In May 2023, the stockholders of the Company approved the Paycom Software, Inc. 2023 Long-Term Incentive Plan (the “2023 LTIP”), which provides for the granting of equity-based awards to the Company’s employees, contractors and outside directors. Subject to certain adjustments, the maximum number of shares of common stock that may be delivered pursuant to awards under the 2023 LTIP is 3,600,000, subject to increase by any awards under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (as amended, the “2014 LTIP”) (i) that are outstanding on or after May 1, 2023, and that, on or after such date, are forfeited, expire or are canceled (but excluding the 1,610,000 shares of restricted stock granted to Mr. Richison on November 23, 2020 (the “2020 CEO Performance Award”)); and (ii) any shares subject to awards relating to common stock under the 2014 LTIP that are settled in cash on or after May 1, 2023.

We have historically issued shares of restricted stock that are subject to either market-based vesting conditions (“Market-Based Shares”) or time-based or no vesting conditions (“Time-Based Shares”). The market-based vesting conditions are based on the Company’s total enterprise value (“TEV”) or volume weighted average stock price over a specific period exceeding certain specified

thresholds. Compensation expense related to the issuance of Market-Based Shares is measured based upon the fair value of the award on the grant date and recognized on a straight-line basis over the service period based upon the probability that the vesting conditions will be met. Compensation expense related to the issuance of Time-Based Shares is measured based on the fair value of the award on the grant date and recognized over the requisite service period on a straight-line basis.

During the year ended December 31, 2023, we issued an aggregate of 754,815 restricted shares of common stock under the 2014 LTIP and the 2023 LTIP, consisting of 87,618 Market-Based Shares and 667,197 Time-Based Shares. Market-Based Shares will vest 50% on the first date, if any, that the arithmetic average of the Company’s volume weighted average price on each of the twenty consecutive trading days immediately preceding such date (the “VWAP Value”) equals or exceeds $404 per share and 50% on the first date, if any, that the Company’s VWAP Value equals or exceeds $466 per share, in each case provided that (i) such date occurs on or before the eighth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2014 LTIP or the 2023 LTIP, as applicable, and the applicable restricted stock award agreement. The Time-Based Shares granted to non-executive employees will vest over periods ranging from three to four years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2014 LTIP or the 2023 LTIP, as applicable, and the applicable restricted stock award agreement.

The Time-Based Shares mentioned above include an aggregate of 5,523 Time-Based Shares issued to the non-employee members of our Board of Directors in May 2023 under the 2023 LTIP. Such shares of restricted stock will cliff-vest on the seventh day following the first anniversary date of the grant, provided that such director is providing services to the Company through the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable restricted stock award agreement.

The following table presents a summary of the grant date fair values of restricted stock granted during the years ended December 31, 2023, 2022 and 2021 and the related assumptions:


	Year Ended December 31,
	2023	2022	2021
Grant date fair value of restricted stock	$167.76 - $337.44	$259.65 - $348.19	$315.95 - $521.17
Risk-free interest rate	3.58%	1.75%	0.95%
Estimated volatility	40.9%	40.0%	33.0%
Expected life (in years)	2.3	2.5	2.3

The following table summarizes restricted stock awards activity for the year ended December 31, 2023:


	Time-Based					Market-Based
	Restricted Stock Awards					Restricted Stock Awards
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested shares of restricted stock outstanding at December 31, 2022		479.1		$	315.04		1,677.0		$	116.36
Granted		667.2		$	279.85		87.6		$	316.12
Vested		(151.7	)	$	286.10		—		$	—
Forfeited		(90.6	)	$	316.90		(19.1	)	$	299.36
Unvested shares of restricted stock outstanding at December 31, 2023		904.0		$	293.74		1,745.5		$	124.38

The following table presents the aggregate fair value of awards that vested during the indicated period.


	Year Ended December 31,
	2023		2022		2021
Time-Based Restricted Stock Awards	$	42,991	$	63,970	$	97,242
Market-Based Restricted Stock Awards	$	—	$	—	$	76,153

In February 2023, we issued, in the aggregate, 5,232 shares of common stock upon the vesting of performance-based restricted stock units (“PSUs”) awarded to certain executive officers in February 2021. The number of shares delivered upon vesting of the PSUs was determined based on the Company’s achievement of a Relative Total Stockholder Return (“Relative TSR”) performance goal, which compared the Company’s Total Stockholder Return (“TSR”) to the TSR of a peer group for the two-year performance period that commenced on January 1, 2021 and ended on December 31, 2022.

