The initial grant of RSUs to new directors vests as to 50% of the underlying shares of Common Stock on each of the first and second anniversaries of the date of grant. The annual grant of RSUs to incumbent directors vests as to 100% of the underlying shares of Common Stock on the first anniversary of the date of the grant. All awards will become fully vested in the event of a change in control.

All of our non-employee directors are subject to stock ownership guidelines that are described below in “Named Executive Officer Compensation — Compensation Discussion and Analysis — Stock Ownership Guidelines.””

The following table sets forth the total compensation for each non-employee director for services rendered in 2021.2022. Mr. Hsing, who is our employee, does not receive additional compensation for his services as a director. Mr. Hsing’s compensation is reflected in “Named Executive Officer Compensation — 2021- 2022 Summary Compensation Table.””

The following table summarizes the number of shares of our Common Stock that are subject to unvested RSU awards held by each of the non-employee directors as of December 31, 2021.2022. There were no outstanding stock option awards as of December 31, 2021.2022.

CORPORATE SOCIAL RESPONSIBILITY

Since MPS was founded in 1997, one of our core values has been to run a responsible and responsive business for the long term. We believe that positive ESG business practices strengthen our company and foster strong relationships with our stockholders, employees, business partners and communities where we operate. We are committed to making our workforce diverse, our business sustainable and our stakeholders engaged by maintaining strong ESG practices and policies.

ESG Oversight

We believe that effective oversight is essential to ensure our ESG practices and policies someare aligned with our business strategy and serve the long-term interests of which are highlighted below. our stockholders and other stakeholders. Our Board is actively engaged on ESG matters and has the ultimate responsibility on the oversight, management and implementation of our ESG program. In its oversight role, our Board primarily focuses on:

Our Board has assigned oversight responsibilities of our ESG compliance efforts to its committees, and receives reports and updates from each committee on a quarterly basis:

Our ESG Steering Committee is responsible for the day-to-day management of our ESG program and consists of a cross-functional group that includes two senior executives and leaders from Legal and Compliance, Information Technology, Facilities, Operations, Procurement, Quality Assurance, Product Line, Human Resources, Supply Chain Management, and Environmental, Health and Safety. Under the supervision of the Board committees, the ESG Steering Committee’s primary role is to: (a) manage the execution of our corporate strategy relating to ESG, (b) develop and implement initiatives and policies, (c) drive ESG performance, (d) oversee communications with employees, customers, suppliers, regulators and other stakeholders, and (e) monitor and assess developments and trends relating to ESG. On a quarterly basis, each Board committee receives updates from the ESG Steering Committee. These updates provide the Board committees with the opportunities to evaluate our ESG priorities, performance against our goals, and regulatory requirements.

ESG Initiative Highlights

For a fullcomplete description of our ESG priorities, initiatives we encourage youand reduction goals, please refer to visit and explore our ESGCorporate Responsibility Report, which is available on our website at https://www.monolithicpower.com/en/about-mps/investor-relations/esg-report.html. The information contained in our Corporate Responsibility Report and on our website is not intended to be part of this Proxy Statement and is not incorporated by reference into this Proxy Statement.

Environmental Sustainability

Pursuant to our Environmental and Climate Change Policy, we seek to responsibly protect the environment and conserve natural resources by implementing sustainability programs and solutions, engaging partners across our value chain, and setting ambitious goals that we believe will help minimize the environmental impacts from our products and operations.

We completed our Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions inventory for 2021 and 2022, covering all global operations using the operational control approach under the GHG Protocol, a set of internationally recognized standards for quantifying and reporting GHG emissions. The emissions data for both years have been verified by an independent data verification firm in accordance with its assurance standards. In addition, we are developing our value chain outreach plan to assess our Scope 3 emissions baseline and implement reduction goals.

●        Our products and solutions are integrated into a broad array of electronic devices and products worldwide – including energy-efficient and green technologies, many of which are used every day, such as data center solutions, notebook solutions, electric vehicles, LED lighting controller and driver solutions, smart home and building applications, and solar power.

●        At our largest U.S. facility in San Jose, California, we installed 30,000 square feet of solar panels. This power generator produces 650 kWh of electricity annually, saving approximately 1,700 metric tons of greenhouse gases. We installed over 27 solar-powered EV charging stations in San Jose, California and at our corporate headquarters in Kirkland, Washington. We continue to identify other opportunities to implement additional renewable energy projects for our global facilities.

●        Our products are shipped in compliance with the European Restriction of Hazardous Substances (“RoHS”) Directive and exclude banned substances.

●        We are ISO 14001-certified and have developed an environmental management system that is integrated into our business management processes.

●        We have a long-term environmental and climate change policy that focuses on hazardous waste management, greenhouse gas emission, energy and water conservation, new product design and the supply chain.

Social

●        We participate in the Equal Employment Opportunity-1 (“EEO-1”) survey each year. Women in engineering/technical and managerial/supervisor roles comprised approximately 22% and 46%, respectively, of our worldwide workforce, and held approximately 47% of total non-technical roles at MPS in 2021. We continually recruit new talent from a diverse candidate pool.

●        We are committed to creating an inclusive workplace that supports all employees. We provide unconscious bias trainings for managers and human resources employees administered by independent third parties to ensure we solidify an environment of inclusivity.

●        In our annual employee pulse surveys, 92% of respondents said they were valued and treated with respect, and 91% of respondents agreed that MPS believes in putting customers first.

●        Our Conflict Minerals Policy prohibits the use of cobalt and other conflict minerals originating from the Democratic Republic of the Congo or adjoining countries. We require this same certification from all our key manufacturing suppliers.

●        Our Worker Health and Safety Plan is certified to ISO 45001 standards.

●        We adhere to the standards established in the Universal Declaration of Human Rights, and condemn the use of forced, slave, or child labor in any form.

●        We are a member of the Responsible Business Alliance (“RBA”), the world’s largest industry coalition dedicated to corporate social responsibility in global supply chains. We successfully passed onsite Validated Assessment Program audits by the RBA.

●        Our key manufacturing suppliers are required to sign our Vendor Code of Conduct, and we conduct audits to ensure their compliance with the RBA and other important industry standards. 

●        Our philanthropic arm, the MPS charitable foundation (the “Foundation”), is dedicated to giving back to our communities by supporting many local non-profit organizations.

2021 - 2022 HighlightsOur goal is to increase renewable energy sources as part of our GHG emissions reduction strategy. We will continue to procure reliable energy supplies, including renewable resources where available, that are cost-effective and align with our business needs and environmental objectives.

●	Board DiversityWaste

We believe diversity drives innovationcontinue to look for opportunities to minimize waste generation, most of which is produced at our testing facilities. In 2022, 86% of our waste from global operations was recycled, compared with 83% in 2021. We are focused on managing our hazardous waste by working closely with our vendors to identify and implement additional recycling programs.

Our products play a critical role in powering data center infrastructure. In our product design, we focus on features that deliver new capabilities while improving performance and energy efficiency. As a result of increasingly intensive computing applications such as artificial intelligence, customers are looking for sustainable solutions that maximize power density in data centers. Using our proprietary power conversion technology, we are developing power modules with higher power density per rack that will decrease the physical footprint on the motherboards. This power density improvement will enable more computing power in less space, which will result in energy savings in data centers.

As part of our goal to achieve sustainable, energy-efficient operations, we have implemented various green technologies in our facilities, including solar panels and electric vehicle charging stations. Globally, we have installed 33,500 square feet of solar panels, which generated close to 600 MWh of electricity, with 137 metric tons of carbon dioxide equivalent savings in 2022. We have also installed 59 electric vehicle charging stations in various locations.

We utilize an Environmental Management System (“EMS”) to achieve our environmental goals through consistent review, evaluation and improvement, and to address regulatory requirements and environmental performance in a systematic and cost-effective manner. Our EMS is keycompliant with the ISO 14001 standard.

Social

Through our social initiatives, we aim to give back to our success. Currently,local communities and maintain a workplace that values diverse backgrounds, a healthy and safe environment, innovative thinking and professional growth. In addition, we conduct our business in a manner that respects the Board consistsrights and dignity of members with a wide varietyall people, and we expect our business partners to uphold these principles as well.

Under our Diversity, Equity and Inclusion Policy, our mission is to create an inclusive workplace that supports all employees. We provide unconscious bias trainings for managers and human resources employees administered by independent third parties to ensure that we promote an environment of skills, industry experiences and backgrounds, and fiveinclusivity. In our most recent pulse surveys, 94% of our seven directors are ethnically diverse. employees said they were valued and treated with respect.

We are committedfile our EEO-1 report each year and publish the data publicly. In 2022, women in engineering/technical and managerial/supervisor roles totaled approximately 39% and 47%, respectively, of our worldwide workforce, and held approximately 52% of non-technical roles. In the U.S., employees belonging to diversity and inclusion at every levelminority groups accounted for 68% of MPS, including the Board.our workforce. We believecontinue to recruit new talent from a diverse balancedcandidate pool through various university recruitment programs and cohesive Board is critical in facilitating strong oversight, as well as supporting the achievement of MPS’s objectives, including its strategic priorities to improve long-term operational and financial performance and enhance stockholder interests. In May 2021, after conducting a rigorous search, the Board appointed one female Board member, Ms. Martinez, who brings to the Board a diverse background with more than 30 years of information systems and technology experience in high-growth, multinational companies in the aerospace and automotive industries. employment websites targeting underrepresented minority groups.

ESG-Related Disclosures

As part of our commitment to transparent disclosuresdiversity and inclusion, our Nominating and Governance Committee amended its charter in 2022 and adopted a rule that requires women and minorities to be included in the initial pool of candidates when selecting new director nominees.

We encourage our employees to learn, innovate and grow their careers by providing them with access to various learning tools and resources to develop their business skills and knowledge. As part of our efforts to invest in employee growth and development, we launched an online learning management system, Cornerstone, in 2023 that offers a comprehensive library of training courses on topics including business and leadership, career and technical skill development, ethical standards, health and safety, cybersecurity, diversity and inclusion, human rights and compliance.

Under our ESG efforts,Code of Social Responsibility, we made significant enhancementsadhere to the standards established in the Universal Declaration of Human Rights and strictly prohibit human trafficking and the use of forced, slave or child labor in any form. We expect our ESG reporting throughemployees and business partners to abide by these principles. Under our corporate website under the Investors Relations page. The ESG website provides important information regardingSupplier Code of Conduct, which aligns with Responsible Business Alliance’s Code of Conduct, we require our values, policies,suppliers to maintain sound business ethics and labor practices and progress in one centralized location. In addition, the website also highlights new initiatives and meaningful goals that are relevantin compliance with applicable laws and importantregulations. Failure by any of our suppliers to comply with our overallSupplier Code of Conduct may result in termination of our business strategies.relationship with such supplier.

●	Giving Back and Supporting Our Communities

We believe in being an active corporate citizen and making a positive impact on communities where we do business. Through the MPS Foundation, we are committed to fostering and increasing the resources of local communities by supporting non-profit organizations that focus on areas such as education,academic research, performing arts, healthcare, food banks, and youth programs, and educational and career opportunities for underrepresented groups with monetary contributions or investments. In 2021,2022, we contributed $1.1$5.6 million to the Foundation. Since its inception, theMPS Foundation, which has donated to organizations including the Virginia MasonCornell University, Healthier Kids Foundation, Boys & Girls Clubs of Bellevue,Seattle Symphony, Second Harvest Food Bank, Virginia Mason Foundation and the Palo Alto Medical Foundation.Washington STEM.

