2018 Guide to Effective Proxies

2.17.4 Compensation mix | 337 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 2018 PROXY STATEMENT Compensation Discussion and Analysis (continued) vesting conditions. For information regarding the determination of “total enterprise value,” see “—Long-Term Incentive Compensation—Restricted Stock Awards.” On average, approximately 60% of the total compensation for each of our other NEOs was tied to performance in 2017, including an average of approximately 47% that was delivered in the form of restricted stock that is subject to market-based vesting conditions. In addition, beginning with the grant of restricted stock made to our NEOs in April 2017, approximately 27% of the total compensation for our Chief Executive Officer and approximately 25% of the total compensation for each of our other NEOs was delivered in the form of restricted stock that is subject to time-based vesting conditions. We anticipate continuing to provide a combination of performance-based and time-based restrictive stock awards to our NEOs. The overall design of our compensation program is intended to support a strong pay-for-performance culture and encourage longevity, sustained performance and retention of our NEOs, resulting in a dynamic compensation mix that aims to ensure alignment between the interests of our NEOs and the interests of our stockholders. COMPENSATION MIX CHIEF EXECUTIVE OFFICER Base Salary TOTAL COMPENSATION AT RISK 62% Other Compensation Performance-Based Equity Incentives (LTIP) (LTIP) Performance-Based Cash Incentives (Annual Incentive Plan) Time-Based Equity Incentives COMPENSATION MIX OTHER NEOs (Average) Base Salary TOTAL COMPENSATION AT RISK 60% Other Compensation Performance-Based Equity Incentives (LTIP) (LTIP) Performance-Based Cash Incentives (Annual Incentive Plan) Time-Based Equity Incentives We do not have a pre-established policy or target for the allocation between cash and non-cash compensation nor for the allocation between short-term and long-term incentive compensation for our NEOs. Rather, the compensation committee relies on each committee member’s knowledge and experience, as well as information provided by management and Compensia, to determine the appropriate level and mix of compensation. Ultimately, our objective is to provide our NEOs with reasonable, competitive base salaries and the opportunity to earn additional compensation through short-term and long-term performance-based incentives, which are designed to produce a targeted level of performance. Our NEOs receive cash compensation in the form of base salary and bonuses, with bonuses representing a short-term incentive component of our NEO compensation packages. Beginning with the 2015 fiscal year, we have determined and paid bonuses for all but one of our NEOs pursuant to the Paycom Software, Inc. Annual Incentive Plan (the “Annual Incentive Plan”). See “—Cash Compensation—Annual Incentive Plan.” Equity awards serve as an important motivational and retentive component of an NEO’s overall compensation package. Each NEO holds a significant amount of restricted stock with time-based vesting conditions. These shares were issued to replace equity awards that were cancelled in connection with a pre-IPO corporate reorganization. From our IPO until April 2017, all equity awards to NEOs were subject to market-based vesting conditions only. In April 2017, 30% of the equity awards made to our NEOs included restricted stock with a two-year time-based vesting period. Due to the market-based vesting conditions for a majority of our equity awards and performance criteria for Annual Incentive Plan or other bonuses, a significant portion of our NEOs’ compensation is linked to our financial and operational performance as well as our enterprise value. We believe this structure challenges our executives to increase stockholder value and compensates them in accordance with the extent that the specified results are achieved. In addition, we believe 27 compensationmixchiefexecutiveofficerbasesalaryperformance-basedequityincentives(uip)time-basedequityincentives(UIP)performance-basedcashincentives(annualincentiveplan)othercompensationtotalcompensationatrisk62%compensationmixotherneos(average)basesalaryperformance-basedequityincentives(UIP)time-basedequityincentives(uip)performance-basedcashincentives(annualincentiveplan)othercompensationtotalcompensationatrisk62% PAYCOM SOFTWARE, INC.