduced a PSU program based on financial objectives that are measured over a three-year performance period consisting of three one-year earnings per share performance goals. We believe the three-year PSU program will further the company’s longer term financial goals by tying a substantial portion of the total compensation opportunity to multi-year performance, and better promote talent retention by lengthening the total vesting period. The fiscal year 2016 target award opportunity under the PSU program, which was granted in September 2015, will be earned and issued in September 2018 based upon the achievement of earnings per share performance goals for fiscal years 2016, 2017 and 2018.

For purposes of our performance-based stock awards, earnings per share goals and corresponding target award ranges are typically established and communicated to our executive officers (including the named executive officers) in the first quarter of each respective fiscal year, and for the 2016 performance year were approved by the compensation committee in August 2015. After the conclusion of each fiscal year, the compensation committee confirms the earnings per share results and determines the award achieved for such fiscal year, as a percentage of target, based on these results by using linear interpolation between the lower and upper bounds of the applicable percentage range. Under the PSU program, after the end of the three-year performance period, the award levels achieved as a percentage of target for each

of the individual three fiscal years in the performance period will be averaged to obtain the overall award level earned and issued as a percentage of target. However, notwithstanding the achievement of earnings per share results, if the company’s total stockholder return is not positive for the three-year performance period, the total number of PSUs awarded may not exceed 100% of the target award. The PSU award earned will also be credited with dividend equivalents from the grant date of the target award until the issuance date, assuming all dividends were reinvested in ADP stock at the time dividends are paid. The issuance of the total number of PSUs earned will be made in the form of shares of ADP stock in September following the conclusion of the three-year performance period. As described above under “Looking Forward”, commencing

with fiscal year 2017 PSU awards, we will replace earnings per share with net income as the key performance metric used to calculate such awards.

In August 2015, the compensation committee established earnings per share growth goals and corresponding award ranges for the fiscal year 2016 target award under the PSU program. Our earnings per share growth for fiscal year 2016, as described above under “Fiscal Year 2016 Business Highlights,” was 12.8%, which resulted in an earned award level for the fiscal 2016 performance year in the amount of 88% of target. The following table shows the annual earnings per share targets, results and corresponding award levels achieved for fiscal years 2014, 2015 and 2016, in each case as a percentage of target:

Award levels achieved for each fiscal year in the three-year performance period are, as a percentage of target, 50% for threshold performance, 100% for target performance, 150% for stretch performance, and 0% for below threshold performance. The award level achieved within each range, as a percentage of target, is determined by linear interpolation between the lower and upper bounds. Dividends are paid only with respect to shares of restricted stock that have been issued. The end of fiscal year 2016 marks the end of the three-year performance period for PSU awards granted in fiscal year 2014. Based on the average of the three-fiscal years, these awards earned a payout percentage of 103%.

Stock Options

We grant stock options to our executive officers, which vest over four years. We determine target award ranges for each pay grade based on our annual review of our long-term incentive compensation program. The compensation committee determined and approved stock option grants

for our chief executive officer as part of a review of his entire compensation package based on the guidance of its independent compensation consultant, FW Cook.

While the compensation committee can consider a stock option grant at any time for our executive officers, stock option grants are generally made in September on the same date PSU awards are granted. Additional stock option grants may be made to assist us in recruiting, promoting or retaining executive officers.

Time-Based Restricted Stock

The compensation committee may from time to time grant discretionary awards of time-based restricted stock to our executive officers. These discretionary grants assist us in the recruitment, promotion or retention of executive officers. In fiscal year 2016, the compensation committee approved special time-based restricted stock awards for Messrs. Siegmund, Benjamin and O’Brien, with multi-year vesting periods ranging from two to four years.

These awards were granted as part of the management succession planning process as we believe these executives are critical to retain for the future success of the company.

Similar to the annual cash bonuses, vesting of the awards for Messrs. Siegmund and Benjamin are subject to the same threshold corporate performance target

based on EBIT margin. If this goal is achieved, the award vests upon satisfying the time-based condition. The performance condition allows their awards to be considered performance-based and tax deductible under Section 162(m) of the Internal Revenue Code. The time-based restricted stock grants for fiscal year 2016 are summarized in the table below:

In addition to the compensation components discussed above and the opportunity to participate in the same Employees’ Savings-Stock Purchase Plan and health and welfare benefits available to our U.S. associates generally, we offer our executive officers retirement benefits, deferred compensation, limited perquisites, and change in control and severance protection. We believe these additional benefits are fair, competitive, consistent with our overall compensation philosophy and designed to ensure that we can effectively retain our executive officers as well as effectively compete for executive talent.

Retirement Benefits

All executive officers can participate in the Automatic Data Processing, Inc. Retirement and Savings Plan (our 401(k) plan), including our named executive officers. Our named executive officers also participate in the Automatic Data Processing, Inc. Pension Retirement Plan, a tax-qualified, defined benefit, cash balance pension plan. The Pension Retirement Plan became closed to new participants as of January 2015. In addition, our named executive officers participate in the Supplemental Officers Retirement Plan, which provides retirement benefits to our executive officers in excess of those generally available under the Pension Retirement Plan. The Supplemental Officers Retirement Plan was closed to new participants beginning in January 2014. Our executive officers who do not participate in the Supplemental Officers Retirement Plan are automatically enrolled in the Automatic Data Processing,

Inc. Executive Retirement Plan, which provides supplemental retirement benefits in excess of amounts available under our tax-qualified pension and other retirement plans. Our named executive officers do not participate in the Executive Retirement Plan.