Governance

AsOur overall governance framework is designed to promote strong oversight, create Board and management accountability, protect the rights of stockholders, and demonstrate our commitment to transparency, independence and diversity. We believe that strong corporate governance is important for our long-term success and ensures that we continue to buildmanage ESG risks effectively while achieving our charitable contribution program, we are committed to forming relationships with organizations supporting the educationsustainability and empowerment of underrepresented groups within the STEM fields.social priorities.​

●	Stockholder EngagementBoard Diversity and Refreshment

Our Board consists of members with a wide variety of skills, industry experiences and backgrounds. We believe a diverse, balanced and cohesive Board is critical in facilitating strong oversight, fostering diverse and new perspectives, as well as supporting the achievement of MPS’s long-term objectives. In February 2023, after conducting a rigorous search, the Board appointed an additional female Board member, Ms. Eileen Wynne, who brings to the Board a diverse background with more than 20 years of finance, operational and risk management experience in the semiconductor industry.

Currently, five of our eight directors are ethnically diverse, and two directors are female. In addition, 25% of our directors were first appointed within the past two years.

We continue to engage with our stockholders, seek their feedback and address their concerns on corporate governance matters. In April 2022, the Board amended our Bylaws by providingto facilitate proxy access tofor our stockholders who meet certain eligibility requirements. Proxy access gives our stockholders the right to nominate director candidates in our proxy materials and gain representation on the Board.

Commitment to Environmental Initiatives Stockholder Engagement

We take environmental stewardship seriously,During 2022, we continued our practice of proactive stockholder engagement regarding important matters including executive compensation, ESG and governance topics. Our management team, including our Chief Executive Officer, Chief Financial Officer and General Counsel, extended invitations to our largest institutional stockholders and had the opportunity to engage with stockholders representing approximately 45% of our total shares outstanding. Subsequent to these meetings, our management team, the Board and the executive team recognize the importance of implementing measures to reduceits committees thoughtfully evaluated information gathered from our overall impact on the environment. In February 2021, as part ofengagement process, together with feedback and input from our commitment to promoting environmental sustainability, the Compensation Committee implemented changes to our executive equityindependent compensation program to include long-term performance conditions with a three-year performance period that are tied directly to environmental metrics. The Compensation Committee believes that incorporating key environmental sustainability initiatives into our annual incentive equity awardsconsultant, when making decisions for the NEOs will help drive our efforts in these important areas of focus for MPS.next 12 months.

The following table summarizes the changes we have implemented, based on the key issues raised by our stockholders:

PROPOSAL TWO

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board has appointed Ernst & Young as our independent registered public accounting firm for the year ending December 31, 2022.2023. Ernst & Young has served as our independent registered public accounting firm since March 2019. Representatives of Ernst & Young are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions. Although ratification by stockholders is not required by law, the Board has determined that it is desirable to request ratification by the stockholders of this selection. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of us and our stockholders. If the stockholders do not ratify the appointment of Ernst & Young, the Audit Committee may reconsider its selection. 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2022.2023.

Audit and Other Fees

The following table summarizes the fees for services provided by Ernst & Young for 20212022 and 20202021 (in thousands):

Audit fees consist of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in our quarterly reports and the audit of our internal control over financial reporting.

Audit fees also include services in connection with foreign statutory and regulatory filings, and audit and accounting matters that arise during, or as a result of, the audit or the review of interim financial statements, including the application of proposed accounting rules, statutory audits required by non-U.S. jurisdictions and the preparation of an annual “management letter” containing observations and discussions on internal control matters. 

Audit-related fees represent assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include accounting consultations in connection with attestation services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.

Tax fees represent professional services for federal, state and international tax compliance, tax advice and tax planning.

Pre-Approval of Audit and Non-Audit Services

The charter of our Audit Committee requires that the Audit Committee pre-approve all audit and non-audit services provided to us by our independent registered public accounting firm or subsequently approve non-audit services in those circumstances where a subsequent approval is necessary and permissible. All such services for 20212022 and 20202021 were pre-approved by the Audit Committee. 

PROPOSAL THREE

ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

As required under Section 14A of the Securities Exchange Act of 1934, we are asking stockholders to again cast an advisory (non-binding) vote on the following resolution at the Annual Meeting:

RESOLVED, that, on an advisory basis, the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, compensation tables and related narratives and descriptions of this Proxy Statement for the Annual Meeting, is hereby APPROVED.

This advisory vote, commonly known as a “say-on-pay” vote, gives our stockholders the opportunity to express their views about the compensation we paid to our named executive officers, in the prior year, as described in this Proxy Statement.  Before stockholders vote on this proposal, they should review the Compensation Discussion and Analysis in this Proxy Statement and the tabular and narrative disclosure that follows it.  We currently conduct say-on-pay votes every year.year, and we are asking stockholders to vote, on an advisory basis, on the frequency of future say-on-pay votes in Proposal Four. The next say-on-pay vote is expected to occur at the 2024 annual meeting of stockholders.

We are committed to responsible compensation practices and structures. As described more fully in the Compensation Discussion and Analysis section of this Proxy Statement, the primary goal of our executive compensation program is the same as our goal for operating MPS — to create long-term value for our stockholders. To achieve this goal, we have regularly sought out the feedback of our major stockholders over the past several years to hear their suggestions on how we can better achieve our primary compensation goal. After taking their feedback into consideration, we have continued to update our compensation program for our named executive officers, implementing those recommendations of our stockholders that the Compensation Committee believes will help us create long-term value for our stockholders. We believe these annual reviews of our programs, in coordination with our conversations with our stockholders, allow us to motivate and reward our executives for sustained financial and operating performance and leadership excellence, to align their interests with those of our stockholders, and to encourage them to remain with us for long and productive careers.

Stockholders may vote “for” or “against” the resolution or abstain from voting on the resolution.  The affirmative vote of a majority of the shares of stock entitled to vote thereon which are present in person via attendance at the Annual Meeting or represented by proxy at the Annual Meeting is required to approve, on an advisory basis, the compensation of our named executive officers. The result of the say-on-pay vote will not be binding on us, the Board or the Compensation Committee. However, we value the views of the stockholders. The Board and the Compensation Committee will review the results of the vote and expect to take them into consideration in addressing future compensation policies and decisions.

FOR THESE REASONS, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS, COMPENSATION TABLES AND RELATED NARRATIVES AND DESCRIPTIONS OF THIS PROXY STATEMENT FOR THE ANNUAL MEETING.

PROPOSAL FOUR

ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON

NAMED EXECUTIVE OFFICER COMPENSATION

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934, we are asking stockholders this year to cast an advisory, non-binding, vote on the frequency of future advisory votes on named executive officer compensation, commonly known as “say-on-pay” votes.  This advisory vote, commonly known as a “say-on-frequency” vote, gives stockholders the opportunity to express their views about how frequently (but at least once every three years) we should conduct future say-on-pay votes.  Stockholders may vote for future say-on-pay votes to be held “every year,” “every two years” or “every three years,” or abstain from voting on this proposal.

While our named executive officer compensation programs are designed to promote a long-term connection between pay and performance, the Board recognizes that executive compensation disclosures are made annually.  We believe that an annual say-on-pay advisory vote on executive compensation is consistent with our practice of seeking timely input from and engaging in frequent dialogue with our stockholders on corporate governance matters and our executive compensation philosophy, policies and practices.

FOR THESE REASONS, THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR US TO CONDUCT ANY FUTURE STOCKHOLDER ADVISORY VOTE ON NAMED EXECUTIVE OFFICERCOMPENSATION “EVERY YEAR.”  STOCKHOLDERS ARE NOT VOTING TO APPROVE OR DISAPPROVE THE BOARD’S RECOMMENDATION.STOCKHOLDERS MAY CHOOSE AMONG THE FOUR CHOICES (EVERY YEAR, EVERY TWO YEARS, EVERY THREE YEARS OR ABSTAIN) SET FORTH ABOVE.

The results of the say-on-frequency vote will be advisory and will not be binding upon us or the Board.  However, the Board will take into account the outcome of this say-on-frequency vote when determining how frequently we will conduct future say-on-pay advisory votes, and we will disclose our frequency decision as required by the SEC. With respect to this say-on-frequency vote, if none of the frequency alternatives (every year, every two years or every three years) receives a majority vote, we will consider the frequency that receives the highest number of votes by stockholders to be the frequency that has been selected by stockholders.

We expect that our next say-on-frequency vote will occur at our 2029 annual meeting of stockholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of the Record Date, information relating to the beneficial ownership of our Common Stock or securities exercisable for, or exchangeable into, our Common Stock by: (i) each person known by us to be the beneficial owner of more than five percent (5%) of the outstanding shares of our Common Stock, (ii) each director (or nominee), (iii) each of the named executive officers in the 20212022 Summary Compensation Table, and (iv) all directors and executive officers as a group.

Unless otherwise indicated, the address of each beneficial owner listed below is Monolithic Power Systems, Inc. at 5808 Lake Washington Boulevard NE, Kirkland, WA 98033.

* Represents beneficial ownership of less than 1%.

Certain Relationships and Related Transactions

We have a written policy on related party transactions, as defined in our Code of Ethics and Business Conduct and the Audit Committee Charter. In accordance with our Code of Ethics and Business Conduct, it is the responsibility of our employees and directors to disclose any significant financial interest in a transaction between us and a third party, including an indirect interest, through, for example, a relative or significant other. It is also the responsibility of our Audit Committee, as described in the Audit Committee Charter, to review on an ongoing basis all related party transactions and approve these transactions before they are entered into.

We haveIn 2020, we made a CHF 3,000,000 equity investment (or $3,300,000 on the acquisition date) in a privately held Swiss company (the “Investee”) specializing in mobile robotics for industrial applications. The investment represents a 5% equity interest in the Investee on a fully diluted basis. In 2022, we made a CHF 2,000,000 investment (or $2,100,000 on the acquisition date) in a convertible loan that will convert into additional shares of the Investee. Mr. Elmiger is an executive officer of a company that has a commercial relationship with the Investee, and Mr. Hsing had personally invested CHF 2,700,000 in the Investee. In addition, Mr. Hsing currently serves on the Investee’s board of directors.

NAMED EXECUTIVE OFFICER COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes our compensation philosophy and programs, compensation decisions made under those programs, and factors considered in making these decisions for our “named executive officers” (“NEOs”) who, for 2021,2022, were:

For further information regarding each NEO’s professional background, please refer to “Information About Executive OfficersOfficers”” under Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on February 25, 2022.24, 2023.

Executive Summary

Impact of COVID-192022 Financial and Business Performance Highlights:

In 2021, management continued to execute MPS’s business planThe Compensation Committee has focused our executives on accountability in revenue, operating income and mitigateearnings, as well as maximizing stockholder return through the effectstructure of the pandemic on our financial position and business operations. The Board and its committees received regular updates from management on our pandemic response and closely monitored our efforts to follow governmental guidelines and ensure the safety of our employees, suppliers and customers. Despite the ongoing challenges of the pandemic and an uncertain economy, demand for our products continued to grow, and we achieved record revenue and financial results in 2021. Performance goals under our executive compensation program were establishedprogram. In 2022, despite the industrywide supply chain issues and the global economic downturn, MPS achieved record financial results for the year. We believe this performance was attributable to our consistent execution against our business strategies, and our strong relationships with customers who recognize us for our advanced technologies, product quality and customer support.