For purposes of the PSU awards granted in 2021 (the “2021 PSUs”), TSR was determined by dividing (i) the sum of (A) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the final 60 trading day period of the applicable performance period, less (ii) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the 60 trading day period ending on December 31, 2020, plus (iii) the sum of all dividends which are paid by the Company (or the member of the peer group) to its stockholders, assuming such dividends are reinvested in the applicable company through the applicable performance period, by (ii) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the 60 trading day period ending on December 31, 2020. For purposes of the 2021 PSUs, the Company’s peer group includes 34 publicly traded companies, which were reflective of the S&P 500 Software & Services index on the grant date.

On April 3, 2023, the Company announced the resignation of Justin Long from the position of Vice President of Operations of the Company, effective March 28, 2023. In connection with Mr. Long’s resignation, the Company, Paycom Payroll, LLC and Mr. Long entered into a Severance and Release Agreement (the “Severance Agreement”), which became effective on April 8, 2023, pursuant to which 1,505 Time-Based Shares previously granted to Mr. Long accelerated in vesting.

On May 2, 2023, the Company issued the following awards to executive officers under the 2023 LTIP: (i) an aggregate of 39,131 PSUs; (ii) an aggregate of 8,695 time-based restricted stock units (“RSUs”); and (iii) an aggregate of 142,000 Time-Based Shares. The number of shares deliverable upon vesting of such PSUs will be determined based on achievement of pre-established performance goals. The performance goals vary for each executive officer but are based on the Company’s revenue, adjusted EBITDA, the daily volume weighted average price of the Company’s common stock and annual revenue retention rate, in each case for the one-year performance period from January 1, 2023 to December 31, 2023. The PSUs were eligible to vest following the performance period, but no later than February 29, 2024, provided that the recipient was employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable restricted stock unit award agreement. For a discussion of the PSU vesting and related forfeitures that occurred on February 5, 2024, see “Note 15. Subsequent Events”. The RSUs vest in three equal annual tranches over a period of approximately two and a half years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable restricted stock unit award agreement. The Time-Based Shares vest in four tranches over a period of approximately three and a half years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable restricted stock award agreement.

The following table presents a summary of the grant date fair values of restricted stock units granted during the years ended December 31, 2023, 2022 and 2021 and the related assumptions:


	Year Ended December 31,
	2023	2022	2021
Grant date fair value of restricted stock	$55.83 - $297.55	$252.16 - $377.01	$382.78 - $587.97
Risk-free interest rate	4.89%	1.25% - 1.51%	0.11% - 0.34%
Estimated volatility	42.5%	49.2%	50.3% - 51.2%
Expected life (in years)	1.0	2.7	2.6

The following table summarizes restricted stock unit activity for the year ended December 31, 2023:


	Time RSUs					PSUs
	Units			Weighted Average Grant Date Fair Value Per Unit		Units			Weighted Average Grant Date Fair Value Per Unit
Unvested restricted stock units outstanding at December 31, 2022		0.5		$	377.01		77.8		$	409.13
Granted		8.8		$	297.49		39.1		$	244.39
Vested		(0.1	)	$	377.01		(5.2	)	$	526.66
Forfeited		—		$	—		(74.5	)	$	364.82
Unvested restricted stock units outstanding at December 31, 2023(1)		9.2		$	300.74		37.2		$	308.05

(1)

A maximum of 81,843 shares could be delivered upon settlement of PSUs based upon the Company’s achievement of the applicable performance goals over the applicable performance periods.

The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested restricted stock awards and unvested restricted stock unit awards as of December 31, 2023:


	Restricted Stock		Restricted Stock
	Awards		Units
Unrecognized compensation cost	$	258,518	$	5,592
Weighted average period for recognition (years)		2.3		0.7

The following table presents our total non-cash stock-based compensation expense resulting from restricted stock awards and restricted stock unit awards in the aggregate, which is included in the following line items in the accompanying consolidated statements of comprehensive income:


	Year Ended December 31,
	2023		2022		2021
Operating expenses	$	10,613	$	4,671	$	4,570
Sales and marketing		23,870		18,659		13,801
Research and development		22,273		11,063		7,527
General and administrative		73,050		60,505		71,608
Total non-cash stock-based compensation expense	$	129,806	$	94,898	$	97,506

We capitalized stock-based compensation costs related to software developed for internal use of $14.7 million, $9.0 million and $7.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

In May 2023, our Board of Directors adopted a dividend policy under which we intend to pay quarterly cash dividends on our common stock. All unvested shares of restricted stock, RSUs and PSUs currently outstanding are entitled to receive dividends or dividend equivalents, provided that such dividends or dividend equivalents are withheld by the Company and distributed to the applicable holder upon the release of restrictions on such shares of restricted stock, RSUs or PSUs (i.e., upon vesting).