Deferred Compensation

Executive officers may defer all or a portion of their annual cash bonuses into a deferred compensation account. We make this program available to our executive officers to be competitive, to facilitate the recruitment of new executives and to provide our executive officers with a tax efficient way to save for retirement. The company does not match deferrals for its named executive officers or otherwise contribute any amounts to the named executive officers’ deferred compensation amounts. Since the deferral accounts are made up of funds already earned by the executive officers, we do not consider the executive’s deferred account balances, or investment earnings or losses on such balances, when we make compensation decisions.

Perquisites

We provide each of our executive officers the use of automobiles leased by the company. Consistent with our policy towards all attendees, we pay for the spouses of our executive officers to accompany them to our annual sales President’s Club events. In addition, the ADP Foundation makes contributions that match the charitable gifts made by our executive officers up to a maximum of $20,000 per

calendar year. Finally, company policy permits Mr. Rodriguez to occasionally use the company’s aircraft for personal travel in order to maximize his business availability and productivity, provided that he reimburses the company for the aggregate incremental cost incurred by the company in connection with any such personal use.

We did not make any tax gross-up payments to our named executive officers in fiscal year 2016.

Change in Control Arrangements

The Automatic Data Processing, Inc. Change in Control Severance Plan for Corporate Officers is designed to: (i) retain our corporate officers (including the named executive officers) and (ii) align their interests with our stockholders’ interests so that they can consider transactions that are in the best interests of our stockholders and maintain their focus without concern regarding how any such transaction might personally affect them.

Our Change in Control Severance Plan for Corporate Officers is described in more detail below under “Potential Payments To Named Executive Officers Upon Termination or Change in Control.” Under this plan, our executive officers have separation entitlements that differ from one another. Mr. Rodriguez is entitled to severance equal to two times base salary and bonus upon termination of employment without cause or with good reason, while our other named executive officers are entitled to severance equal to one and one-half times base salary and bonus. We believe that a higher severance multiple for our chief executive officer is needed in order to attract the individual we believe is best suited for the position. Our chief executive officer is the individual the public and our stockholders most closely identify as the face of the company. He has the greatest individual impact on our success, and he faces the greatest personal risks when the company takes risks. Our Change in Control Severance Plan for Corporate Officers also provides that the vesting of all unvested equity awards would be accelerated under qualifying termination scenarios based on a “double trigger” in which payments of cash and vesting of equity awards occur only if termination of employment without cause or with good reason occurs during the two-year period after a change in control.

Corporate Officer Severance Plan

ADP’s Corporate Officer Severance Plan is for purposes of involuntary terminations other than for cause in the absence of a change in control. This plan is designed to: (i) attract and retain executive officers by a level of protection against involuntary job loss, (ii) provide an appropriate level of benefit to enable executive officers to transition to new employment, and (iii) secure restrictive covenants such as non-compete, non-solicitation, etc.

Our Corporate Officer Severance Plan is described in more detail below under “Potential Payments To Named Executive Officers Upon Termination or Change in Control.” Under a qualifying termination, executive officers receive 18 months of base salary continuation (24 months for the CEO), prorated bonus for year of termination, and continuation of vesting of equity awards during the salary continuation period, subject to proration in respect of certain performance-based equity awards.

The severance formulas we use for executive officers are each designed to provide the level of temporary replacement income we feel is appropriate for that position.

Accounting and Tax Considerations

We consider accounting and tax implications when we design our equity-based and cash compensation programs and when we make awards or grants. In particular, Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1,000,000 paid to “covered employees” (which are defined as our named executive officers, other than the chief financial officer). However, qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. We strive to make only those cash and equity-based awards and grants that qualify as performance-based compensation or that we otherwise can deduct when determining our corporate taxes. Our stockholders have previously approved incentive plans (including our 2008 Omnibus Award Plan) that are intended to permit the company to make equity-based awards and cash bonuses that may qualify as performance-based compensation for purposes of Section 162(m). However, the overriding consideration when evaluating the pay level or design component of any

portion of our executives’ compensation is the effectiveness of the pay component and the stockholder value that management and the compensation committee believe the pay component reinforces. The compensation committee may, however, award compensation that is not deductible under Section 162(m) when, in the exercise of the committee’s judgment, it would be in the best interests of the company and its stockholders to do so. Compensation attributable to the vesting of certain time-based restricted stock may not qualify as performance-based compensation, and therefore may not be deductible to the extent it results in aggregate non-performance based compensation in excess of $1,000,000.

Clawback Policy

We adopted a Clawback Policy in fiscal year 2015 that provides the compensation committee with discretion to recover both cash and equity incentive compensation from all current and former executives. A recipient’s award may be forfeited and required to be recovered, as applicable, if the recipient engages in activity that is in conflict with or adverse to our interests, including but not limited to fraud or conduct contributing to any financial restatements or irregularities, or if the recipient violates a restrictive covenant.

Stock Ownership Guidelines

The compensation committee has established stock ownership guidelines to encourage equity ownership by our executive officers in order to reinforce the link between their financial interests and those of our stockholders. We set the stock ownership guidelines on the basis of each executive officer’s pay grade, expressed as a multiple of the executive officer’s base salary on the first day of the fiscal year. Stock ownership (as defined under the guidelines) consists of stock owned outright by the executive officer or beneficially through ownership by direct family members (spouses and/or dependent children).

Under our stock ownership guidelines, Mr. Rodriguez is expected to own an amount of our stock equal in value to six times his base salary and Messrs. Siegmund, Benjamin, Flynn and O’Brien are expected to own an amount of our stock equal in value to three times their respective base salaries. Executive officers whose ownership levels are below the minimum required levels are required to retain as shares of common stock at least 75% of post-tax net gains on stock option exercises, and 75% of shares (net of taxes) received upon vesting of restricted stock or received under our PSU program. As of the end of fiscal year 2016, all named executive officers met the stock ownership guidelines.