Despite the macroeconomic challenges in 2022, our revenue grew 49% from the prior year, compared with the analog industry’s 20% growth reported by the Compensation Committee in February 2021,Semiconductor Industry Association (“SIA”). Our financial results are summarized as follows (in millions, except per-share amounts and no downward adjustments to these performance goals were made due to the ongoing pandemic.percentages):

		GAAP												Non-GAAP (1)
		FY 2022 ($)				FY 2021 ($)				Change				FY 2022 ($)				FY 2021 ($)				Change
Revenue			1,794.1				1,207.8				49	%			1,794.1				1,207.8				49	%
Operating income			526.8				262.4				101	%			680.9				391.1				74	%
Net income			437.7				242.0				81	%			599.9				356.7				68	%
Diluted EPS			9.05				5.05				79	%			12.41				7.45				67	%

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(1)	The reconciliation of the GAAP financial measures to the non-GAAP financial measures and related disclosures are provided in Annexure A.

We also achieved significant success in our targeted end markets in 2022 as follows:

●

Enterprise Data sales grew 116% from the prior year, primarily due to higher sales of our power management solutions for cloud-based CPU and GPU server applications.

●

Storage and Computing sales grew 77% from the prior year, primarily driven by strong sales growth for storage applications and enterprise notebooks.

●

Communications sales grew 53% from the prior year, primarily driven by increased sales of products for both 5G and satellite communications infrastructure applications.

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●

Automotive sales grew 47% from the prior year, primarily due to increased sales of our highly integrated applications supporting automated driver assistance systems, digital cockpits and connectivity.

●

Industrial sales grew 19% from the prior year, primarily driven by higher sales in applications for smart meters and industrial automation.

●

Consumer sales grew 13% from the prior year, primarily fueled by increased sales of home appliances, gaming consoles and smart TVs.

Compensation PhilosophyPhilosophy:

 

The primary objective in designing our compensation program for our NEOs is the same as the primary objective for operating MPS — to create long-term value for our stockholders. To achieve this goal, we have designed and implemented our compensation programs for our NEOs to:

 

●

Motivate and reward them for sustained financial and operating performance and leadership excellence;

●

Motivate and reward them for sustained financial and operating performance and leadership excellence;Align their interests with those of our stockholders;

 

●

Align their interests with those ofEncourage our stockholders;NEOs to focus on achieving both short-term goals as well as long-term developmental goals; and

 

●

Encourage our NEOs to focus on achieving both short-term goals as well as long-term developmental goals; and

●

Encourage our NEOs to remain with us for long and productive careers.

 

Each one of our executive compensation elements fulfills one or more of our performance, alignment and retention objectives. These elements primarily consist of salary, long-term equity awards and short-term cash incentive compensation, as well as severance benefits and broad-based employee benefits. In deciding on the type and amount of compensation for each executive, we focus on both current pay and the opportunity for future compensation. We believe that maintaining a balance of short-term and long-term compensation elements encourages decision-making that optimizes short-term results and, at the same time, advances our long-term goals. We combine the compensation elements for each NEO in a manner we believe optimizes the executive’s overall contribution to us and our stockholders.

 

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Our Compensation Practices Are Built on Stockholder Feedback and RequestsRequests:

 

At the 2022 Annual Meeting of Stockholders, we received approximately 72% advisory approval of our NEOs’ compensation. At the 2021 Annual Meeting of Stockholders, we received approximately 88% of the votes cast by 92%advisory approval of our stockholders were in favor of our executive compensation program.NEOs’ compensation. At the 2020 Annual Meeting of Stockholders, we received approximately 98% of the votes cast by 96%advisory approval of our stockholders were in favor of our executive compensation program. At the 2019 Annual Meeting of Stockholders, approximately 99% of the votes cast by 96% of our stockholders were in favor of our executive compensation program.NEOs’ compensation. While these say-on-pay votes are only advisory and not binding on us, the Compensation Committee discusses the vote results each year with our independent compensation consultant.consultant and the Board.

 

Our management team continued the practice of reaching out to our most significant stockholders from time to time to discuss how those stockholders view our executive compensation program, and what kind of changes they would like to see implemented in future years. Based on the overwhelming multi-year support by the stockholders in favor of our pay-for-performance compensation structure, the Compensation Committee decided to continue to grant 100% of the equity awards to our NEOs based on achievement of performance conditions underconditions.

In addition, based on the most recent feedback we have received from our stockholders, the Compensation Committee made the following significant changes to the executive compensation program in 2021. 2022:

●

Trading Days: To demonstrate a sustained level of price appreciation, we extended the number of trading days required to achieve each individual price target from 20 days to 90 days under the market-based equity awards.

●

Performance Period: We extended the performance period of the equity compensation program from two years to three years.

Furthermore, as outlined in “Corporate Social Responsibility,” we have completed our assessments on Scope 1 and Scope 2 GHG emissions and other environmental initiatives in April 2023. The Compensation Committee plans to link a portion of the executives’ long-term equity compensation to the achievement of certain reduction targets in the near future.

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In the past several years, we have continued to improve our executive compensation policies and programs, incorporating the suggestions of our stockholders. We believe these improvements, as highlighted below, have supported our financial and strategic successes in the last several years.

 

1.

Commitment to short-term profit-based cash incentives mid-term performance-basedand long-term equity awards long-term market-based equity awards,using different performance metrics, and alignment of executive compensation with the interests of our stockholders and other stakeholders.

 

A.

In 2021,2022, 100% of the annual cash incentives earned by the NEOs continued to be tied to specific, pre-established non-GAAP operating income metrics.   In 2021,2022, no stock awards were granted to the NEOs solely based on continued service. 100% of the total equity awards granted to our NEOs were tied to the achievement of performance conditions. TheIn February 2022, the Compensation Committee continued its practice of granting performance-based RSUs (“PSUs”) that would be earned based on (a) the achievement of an average revenue growth rate as measured against the analog industry’s average revenue growth rate over a two-year performance period. In addition, the Compensation Committee implementedperiod, and (b) securing additional performance metrics that emphasized rigorouswafer capacity to support our long-term performance goals designed to promote environmental sustainabilitygrowth over a three-year performance period. These goalsIn October 2022, swift changes to macroeconomic conditions resulted in wafer capacity becoming a lesser business priority for our business compared to the beginning of 2022. In addition, revenue growth performance in a volatile stock market environment does not necessarily translate into stockholder return. As a result, upon consultation with our independent compensation consultant and with the consent of our NEOs, the Compensation Committee cancelled the PSUs and instead granted market-based RSUs (“MSUs”) that require the achievement of both rigorous stock price appreciation and relative total stockholder return (“TSR”) performance over a three-year performance period to directly align with the Board's continued efforts to be deliberate aboutlong-term interests of our role in society and improve our ESG practices.stockholders.

 

B.

Over the last decade, our executive compensation program continued to evolve with the objectives to align our executives’ short-, mid- and long-term interests with those of our stockholders, which included PSUs, market-based RSUs (“MSUs”)MSUs and market and performance-based RSUs (“MPSUs”) that combined various operating goals and/or price hurdles requiring sustained increases in our stock price. These awards containhave performance periods ranging from two to five years, and vesting periods ranging from two to five years, and vesting periods ranging from two to ten years.

 

We believe our cumulative TSR performance over the past several years and year-over-year performance in revenue growth demonstrate the effectiveness of our performance-based compensation program in motivating our NEOs to build a sustainable business model and to focus on long-term value creation for our stockholders.

We believe the significant increase in our stock price and year-over-year outperformance in revenue growth in the past several years demonstrate the effectiveness of our performance-based compensation program in motivating our NEOs to build a sustainable business model and to focus on long-term value creation for our stockholders. Furthermore, linking ESG performance to our executive long-term compensation in 2021 demonstrates our commitment to environmental sustainability and alignment with the long-term interests of our stakeholders, including our stockholders, employees, suppliers and communities where we operate.

	2.	Capping payouts under our non-equity incentive plans.
		Our Compensation Committee has capped maximum cash payouts under our annual non-equity incentive plans at 400% of target for all of the NEOs.

 

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	3.	Selection of performance goals.
		Our stockholders expressed a preference for the use of different performance metrics across plans.  In determining performance metrics, our Compensation Committee selected those that have a greater connection to the stock performance. Therefore, we use non-GAAP operating income for our short-term cash incentive plan, and, to balance that metric, a mix of revenue, stock price performance and operating goals for our long-term performance equity incentive plan. By using a non-GAAP operating income metric in our short-term incentive plan and various performance and stock price appreciation metrics in our long-term incentive plan, we can reward our executives for achieving our short-term financial objectives while at the same time planning for long-term growth, without encouraging excessive risk taking.

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		The following table shows the three-year history of our performance in revenue, GAAP operating income and non-GAAP operating income, which demonstrates a balance of our overall financial health, compared to our CEO’s total compensation (as reported in the 20212022 Summary Compensation Table):

 

---

(1)

The reconciliation of the GAAP operating income to the non-GAAP operating income and related disclosures are provided in Annexure A.

(1)

The reconciliation of the GAAP operating income to the non-GAAP operating income and related disclosures are provided in Annexure A.

	4.	Clawback policy.
		We have a Compensation Recoupment Policy, which permits the Board to recoup any excess performance-based cash compensation paid to key members of our executive team if the financial results on which the performance-based compensation awards were based are restated due to fraud or intentional misconduct by the executive. We expect, in 2023, to review and revise the Compensation Recoupment Policy in connection with final rules regarding recovery of erroneously awarded compensation as promulgated by the SEC and NASDAQ in 2022 and 2023, respectively.

 

	5.	Stock ownership guidelines.
		We have significant stock ownership guidelines for our NEOs and directors, requiring ownership levels by our officers of two to five times their base salary, and by our directors of three times their annual retainer.

 

	6.	Tax gross-ups.
		Since 2008, we have not adopted any new employment agreements (or modified any existing employment agreements) to provide for tax gross-ups to our officers.

 

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	7.	Responsible share ownership.
		We have a policy prohibiting our directors, officers (including our NEOs), and other employees from engaging in certain hedging and monetization transactions with respect to our stock that they hold without prior approval by our Chief Compliance Officer. The policy also prohibits our directors and officers (including our NEOs) from engaging in any short sales of our stock. In addition, our directors and officers are prohibited at all times from holding our stock in a margin account and from pledging our stock as collateral.

 

We routinely engage with our stockholders to exchange ideas on our existing executive compensation programs and potential future programs. We listen to their feedback and carefully consider it. Our engagement with stockholders does not begin and end with the say-on-pay vote – that vote is just one part of a larger dialogue and partnership we have with our investors.

 

Returns to Stockholders

 

Total Stockholder Return (“TSR”):TSR:

 

Our one-year TSR was approximately 35% and our three-year TSR was approximately 335%, as shown in the graphs belowperformed better in comparison to the TSR of our peer group (1) and the PHLX Semiconductor Sector Index (the “PHLX Index”). On a cumulative three-year basis, we achieved a TSR of 103%, exceeding the TSR of our peer group and the Philadelphia Stock Exchange (“PHLX”) semiconductor sector index. PHLX Index.

 

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(1)	Represents our 20212022 peer group approved by the Compensation Committee. See “Peer Group and Use of Peer Data for 20212022”” for further discussion.

 

Cash Dividends:

 

The following table summarizes our cash dividend payments to our stockholders in the past three years (in thousands, except per-share amounts):

 

		FY 2021 ($)				FY 2020 ($)				FY 2019 ($)			FY 2022 ($)				FY 2021 ($)				FY 2020 ($)
Quarterly dividend per share			0.60				0.50				0.40			0.75				0.60				0.50
Total cash dividend payments			110,206				89,832				69,196			140,337				110,206				89,832

 

In February 2022,2023, the Board approved an increase in our quarterly cash dividends to $0.75$1.00 per share.

 

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Market Capitalization

 

Our strong financial performance in the past several years has led to a significant increase in our market capitalization, surpassing $20$15 billion in 2021.the past three years. Because a significant portion of our NEOs’ total compensation in the past several years has been in the form of market-based stock units with stock price performance components, the value of our NEOs’ compensation is closely tied to our market performance. The following chart illustrates our CEO’s compensation (as reported in the 20212022 Summary Compensation Table) compared to our market capitalization in the past three years:

 

2021 Financial and Business Performance Highlights

As noted above, the Compensation Committee has focused our executives on accountability in revenue, operating income and earnings, as well as maximizing stockholder return through the structure of our executive compensation program. In 2021, despite the ongoing COVID-19 pandemic which negatively affected the global economy, we achieved record results in revenue and other key financial metrics that significantly outperformed the semiconductor analog industry. Our revenue growth rate was 43% in 2021, compared with the analog industry’s 33% reported by the Semiconductor Industry Association (“SIA”). Our financial results are summarized as follows (in millions, except per-share amounts and percentages):

		GAAP												Non-GAAP (1)
		FY 2021 ($)				FY 2020 ($)				Change				FY 2021 ($)				FY 2020 ($)				Change
Revenue			1,207.8				844.5				43	%			1,207.8				844.5				43	%
Operating income			262.4				158.9				65	%			391.1				250.1				56	%
Net income			242.0				164.4				47	%			356.7				236.8				51	%
Diluted net income per share			5.05				3.50				44	%			7.45				5.04				48	%

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(1)	The reconciliation of the GAAP financial measures to the non-GAAP financial measures and related disclosures are provided in Annexure A.

We also achieved significant success in our targeted end markets in 2021 as follows:

	●	Communications sales grew 15% from the prior year, primarily due to higher sales of products for infrastructure and wireless applications.
	●	Consumer sales grew 28% from the prior year, primarily driven by increased sales for home appliances and smart TVs.

●

Computing and storage sales grew 47% from the prior year, primarily due to strong sales growth for enterprise notebooks, cloud computing and storage applications.

●

Automotive sales grew 88% from the prior year, primarily driven by sales growth for highly integrated applications supporting the digital cockpit, advanced driver assistance systems and connectivity.

●

Industrial sales grew 55% from the prior year, primarily fueled by broad-based growth with each of our primary product lines enjoying better than double-digit revenue growth.

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The Roles of the Compensation Committee and Our Officers in Setting Compensation

 

The Compensation Committee, which is comprised solely of independent directors, has primary responsibility for overseeing the design, development and implementation of the compensation program for our CEO and other NEOs. The Compensation Committee Charter, which is available in the “Investor“Investor Relations” section of our website at http://www.monolithicpower.com, was originally adopted in 2007, and is updated periodically. Pursuant to the Compensation Committee Charter, the Compensation Committee reviews and approves the compensation arrangements for our NEOs, including the CEO, and administers our equity compensation plans. The Compensation Committee meets at least once a quarter.  In 2021,2022, the Compensation Committee met four times.

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The Compensation Committee reviews the performance of each officer taking into account the evaluations provided by the CEO for all officers other than himself. The Compensation Committee makes the final determination of performance achievement for each officer. The CEO, Chief Financial Officer and General Counsel present information to the Compensation Committee as requested from time to time, including financial results, future budget information, business operations and legal developments. The Compensation Committee regularly meets in closed sessions without the CEO or other management personnel present. Our officers also provide information to the Compensation Committee’s independent compensation consultant, if requested to do so, to help the consultant perform its duties for the Compensation Committee. Our officers are responsible for implementing the decisions made by the Compensation Committee.

 

Compensation ConsultantsConsultant

 

In 2021,2022, the Compensation Committee again engaged Radford as the compensation consultant with respect to our non-employee director and executive compensation programs. Radford did not perform any other work for us. In 2021,2022, the Compensation Committee assessed the independence of Radford pursuant to SEC rules and concluded that no conflict of interest exists that would prevent them from serving as independent consultant to the Compensation Committee.

 

In 2021,2022, the Compensation Committee requested and received the following services from Radford: (1) updates on evolving compensation trends, (2) recommendations for additions or deletions to the peer group used for 2021,2022, (3) compensation data for officers and directors (gathered from public filings for our peers and broader surveys), and (4) general advice on analyzing and responding to stockholder feedback on our compensation programs.  

 

Peer Group and Use of Peer Data for 20212022

 

In February 2021, based on the recommendations of Radford,2022, the Compensation Committee reviewed the recommendation made by our independent compensation consultant and selected thea peer group of technology companies that havein the semiconductor and similar growth profile and are the primary competitors for talent. In addition, the Compensation Committee took into account that theindustries with revenue of our peer companies should be primarily betweenapproximately ranging from 50% andto 300% of our revenue for the most recent four quarters. In addition, the Compensation Committee refined the criteria and selected: (a) seven large cap semiconductor companies that have a similar growth profile and are the key competitors for talent, and (b) two companies in the semiconductor and electronic component industries based on the recommendation by Institutional Shareholder Services, Inc., a proxy advisory firm.

The 2022 peer group consisted of the following companies:

 

Ambarella, Inc.	RambusQorvo, Inc.
Cirrus Logic, Inc.	Rambus Inc.
Coherent, Inc.	Semtech Corporation
Coherent,MKS Instruments, Inc.	Silicon Laboratories, Inc.
MKS Instruments, Inc.	Teradyne, Inc.
ON Semiconductor Corporation	Xperi CorporationTeradyne, Inc.
Power Integrations, Inc.	Wolfspeed, Inc. (formerly Cree,

Companies added in 2022:

Advanced Micro Devices, Inc.)	Skyworks Solutions, Inc.
Qorvo, Analog Devices, Inc.	Synaptics Incorporated
Applied Materials, Inc.	Texas Instruments Incorporated
Micron Technology, Inc.	Universal Display Corporation
NVIDIA Corporation

 

We removed InphiXperi Corporation from the peer group for 20212022 because it was acquired during the year.  In addition, we removed MACOM Technology Solutions Holdings, Inc. and Synaptics Incorporated because these companies ceased to fit within the desired parameters, and added Cirrus Logic, Inc. and Qorvo, Inc.parameters. 

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NEO Compensation Components

 

The table below summarizes the core elements, objectives and key features of our 20212022 compensation program for our NEOs:

 

Compensation Components		Objectives			Key Features
Base salary		Designed to reward individual effort associated with job-related		●	Paid in cash.
		duties and to attract and retain talented executive officers.		●   Paid in cash.  ●	Reviewed annually.
Short-term cash incentive compensation		Designed to encourage outstanding MPS performance by		●	Paid in cash.
compensation		motivating the NEOs to achieve short-term financial goals.		●   Paid in cash.  ●	100% of the compensation is subject to corporate performance goals.
				●	Payouts capped at 400% of target.
				●	Subject to clawback policy.
Long-term incentive compensation		Designed to align the interests of our executivesNEOs with the interests of		●	100% of the awards is subject to achievement of stock price
compensation		our stockholders by focusing on our long-term revenue growth compared to the industry, and performance that is tied to environmental and sustainability goals. stock performance.			targets and relative TSR performance.
				●   100% of the awards is subject to performance conditions.  ●	Maximum payouts at 400%500% of target.  ●   The PSU awards contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares in certain circumstances.
Dividend equivalents		Designed to treat equity award holders equally with stockholders under our dividend program.		●	Equal to the dividend declared and paid on a share of Common
		under our dividend program.			Stock.
				●	Accumulate during the vesting period of the underlying equity awards.
				●	Subject to forfeiture if the underlying equity awards do not vest.
				●	Paid in cash.

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Analysis of 20212022 Compensation Elements

 

Base Salaries:

 

We provide base salary as a stable source of compensation for theour NEOs’ day-to-day duties, and seek to set base salaries at levels that will attract and retain talented executive officers. To attract and retain talent, we have to understand the levels of salary offered by our peers. Accordingly, theThe Compensation Committee considers peer data as one key factor in reviewing base salary each year. The Compensation Committee also considers each individual executive’s role and the scope of his or her responsibilities, the executive’s experience, his or her tenure with us, and size of recent salary changes. For 2021,2022, the Compensation Committee considered all of these factors and approved the following salaries for our NEOs:  

 

Name		FY 2021 ($)				FY 2020 ($)				Change				FY 2022 ($)				FY 2021 ($)				Change
Michael Hsing			720,000				650,000				11	%			756,000				720,000				5	%
Bernie Blegen			350,000				320,000				9	%			367,500				350,000				5	%
Deming Xiao			380,000				340,000				12	%			399,000				380,000				5	%
Maurice Sciammas			380,000				340,000				12	%			399,000				380,000				5	%
Saria Tseng			380,000				340,000				12	%			399,000				380,000				5	%

 

For more than a decade, the Compensation Committee has only made small increases to the base salary, and did not make significant changes to the short-term cash incentive program for the NEOs. Specifically, the size of the target and maximum bonus for the NEOs had not had signficiant increases for more than ten years. During this same period, MPS has experienced significant growth and its annual revenue increased to more than $1 billion, while the market capitalization increased to more than $20 billion.  As a result, based on the recommendation by our independent compensation consultant and consistent with MPS’s compensation philosophy,In 2022, the Compensation Committee approved major changesa modest increase in base salaries for our NEOs to the compensation program in 2021 to betteraccount for inflation adjustments and reflect our current size in the semiconductor industry and align with the pay practices of our peer group. Furthermore, the Compensation Committee believed that this increased payout should tie to performance, and therefore allocated a significant portion of the increase to the target and maximum bonus (as discussed further below). 

 

Short-Term Cash Incentive Compensation:

 

We provide a short-term cash incentive opportunity to each of our NEOs to encourage them to achieve our corporate short-term operating income goals. The Compensation Committee used non-GAAP operating income as the sole corporate performance metric for determining the short-term cash incentive (or bonus) compensation. The Compensation Committee believed that non-GAAP operating income would best reflect our short-term performance. See Annexure A for a reconciliation of the GAAP operating income to the non-GAAP operating income used in the short-term cash incentive plan.

 

100% of the short-term cash incentives were tied to a specific, pre-established non-GAAP operating income metric for all the NEOs. The target bonus for each NEO was 200% of his or her annual base salary. For 2021,2022, our non-GAAP operating income target was $279.6$503.6 million as established in the annual operating plan approved by the Board. Achievement of 120% or more of the non-GAAP operating income target would result in a maximum 400% payout of the target bonus for each NEO, achievement of 100% of the non-GAAP operating income target would result in a 100% target bonus payout, and performance below 80% of the non-GAAP operating income target would result in no bonus payout. For performance between the minimum, target and maximum levels, the percentage of payout would be determined based on linear interpolation.

 

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For 2021,2022, we achieved non-GAAP operating income of $400.3$688.9 million (see Annexure A), which resulted in a payout of 400% of the target bonus for each NEO. The following table summarizes the 20212022 bonus payout approved by the Compensation Committee for each of our NEOs:

 

		Bonus Amount
Name		Minimum ($)				Target ($)				Maximum ($)				Earned ($)
Michael Hsing			-				1,440,000				5,760,000				5,760,000
Bernie Blegen			-				700,000				2,800,000				2,800,000
Deming Xiao			-				760,000				3,040,000				3,040,000
Maurice Sciammas			-				760,000				3,040,000				3,040,000
Saria Tseng			-				760,000				3,040,000				3,040,000

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		Bonus Amount
Name		Minimum ($)				Target ($)				Maximum ($)				Earned ($)
Michael Hsing			0				1,512,000				6,048,000				6,048,000
Bernie Blegen			0				735,000				2,940,000				2,940,000
Deming Xiao			0				798,000				3,192,000				3,192,000
Maurice Sciammas			0				798,000				3,192,000				3,192,000
Saria Tseng			0				798,000				3,192,000				3,192,000

 

Long-Term Equity Incentive Compensation:

 

We provide long-term equity compensation awards to reward and retain our valued executives, to help us effectively compete for executives who can strategically position us for future growth and financial success, and to encourage our executives to focus on achieving long-term development goals for the future.

 

In determining the number of shares subject to long-term equity compensation awards granted to each of the NEOs, the Compensation Committee establishes the aggregatea value of such awards, to be granted aswhich represents a multiple of each NEO’s target cash compensation. The Compensation Committee believes these multiples properly reflect the relative position and responsibility of each NEO as well as the officer’s ability to develop the vision for the future of MPS, drive the strategy to obtain such vision, and effect certain cost savings for us.

 

Over the past several years, weWe have regularly engaged with our stockholders to take into accountfor their opinions in setting performance metrics. In response to investor feedback and to alignThe Compensation Committee believes that the NEOs’ long-term incentive compensation with our performanceshould be in the form of equity and stockholders’ interests, the Compensation Committee decided that 100% of the equity compensation awards granted to our NEOs in 2021 would2022 should vest based on the achievement of performance-based criteria. No equity awards were granted to our NEOs in 20212022 that would vest solely based on continued service.

 

A Balanced ApproachWhen designing the annual executive equity compensation program, the Compensation Committee is guided by the following three key principles that promote the best interests of both MPS and its stockholders:

●

There is appropriate pay-for-performance alignment.

●

The performance goals must be rigorous.

●

The program requires substantial stockholder value creation.

Since 2016, 100% of the equity awards granted to our NEOs have been tied to rigorous performance conditions, which have included revenue goals, business operating goals and stock price targets. The Compensation Committee believes our performance-based equity compensation program motivates our NEOs to build a sustainable business model while aligning the long-term interests of our NEOs and stockholders. Each year, our three-year cumulative TSR has consistently exceeded the three-year cumulative TSR of our peer group, the PHLX Index and the S&P 500 Index (by as much as 147%, 113% and 245%, respectively), as shown in the chart below:

Since the beginning of 2016, our cumulative TSR was 490% through the end of 2022, compared with 280% for the PHLX Index and 90% for the S&P 500 Index. 

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In October 2022, in light of the rapid changes in market condition, the Compensation Committee considered the recommendations from the independent compensation consultant and input from the executives, and determined that it would align with the interests of our stockholders to cancel equity awards based on revenue and operating goals that were previously granted in the beginning of 2022 (“February 2022 PSUs”) and replace them with market-based equity awards based on stock price targets and relative TSR performance (the “October 2022 MSUs”). Details of both programs are discussed below.

February 2022 PSUs		October 2022 MSUs
Performance-Based Conditions: ●     Achieving two-year average revenue growth compared to the analog industry. ●     Securing additional wafer capacity to meet customer demand. ●     Two- to three-year performance period.		Market-Based Conditions: ●     Achieving five stock price targets. ●     Achieving TSR performance relative to our peers. ●     Three-year performance period.

Reasons for the Modifications

Our Equitybusiness and financial performance depend significantly on worldwide economic conditions. Each year, when setting appropriate performance goals for the long-term incentive awards, the Compensation ProgramCommittee considers macroeconomic conditions and their potential impact on our business needs and long-term strategy. In the beginning of 2022, the semiconductor industry continued to be negatively affected by global manufacturing capacity constraints. To help ensure MPS would have the ability to meet growing customer demand, the Compensation Committee approved performance conditions for the February 2022 PSUs that would require MPS to secure additional wafer capacity over the next three years. These performance conditions were applied in addition to the annual revenue-based goals over a two-year performance period.

In the second half of 2022, the global economy began to experience an unexpected downturn, which we believed was caused by many external factors, including inflationary pressures, higher interest rates, slowing consumer demand, and the geopolitical conflict between Russia and Ukraine. Management remained focused in driving MPS’s long-term business goals and delivering strong results in future periods. In October 2022, the Compensation Committee reexamined the February 2022 PSUs and determined that swift changes to macroeconomic conditions resulted in wafer capacity becoming a lesser business priority for our business compared to the beginning of 2022. In addition, revenue growth performance in a volatile stock market environment does not necessarily translate into stockholder return. As a result, upon consultation with our independent compensation consultant and with the consent of our NEOs, the Compensation Committee cancelled the February 2022 PSUs and instead granted the October 2022 MSUs that require the achievement of both rigorous stock price appreciation and relative TSR performance over a three-year performance period. To hold our NEOs accountable and create a direct alignment of stockholders’ long-term interests, the Compensation Committee believed that TSR metrics would be the most meaningful and impactful performance goals during these uncertain times. In order to earn the awards, the NEOs must be able to deliver strong results and translate financial success into long-term stock performance. Failure to do so would result in no earn-out for the executives. In addition, a second condition that is tied to the relative TSR performance was put in place in order for the executives to earn the awards.

Furthermore, in response to stockholders’ feedback, the Compensation Committee extended the performance period from two years to three years under the October 2022 MSUs. In addition, to demonstrate a sustained level of stock price appreciation, achievement of the price targets under the October 2022 MSUs must be maintained for 90 consecutive trading days during the performance period, which is a substantial increase from the 20 consecutive trading days we had implemented in our market-based awards granted in the prior years.

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Number of Target Shares Granted

The following table summarizes the target number of shares granted by the Compensation Committee under the February 2022 PSUs and the October 2022 MSUs:

		February 2022 PSUs												October 2022 MSUs
Name		Target Number of Shares (#)				Value Per Share ($)(1)				Grant Date Fair Value ($)(3)				Target Number of Shares (#)(2)				Value Per Share ($)(1)				Grant Date Fair Value ($)(3)
Michael Hsing			37,472				370.01				13,865,090				60,584				187.02				11,330,122
Bernie Blegen			8,501				370.01				3,145,472				17,538				187.02				3,279,957
Deming Xiao			11,537				370.01				4,268,829				27,104				187.02				5,068,990
Maurice Sciammas			11,537				370.01				4,268,829				27,104				187.02				5,068,990
Saria Tseng			11,537				370.01				4,268,829				27,104				187.02				5,068,990
Total			80,584								29,817,049				159,434								29,817,049

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(1)

The calculation of the value per share for both programs was performed by a third-party valuation firm using a Monte Carlo simulation model. Assumptions used in the calculation are included in Note 1 and Note 7 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023.

(2)	For the October 2022 MSUs, the Compensation Committee determined the target number of shares by maintaining the same total grant date fair value as the February 2022 PSUs. However, the Compensation Committee decreased the amount for Mr. Hsing and reallocated the decreased amount to the other NEOs.

(3)	The formula contains an immaterial rounding difference of less than $1,000.

February 2022 PSUs

 

The Compensation Committee is committed to establishingestablished a rigorous yetand balanced equity compensation program with medium-term and long-term performance periods, by overlapping a revenue-based PSU program over a two-year performance period and a long-term stock-based awardan additional PSU program tied to operating goals over a longer performance period. TakenTaking into account of the semiconductor industry’s cyclical nature and stockholders’ feedback, the Compensation Committee determined that two years iswas the most optimal performance period for the revenue-based PSU awards. A revenue-based performance period that iswas longer than two years makeswould make it impracticaldifficult for the Compensation Committee to determine appropriate performance goals due to the volatility from the globalCOVID-19 pandemic, macro-economicmacroeconomic and industry-specific conditions. Accordingly, the Compensation Committee granted PSUs to each NEO that arewere subject to a two-year (2021 and 2022) performance period based on the achievement of revenue during that period. In addition, in 2021,response to the global supply chain constraints experienced by the semiconductor industry, the Compensation Committee responded to our stockholders’ desire to set additional long-term, non-financial objectives that can benefit other stakeholders, and therefore introduced several initiatives that focus on corporate sustainabilityto secure excess wafer capacity as additional performance conditions with a three-year performance period.

 

The following table summarizes the number of shares subject to the 2021February 2022 PSUs that cancould be earned by the NEOs at the minimum, target and maximum performance levels, subject to the criteria described below.levels. The number of shares earned willwould be linearly interpolated for actual achievement between the minimum, target and maximum performance levels.

 

		Number of Shares												Maximum Components								Number of Shares												Maximum Earn-Out Components
Name		Minimum (#)				Target (#)				Maximum (400%) (#)				Revenue Goal (300%) (#)				Environmental Goals (100%) (#)				Minimum (#)				Target (#)				Maximum (#)				Revenue Goal (300%) (#)				Capacity Goal (200%) (#)
Michael Hsing			-				37,613				150,452				112,839				37,613				0				37,472				187,360				112,416				74,944
Bernie Blegen			-				7,619				30,476				22,857				7,619				0				8,501				42,505				25,503				17,002
Deming Xiao			-				11,580				46,320				34,740				11,580				0				11,537				57,685				34,611				23,074
Maurice Sciammas			-				11,580				46,320				34,740				11,580				0				11,537				57,685				34,611				23,074
Saria Tseng			-				11,580				46,320				34,740				11,580				0				11,537				57,685				34,611				23,074

 

The PSUs containcontained a purchase price feature, which requiresrequired the NEOs to pay MPS $30 per share upon vesting of the shares. The target number of shares granted to each NEO was determined based on the target compensation value for such PSUs, divided by our closing stock price on the date of grant ($374.57) less the purchase price. This $30 purchase price requirement iswould be deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during 20212022 and 20222023 is $30 higher than $374.57. our closing stock price on the date of grant. In addition, the PSUs subject to the capacity goal contain a post-vesting sales restriction for one year.

 

First Performance Condition - Revenue Goal:

 

For 2021,2022, the number of PSUs that cancould ultimately be earned at the end of the two-year performance period on December 31, 2022 is2023 was based on MPS’s average two-year (2021(2022 and 2022)2023) revenue growth rate as measured against the average two-year revenue growth rate for the analog industry published by the SIA. In selecting the minimum, target and maximum performance levels, the Compensation Committee carefully considered our historical and projected performance and the fundamentals of the analog industry at that time. The Compensation Committee took into account SIA’s projections for the anticipated revenue growth in the analog industry for the two-year performance period. Instead of benchmarking against the broad semiconductor sector, the Compensation Committee elected to focus solely on the analog industry in setting the performance objectives, which are measured against our closest and most relevant peers within the semiconductor sector. In addition, the Compensation Committee chose the revenue projections reported by SIA as a baseline because the SIA report is well-respected in the semiconductor industry and used by Wall Street financial analysts in preparing their analyses, forecasts and recommendations.

 

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Based on the Compensation Committee's evaluation, theThe performance criteria and the minimum, target and maximum levels of the PSUs that cancould be earned arewere as follows:

 

MPS’s Average Two-Year Revenue Growth Rate Exceeds the Analog Industry by:		PSU Earn-Out
Less than 3%		0%
3%		50% of Target
5%		100% of Target
15% and above		300% of Target

Second Performance Condition - Capacity Goal:

In light of the supply chain constraints and the challenges we were experiencing to continue to meet growing customer demand, the Compensation Committee approved a second performance condition for the February 2022 PSUs that would require the NEOs to execute strategic plans with our foundry partners and secure additional wafer capacity in excess of the capacity requirements under the annual operating plan (the “AOP”) approved by the Board for the three years from 2022 to 2024.

The performance criteria and the minimum, target and maximum levels of the PSUs that could be earned are as follows:

Annual Wafer Capacity Exceeds the Capacity Requirements under the AOP by:		PSU Earn-Out
Less than 3%10%		0%
3%		50% of Target
5%10%		100% of Target
15% and above20%		300%200% of Target

 

The two-year performance period providesOctober 2022 MSUs:

In October 2022, the Compensation Committee replaced the revenue and manufacturing capacity-based PSU program with a mid- to long-term incentiveMSU program for our NEOs through overlapping cycles soNEOs. The main objective is to align their compensation with the long-term interests of our stockholders. These MSU awards can only be earned if our Common Stock trades for sustained periods of time at a series of rigorous price levels that each year ofare substantially higher than the grant date stock price. In addition, in order to earn the awards, we must achieve certain TSR performance is equally critical as we work toward meeting our two-year goals. The Compensation Committee believes the revenue goals are challenging and that performance metrics measured relative to our peers will provide objectivity when setting long-term goals while minimizing uncertainties caused by external economic factors that are beyondin the semiconductor industry. To realize the value from the awards, our control.financial achievement must result in significant increases in our stock price and sustainable stockholder value creation over time.

 

The following table summarizes the number of shares subject to the October 2022 MSUs that can be earned by the NEOs at the minimum, target and maximum performance levels. The number of shares earned will not be linearly interpolated for actual achievement between the performance levels. 

Name		Minimum (#)				Price Hurdle #1 (Target) (#)				Price Hurdle #2 (#)				Price Hurdle #3 (#)				Price Hurdle #4 (#)				Price Hurdle #5 (#)				Total (Maximum) (#)
Michael Hsing			0				60,584				60,584				60,584				60,584				60,584				302,920
Bernie Blegen			0				17,538				17,538				17,538				17,538				17,538				87,690
Deming Xiao			0				27,104				27,104				27,104				27,104				27,104				135,520
Maurice Sciammas			0				27,104				27,104				27,104				27,104				27,104				135,520
Saria Tseng			0				27,104				27,104				27,104				27,104				27,104				135,520

First Market Condition – Stock Price Targets:

The key terms of the first market condition are as follows:

●

The performance period is three years (October 25, 2022 to October 24, 2025).

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●

The awards consist of an aggregate target number of 159,434 shares for the NEOs. The NEOs can earn up to five times of the target number if our average stock price reaches the following five price levels (the “Price Hurdles”):

Price Hurdles ($)(A)		Percentage of Stock Price Increase (B)
455.41		33%
487.18		42%
520.38		52%
555.06		62%
591.25		73%

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(A)

Each Price Hurdle was determined based on the following compound annual growth rate (“CAGR”) over the three-year performance period: 10.0% for Price Hurdle #1; 12.5% for Price Hurdle #2; 15.0% for Price Hurdle #3; 17.5% for Price Hurdle #4; and 20.0% for Price Hurdle #5.

(B)

The percentage represents the increase from our closing stock price of $342.16 on October 25, 2022, the date the MSU program was approved by the Compensation Committee.

●

The average closing price of our Common Stock must equal or exceed each Price Hurdle over 90 consecutive trading days during the three-year performance period.

Second Market Condition – Relative TSR Performance:

The key terms of the second market conditions are as follows:

●

The performance period is the same as the first market condition.

●

If a Price Hurdle is achieved, our TSR relative to the TSR of the companies included in the PHLX Index must also meet the following criteria over the three-year performance period:

TSR Percentile Rank (C)		Payout Percentage
Equals or exceeds the 50th percentile		100%
Less than the 50th percentile		0%

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(C)

The Compensation Committee selected the PHLX Index because it includes our most relevant peers within the semiconductor sector. TSR for MPS and for each company in the PHLX Index is calculated using: (a) a beginning price, which represents the closing stock price of MPS and each company on October 25, 2022, the first trading day of the three-year performance period, and (b) an ending price, which consists of the average closing stock price of MPS and each company over 90 consecutive trading days immediately prior to, and including, October 24, 2025, the last trading day of the three-year performance period, assuming dividend reinvestment.

Both the performance period is two years and the total vesting period is fourare three years. Upon certification of performance by the Compensation Committee and no earlier than December 31, 2022, 50%October 24, 2025, 100% of the actual award earned will become vested in February 2023, and the remaining 50% will vest quarterly over the following two years,on October 24, 2025, subject generally to continued employment through such dates. The NEOs will be required to pay MPS $30 per share upon vesting of the shares, unless the stock price target as described above is achieved.

Environmental Goals

The Board recognizes that our ESG efforts related to environmental sustainability are important to many of our stakeholders and are an integral part of corporate citizenship. In support of this commitment, in 2021, the Compensation Committee introduced new and additional qualitative performance metrics that tie a portion of the increased executive compensation to environmental goals. The objectives of the goals are to build long-term scalable and effective programs and processes aimed to mitigate the environmental impacts of our business operations.

In designing the program, the Compensation Committee believed that the goals should be rigorous and impactful, align with our long-term business strategy, and create positive values for our stakeholders. Guided by this set of criteria, the Compensation Committee approved the following environmental goals, which consist of three categories:

	Summary of Environmental Goals		PSU Earn-Out
1.	Establish an MPS Environmental and Climate Change Policy that identifies key areas with respect to environmental matters affecting our business. These key areas primarily include greenhouse gas emission, energy and water consumption, hazardous waste management, and the environmental impacts of our new product design (the “Key Objectives”).		25% of Target
2.	Establish an Environmental, Health, Safety and Sustainability taskforce and complete an assessment of the existing baseline performance on the Key Objectives.		25% of Target
3.	Establish a long-term improvement plan, including target goals for reductions, for the Key Objectives.		50% of Target

Each of the performance goals would require the NEOs to establish specific actionable plans and develop strategies and processes, including, but not limited to, the following:

● Establish a cross-functional working committee and identify leads from health and safety, facilities, human resources, legal, sales, operations, quality assurance, engineering, procurement, and information technology (“IT”). The comprehensive membership helps ensure that each of the business functions is actively overseeing progress on our ESG efforts, goals and disclosures, while maintaining regular communications with the management team.

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● Research historical metrics, conduct materiality assessments, and evaluate the relative importance of each of the Key Objectives and its potential impacts on the organization. ● Evaluate risks and opportunities associated with the Key Objectives, and integrate the performance goals into business practices and processes. ● Solicit inputs from stakeholders (employees, the Board and stockholders, as well as customers, vendors and suppliers) through meetings, interviews and surveys, and define performance goals that align with their expectations and priorities.

● Develop an effective approach to streamline the intensive data collection process related to sustainability metrics across the organization into a centralized platform. ● Validate, analyze and test data to ensure they are accurate, reliable, relevant and auditable.

● Evaluate and develop data software, analytics platforms and measurement tools to track key metrics and performance. ● Implement management systems to facilitate the planning, execution and oversight of our policies, strategies and progress. ● Establish a strong IT control environment to support the integrity and security of data.

● Assess regulatory requirements, monitor emerging issues and ensure performance goals are in compliance. ● Examine third-party sustainability assessments and benchmark peer disclosure trends, best practices and the semiconductor industry’s challenges and opportunities. ● Assess reporting requirements on performance and progress in accordance with global frameworks, such as the Sustainability Accounting Standards Board and the Task Force on Climate-Related Financial Disclosures.

The PSUs subject to the environmental goals have a maximum earn-out of 100% of the target, and the goals may be achieved at any time during a three-year performance period ending on December 31, 2023. Upon certification of achievement of the performance goals by the Compensation Committee, the PSUs will vest immediately, but no earlier than December 31, 2022. In addition, the Compensation Committee imposed a post-vesting holding period which prohibits the sale of the vested shares for an additional year. The NEOs will be required to pay MPS $30 per share upon vesting of the shares, unless the stock price target as described above is achieved.date.

 

Dividend Equivalents.Equivalents

In connection with our quarterly cash dividend program, all outstanding and unvested time and performance-based full value awards granted to employees, including the NEOs, have the right to receive dividend equivalents in order to maintain the economic alignment between the value of such awards and the value of a share of our Common Stock. The dividend equivalents are accumulated during the vesting periods of the shares underlying such awards and are paid in cash to employees only if and when the underlying shares vest. Dividend equivalents accrued on the underlying shares are forfeited if the employees do not fulfill their service requirement during the vesting periods. Dividend equivalents paid to the NEOs in 20212022 are included in “20212022 Option Exercises and Stock VestedVested”” below.

 

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Certifications of Achievement of Prior Performance-Based Awards

 

As previously disclosed in our proxy statement for the 20212022 Annual Meeting of Stockholders, the Compensation Committee granted each NEO a PSU award in February 20202021 (the “2021 PSUs”)  that could be earned based on MPS’s average two-year (2020(2021 and 2021)2022) revenue growth rate as measured against the average two-year revenue growth rate for the analog industry published by the SIA. The PSU award consisted of a target award, as well as a maximum award equal to 300% of the target grant. The actual results at the end of the two-year performance period on December 31, 2021,2022, as approved by the Compensation Committee, were as follows:

 

MPS's Average Two-Year Revenue

MPS's Average Two-Year Revenue

MPS's Average Two-Year Revenue

Growth Rate Exceeds the Analog Industry by:

Growth Rate Exceeds the Analog Industry by:

Percentage of

Growth Rate Exceeds the Analog Industry by:

Percentage of

Target

Maximum

Actual Achievement

PSU Earn-Out

Maximum

Actual Achievement

PSU Earn-Out

5%

15% and above

20.6%

300.0%

15% and above

18.8%

300%

 

The following table showssummarizes the actual shares earnedcredited under the 2020 PSU awards2021 PSUs for the NEOs:  

 

Name		EarnedCredited (#)
Michael Hsing			153,324112,839
Bernie Blegen			27,17422,857
Deming Xiao			39,69934,740
Maurice Sciammas			39,69934,740
Saria Tseng			39,69934,740

 

50% of the awards earned vested in February 2022,2023, with the remaining 50% vestingto vest quarterly over the following two years through February 2024,2025, for a total vesting period of four years, subject to continued employment through such dates.

 

Broad-Based Benefits

 

Our NEOs are eligible to participate in our broad-based employee benefit programs on the same terms offered to our employees. These benefit programs include the Employee Stock Purchase Plan,employee stock purchase plan, medical, dental and vision insurance, long-term and short-term disability insurance, life and accidental death and dismemberment insurance, and health and dependent care flexible spending accounts. We do not provide pension arrangements or post-retirement health coverage for our NEOs or other employees. In addition, we do not provide matching contributions to the 401(k) plan or the deferred compensation plan for our NEOs or other employees.

 

Severance and Change in Control Arrangements

 

We offer severance benefits to our NEOs, including severance in connection with a change in control of MPS. In general, severance does not exceed six to twelve months of base salary, target bonus and other benefits, and is conditioned on a release of claims and compliance with ongoing obligations. We believe these modest benefits balance the costs to MPS with the retention benefits that are commonly understood to come from offering severance and change in control benefits. For all change in control arrangements, the NEO is entitled to benefits if his or her employment is terminated without cause or if he or she leaves for good reason within one year following a change in control. This approach is commonly referred to as a “double-trigger” arrangement and is favored by many institutional investors and their advisors. We believe the size and conditions to receipt of these severance benefits are consistent with market practices. These arrangements are discussed in more detail in “Named Executive Officer Compensation — Potential Payments Upon Termination or Termination Upon Change in Control.””

 

Stock Ownership Guidelines

 

We have stock ownership guidelines for our NEOs and directors. These guidelines reinforce the importance of aligning the interests of our NEOs and directors with the interests of our stockholders.

 

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For the NEOs, the guidelines are determined as a multiple of each NEO’s base salary, and then converted to a fixed number of shares. Currently, the multiple for our CEO is five times his base salary, while the multiples for other NEOs are two times each NEO’s base salary.  

 

Equity interests that count toward the satisfaction of the ownership guideline include shares owned directly or indirectly by the executive, including restricted or unrestricted shares or stock units (excluding restricted shares or stock units that remain subject to achievement of performance goals), and any shares owned in our savings plans, such as our 401(k) plan, or acquired through the Employee Stock Purchase Plan.employee stock purchase plan. Executives have five years from the date of adoption of the guidelines or their appointment as an executive officer, as applicable, to attain these ownership levels. As of December 31, 2021,2022, all of the NEOs met the stock ownership guidelines.

 

For the non-employee directors, the stock ownership guidelines are determined as a multiple of the annual retainer paid to the non-employee director and then converted to a fixed number of shares. Currently, the required level for our non-employee directors is three times each director’s annual retainer. Directors have five years from the date of adoption of the guidelines or their initial appointment, as applicable, to attain these ownership levels. As of December 31, 2021,2022, all of the directors met the stock ownership guidelines.

 

Policy Regarding Clawback of Incentive Compensation

 

We have a Compensation Recoupment Policy, which requires the Board to recoup any excess performance-based cash compensation paid to key members of our executive team, including the NEOs, if the financial results on which the incentive compensation awards were based are restated due to fraud or intentional misconduct by the executive, if the Board determines, in its sole discretion, that it is in the best interests of us and our stockholders for the executive to repay or forfeit all or any portion of the subject performance-based cash compensation. We expect in 2023 to review and revise the Compensation Recoupment Policy in connection with final rules regarding recovery of erroneously awarded compensation as promulgated by the SEC and NASDAQ in 2022 and 2023, respectively.

 

Anti-Hedging and Monetization, TransactionsShort Sales and Short SalesOther Transactions

 

We prohibit our directors, officers (including our NEOs), and other employees from engaging in hedging or monetization transactions with respect to our stock that they obtained through our plans or otherwise, including transactions involving the use of financial instruments such as prepaid variable forwards, equity swaps, collars, forward sale contracts and exchange funds, without prior approval by the Chief Compliance Officer.  We also prohibit our directors and officers (including our NEOs) from engaging in any short sales of our stock. In addition, our directors and officers are prohibited at all times from holding our stock in a margin account and from pledging our stock as collateral.

 

Tax and Accounting Impacts of Equity Grants

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1 million in any taxable year for “covered employees,” which following the enactment of the 2017 Tax Cuts and Jobs Act in December 2017, consist of all of the NEOs, including the Chief Financial Officer.

 

Our Compensation Committee is aware of current rules governing the taxation and accounting for cash and equity compensation as applicable to public companies. Our Compensation Committee believes that, in establishing the cash and equity incentive compensation plans and arrangements for our NEOs, the potential deductibility of the compensation payable under those plans and arrangements should be only one of a number of relevant factors taken into consideration, and not the sole governing factor. The Compensation Committee believes it is important to maintain cash and equity incentive compensation at the requisite level to attract and retain the individuals essential to our financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.

 

Compensation Committee Report

 

The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis with our management. Based upon such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement for the Annual Meeting and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2021.2022.

 

Members of the Compensation Committee: Jeff Zhou, Chairman Herbert Chang Eugen Elmiger

 

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Compensation Committee Interlocks and Insider Participation

 

No Compensation Committee member was at any time during 2021,2022, or at any other time, an officer or employee of us or any of our subsidiaries.  No NEO of MPS serves on the board or compensation committee of any entity that has one or more executive officers serving on the Board or Compensation Committee. 

 

Compensation Risk Management

 

In 2021,2022, our management, including members from our internal legal, accounting, finance and human resources departments, undertook a subjective review of our compensation policies and practices that applied to all of our employees, including the following: annual base salaries and bonuses, equity incentive awards under our equity incentive plans and the Employee Stock Purchase Plan.2004 ESPP. This review was designed to review, consider and analyze the extent to which, if any, our compensation policies and practices might create risks for us, and this review also focused on variable and incentive compensation elements, as well as policies and practices that could mitigate or balance any such incentives. After conducting this review, management determined that our compensation policies and practices for our employees do not create any risks that are reasonably likely to have a material adverse effect on us. The results of the review and management’s determination were reviewed and independently considered by the Compensation Committee, which concurred with management’s assessment.

 

20212022 Summary Compensation Table

 

The following table sets forth the compensation for our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers serving on December 31, 2021,2022, which officers together constitute our NEOs:

 

Name and Principal Position		Year		Salary ($)		Bonus ($)		Stock Awards ($) (1)(2)		Non-Equity Incentive Plan Compensation ($) (3)		All Other Compensation ($) (4)		Total ($)		Year		Salary ($)				Bonus ($)				Stock Awards ($)(1)(2)				Non-Equity Incentive Plan Compensation ($)(3)				All Other Compensation ($)(4)				Total ($)
Michael Hsing		2021		711,923		-		13,782,908		5,760,000		-		20,254,831		2022			751,846				-				13,865,090				6,048,000				-				20,664,936
Chief Executive Officer, President		2020		650,000		-		12,395,153		1,625,000		-		14,670,153		2021			711,923				-				13,782,908				5,760,000				-				20,254,831
and Chairman of the Board		2019		650,000		-		7,945,677		761,269		-		9,356,946		2020			650,000				-				12,395,153				1,625,000				-				14,670,153
Bernie Blegen		2021		342,500		-		2,791,906		2,800,000		-		5,934,406		2022			365,481				-				3,626,424				2,940,000				-				6,931,905
Chief Financial Officer		2020		320,000		-		2,311,155		640,000		-		3,271,155		2021			342,500				-				2,791,906				2,800,000				-				5,934,406
		2019		317,308		-		1,408,217		299,823		-		2,025,348		2020			320,000				-				2,311,155				640,000				-				3,271,155
Deming Xiao		2021		375,385		-		4,243,375		3,040,000		-		7,658,760		2022			396,808				-				5,539,193				3,192,000				-				9,128,001
President of Asia Operations		2020		340,000		-		3,482,786		680,000		-		4,502,786		2021			375,385				-				4,243,375				3,040,000				-				7,658,760
		2019		340,000		-		2,057,358		318,562		-		2,715,920		2020			340,000				-				3,482,786				680,000				-				4,502,786
Maurice Sciammas		2021		375,385		-		4,243,375		3,040,000		-		7,658,760		2022			396,808				-				5,539,193				3,192,000				-				9,128,001
Senior Vice President,		2020		340,000		-		3,482,786		680,000		-		4,502,786		2021			375,385				-				4,243,375				3,040,000				-				7,658,760
Worldwide Sales and Marketing		2019		340,000		-		2,057,358		318,562		-		2,715,920		2020			340,000				-				3,482,786				680,000				-				4,502,786
Saria Tseng		2021		375,385		-		4,243,375		3,040,000		-		7,658,760		2022			396,808				-				5,539,193				3,192,000				-				9,128,001
Vice President, Strategic Corporate	Vice President, Strategic Corporate	2020		340,000		-		3,482,786		680,000		-		4,502,786		2021			375,385				-				4,243,375				3,040,000				-				7,658,760
Development and General Counsel		2019		340,000		-		2,057,358		318,562		-		2,715,920		2020			340,000				-				3,482,786				680,000				-				4,502,786

 

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(1)

For more information regarding the 2021 PSU2022 stock awards, refer to “Named Executive Officer Compensation — Compensation Discussion and Analysis.” The amounts reflect the aggregate grant date fair value of the awards calculatedFebruary 2022 PSUs, plus the incremental fair value on the modification date, if any, when the February 2022 PSUs were cancelled and replaced with the October 2022 MSUs, computed in accordance with ASC Topic 718, excluding the impact of estimated forfeitures. The calculation of the grant date fair value ofand the 2021 PSUsmodification date fair value was calculatedperformed by a third-party valuation firm using a Monte Carlo simulation model. Assumptions used in the calculation are included in Note 1 and Note 87 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on February 25, 2022.24, 2023.

 

The 2021 PSU awards contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares. This $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during 2021 and 2022 is $30 higher than the grant date stock price of $374.57. Upon vesting, the portion of the PSUs subject to the environmental goals has a post-vesting sales restriction period of one year.

(2)

Assuming the highest level of performance for the 2021 PSUs,October 2022 MSUs, the aggregate grant date fair value of the stock awards would be as follows: (a) $53,785,462$69,325,448 for Mr. Hsing, (b) $10,894,941$15,727,360 for Mr. Blegen, (c) $16,559,053$21,344,142 for Mr. Xiao, (d) $16,559,053$21,344,142 for Mr. Sciammas, and (e) $16,559,053$21,344,142 for Ms. Tseng. There is no guarantee that the highest level of performance will be achieved by the NEOs.

 

(3)	The 20212022 amounts reflect the short-term cash incentive compensation earned by the NEOs under our non-equity incentive plan, as described under “Named Executive Officer Compensation — Compensation Discussion and Analysis.”

 

(4)	We did not provide other benefits or compensation for the NEOs that is required to be disclosed under Item 402(c)(2)(ix) of Regulation S-K.

 

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CEO Pay Ratio

For 2021, our CEO pay ratio was determined as follows:

●

The annual total compensation of our CEO was $20,254,831, as reported in the “Total” column in the 2021 Summary Compensation Table disclosed above.

●

The median of the annual total compensation of all employees (other than our CEO) was $48,913. The median employee was located in China.

●

The ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 414 to 1.  This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.

For purposes of calculating the amount of compensation paid to our median employee in 2021, we used the same median employee that we identified in 2020, as permitted under the SEC rules. There have been no changes in our employee population or employee compensation arrangements that we believe would significantly impact the pay ratio disclosure. 

The SEC rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

Alternative Measure:

As discussed in the Compensation Discussion and Analysis section above, more than 96% of our CEO’s annual compensation was tied to rigorous performance conditions in 2021, while the annual compensation of our median employee was not tied to performance goals. Accordingly, as an alternative measure, management believes that a more direct and meaningful pay ratio is to compare compensation that is not tied to any performance objectives. Based on this method, our alternative CEO pay ratio was determined as follows:

●

The alternative annual total compensation of our CEO was $711,923.

●

The median of the annual total compensation of all employees (other than our CEO) was $48,913.

●

The ratio of the alternative annual total compensation of our CEO to the median of the annual total compensation of all employees was 15 to 1.

 

Grants of Plan-Based Awards for the Year Ended December 31, 20212022

 

				Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)						Estimated Future Payouts Under Equity Incentive Plan Awards (2)						Grant Date Fair Value of Stock and Option						Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)												Estimated Future Payouts Under Equity Incentive Plan Awards (2)												Grant Date Fair Value of Stock and Option
Name		Grant Date		Threshold ($)		Target ($)		Maximum ($)		Threshold (#)		Target (#)		Maximum (#)		Awards ($)(3)		Grant Date				Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)				Awards ($)(3)
Michael Hsing		-		-		1,440,000		5,760,000		-		-		-		-			-				-				1,512,000				6,048,000				-				-				-				-
		2/2/2021		-		-		-		-		37,613		150,452		13,782,908		2/3/2022					-				-				-				-				37,472				187,360				13,865,090
																		10/25/2022					-				-				-				-				60,584				302,920				-	(4)
Bernie Blegen		-		-		700,000		2,800,000		-		-		-		-			-				-				735,000				2,940,000				-				-				-				-
																		2/3/2022					-				-				-				-				8,501				42,505				3,145,472
		2/2/2021		-		-		-		-		7,619		30,476		2,791,906		10/25/2022					-				-				-				-				17,538				87,690				480,952
Deming Xiao		-		-		760,000		3,040,000		-		-		-		-			-				-				798,000				3,192,000				-				-				-				-
		2/2/2021		-		-		-		-		11,580		46,320		4,243,375		2/3/2022					-				-				-				-				11,537				57,685				4,268,829
																		10/25/2022					-				-				-				-				27,104				135,520				1,270,364
Maurice Sciammas		-		-		760,000		3,040,000		-		-		-		-			-				-				798,000				3,192,000				-				-				-				-
																		2/3/2022					-				-				-				-				11,537				57,685				4,268,829
		2/2/2021		-		-		-		-		11,580		46,320		4,243,375		10/25/2022					-				-				-				-				27,104				135,520				1,270,364
Saria Tseng		-		-		760,000		3,040,000		-		-		-		-			-				-				798,000				3,192,000				-				-				-				-
		2/2/2021		-		-		-		-		11,580		46,320		4,243,375		2/3/2022					-				-				-				-				11,537				57,685				4,268,829
																		10/25/2022					-				-				-				-				27,104				135,520				1,270,364

 

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(1)

The amounts reflect the threshold, target and maximum awards under the short-term cash incentive compensation program, which is described in detail in “Named Executive Officer Compensation — Compensation Discussion and Analysis.”

 

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(2)

As described in detail in “Named Executive Officer Compensation — Compensation Discussion and Analysis,” the Compensation Committee initially granted the February 2022 PSUs, but such awards were subsequently cancelled and replaced with the October 2022 MSUs. The amounts reported in the second row of this table for each NEO reflect the threshold, target and maximum number of the cancelled February 2022 PSUs that maycould have been earned under the long-term equity incentive compensation program. The amounts reported in the third row of this table for each NEO reflect the threshold, target and maximum number of the October 2022 MSUs that now can be earned under the long-term equity incentive compensation program, which is described in detail in “NamedExecutive Officer Compensation —Compensation Discussion and Analysis.”  The PSUs contain a purchase price feature, which requires the NEOs to pay MPS $30 per share upon vesting of the shares. This $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during 2021 and 2022 is $30 higher than the grant date stock price of $374.57. Upon vesting, the portion of the PSUs subject to the environmental goals has a post-vesting sales restriction period of one year.program.

 

(3)

The amounts reported in the second row of this table for each NEO reflect the aggregate grant date fair value of the February 2022 PSUs initially granted by the Compensation Committee, computed in accordance with ASC Topic 718, excluding the impact of estimated forfeitures. The February 2022 PSUs were subsequently cancelled and replaced with the October 2022 MSUs. Due to the modification of the February 2022 PSUs into the October 2022 MSUs, the amounts reported in the third row of this table for each NEO reflect the incremental fair value of the October 2022 MSUs, if any, on the modification date of the awards, calculatedcomputed in accordance with ASC Topic 718, excluding the impact of estimated forfeitures. The amounts for both rows reflect the target level of performance. The initial grant date fair value wasand the modification date fair value were calculated using a Monte Carlo simulation model ($366.44 per share for the PSUs subject to the revenue goal and $330.65 for the PSUs subject to the environmental goals).model. Assumptions used in the calculation of the grant date fair value of the stock awards are included in Note 1 and Note 87 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on February 25, 2022.24, 2023.

(4)

For Mr. Hsing, there was no incremental fair value of the October 2022 MSUs on the modification date because the Compensation Committee decreased the grant value for his award, compared with the grant value for his February 2022 PSU award.  Refer to “NamedExecutive Officer Compensation — Compensation Discussion and Analysis” for further discussion.

 

Narrative Disclosure to 20212022 Summary Compensation Table and Grants of Plan-Based Awards for the Year Ended December 31, 20212022

 

A discussion of 20212022 salaries, incentive plans and awards is set forth under “Named Executive Officer Compensation -— Compensation Discussion and Analysis,”” including a discussion of the material terms and conditions of the short-term cash incentive compensation and PSUs.the long-term equity compensation. For information regarding our employment agreements with the NEOs, see “NamedExecutive Officer Compensation – Potential Payments Upon Termination or Termination Upon Change in Control – Employment Agreements and Change in Control Arrangements.” 

 

Equity Incentive Grant Policies

 

We maintain the Monolithic Power Systems Equity Award Grant Policy, which is designed to work in concert with: (1) the administrative provisions of our Amended and Restated 2014 Equity Incentive Plan (the “Amended 2014 Equity Plan”) and such other plans as we may adopt from time to time (which we refer to collectively as the Plans), (2) the requirements of the Delaware General Corporation Law, (3) the corporate governance requirements of NASDAQ, (4) applicable rules and regulations of the SEC, including those relating to Section 16 of the 1934 Act, and (5) relevant sections of the Internal Revenue Code. Grants to our NEOs are made pursuant to this policy, must be approved by the Compensation Committee and will only be granted at specific times during the year, as described in further detail below.

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Plan and Corporate Authorization

 

Under the Plans, the authorization to administer the grant of equity incentive awards is conferred upon the Board or any committee of the Board as properly constituted under applicable laws. The Board has delegated to the Compensation Committee the authority to serve as administrator of the Plans (including the authority to grant awards under the Plans), and has approved a charter outlining the responsibilities of this committee which also includes this express authority. The delegation of authority to the Compensation Committee is not exclusive; the Board retains the right to formally approve award grants as well. The Compensation Committee may form and delegate authority to subcommittees when appropriate.

 

In addition, the Board has delegated limited authority for grants of equity awards under the Plans to new employees and consultants to a committee consisting of the Chief Executive Officer (which committee we refer to as the Equity Award Committee). The authority does not extend to grants to the NEOs. The delegation of authority to the Equity Award Committee is not exclusive; the Board and Compensation Committee retain the right to formally approve award grants as well.

 

Equity Grants to New Hires

 

Grants to newly hired employees and consultants (other than Executive Officers as defined below) will generally be made on the date of the next regularly scheduled Board meeting subsequent to the employees’ start date. Management submits the employee equity award recommendations to the Compensation Committee and, if such equity awards are approved by the Compensation Committee, such equity awards will be granted effective as of the date of a meeting approving such awards as evidenced by written minutes of such meeting or the date of the last verification signature or electronic verification over email in the event of a written consent in lieu of the meeting.

 

New hire grants made to “Executive Officers” (currently defined as the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, Chief Operations Officer, President, employees who are members of the Board and any other employee determined by the Board to be an Executive Officer) generally will only be granted on the date of the next regularly scheduled Board meeting subsequent to the Executive Officer’s start date and following the recommendation of such grant by the Compensation Committee.

 

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Equity Grants to Existing Employees or Incumbent Members of the Board

 

Generally, annual grants of equity awards shall be made to key performers at a regularly scheduled Board meeting. Equity awards to non-employee members of the Board shall be made by the Board or pursuant to any automatic grant provisions in the Plans.

 

Outstanding Equity Awards at 20212022 Year-End

 

The following table sets forth, as to the NEOs, certain information regarding their outstanding stock awards as of December 31, 2021.2022. There were no outstanding option awards held by the NEOs as of December 31, 2021.2022.

		Stock Awards
Name		Grant Date		Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)(1)		Equity Incentive Plan Awards:   Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1)
Michael Hsing		12/14/2013	(2)	220,000		110,908,600		-		-
		2/7/2018	(3)	18,078		9,100,761		-		-
		10/25/2018	(4)	108,000		53,821,800		-		-
		2/11/2019	(5)	72,633		36,137,104		-		-
		2/4/2020	(6)	153,324		75,864,204
		7/21/2020	(7)	96,500		47,857,245		-		-
		2/2/2021	(8)	-		-		37,613		18,645,892
Bernie Blegen		12/14/2013	(2)	14,400		7,259,472		-		-
		2/7/2018	(3)	2,753		1,386,097		-		-
		10/25/2018	(4)	48,000		23,920,800		-		-
		2/11/2019	(5)	12,876		6,406,193		-		-
		2/4/2020	(6)	27,174		13,445,605
		7/21/2020	(7)	20,105		9,970,673		-		-
		2/2/2021	(8)	-		-		7,619		3,776,967
Deming Xiao		12/14/2013	(2)	86,400		43,556,832		-		-
		2/7/2018	(3)	4,679		2,355,470		-		-
		10/25/2018	(4)	48,000		23,920,800		-		-
		2/11/2019	(5)	18,807		9,357,049		-		-
		2/4/2020	(6)	39,699		19,642,933
		7/21/2020	(7)	32,165		15,951,588		-		-
		2/2/2021	(8)	-		-		11,580		5,740,553
Maurice Sciammas		12/14/2013	(2)	86,400		43,556,832		-		-
		2/7/2018	(3)	4,679		2,355,470		-		-
		10/25/2018	(4)	48,000		23,920,800		-		-
		2/11/2019	(5)	18,807		9,357,049		-		-
		2/4/2020	(6)	39,699		19,642,933		-		-
		7/21/2020	(7)	32,165		15,951,588
		2/2/2021	(8)	-		-		11,580		5,740,553
Saria Tseng		12/14/2013	(2)	86,400		43,556,832		-		-
		2/7/2018	(3)	4,679		2,355,470		-		-
		10/25/2018	(4)	48,000		23,920,800		-		-
		2/11/2019	(5)	18,807		9,357,049		-		-
		2/4/2020	(6)	39,699		19,642,933		-		-
		7/21/2020	(7)	32,165		15,951,588
		2/2/2021	(8)	-		-		11,580		5,740,553

 

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					Stock Awards
Name		Grant Date			Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)(1)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1)
Michael Hsing		12/14/2013	(2)			110,000				40,283,100				-				-
		10/25/2018	(3)			108,000				39,056,040				-				-
		2/11/2019	(4)			14,526				4,881,608				-				-
		2/4/2020	(5)			47,916				17,193,215				-				-
		7/21/2020	(6)			96,500				34,663,765				-				-
		2/2/2021	(7)			112,839				40,104,109				28,210				10,127,672
		10/25/2022	(8)			-				-				60,584				21,468,546
Bernie Blegen		12/14/2013	(2)			7,200				2,636,712				-				-
		10/25/2018	(3)			48,000				17,358,240				-				-
		2/11/2019	(4)			2,574				865,036				-				-
		2/4/2020	(5)			8,493				3,047,456				-				-
		7/21/2020	(6)			20,105				7,221,917				-				-
		2/2/2021	(7)			22,857				8,123,606				5,714				2,051,383
		10/25/2022	(8)			-				-				17,538				6,214,766
Deming Xiao		12/14/2013	(2)			43,200				15,820,272				-				-
		10/25/2018	(3)			48,000				17,358,240				-				-
		2/11/2019	(4)			3,759				1,263,267				-				-
		2/4/2020	(5)			12,405				4,451,162				-				-
		7/21/2020	(6)			32,165				11,553,990				-				-
		2/2/2021	(7)			34,740				12,346,943				8,685				3,118,002
		10/25/2022	(8)			-				-				27,104				9,604,573
Maurice Sciammas		12/14/2013	(2)			43,200				15,820,272				-				-
		10/25/2018	(3)			48,000				17,358,240				-				-
		2/11/2019	(4)			3,759				1,263,267				-				-
		2/4/2020	(5)			12,405				4,451,162				-				-
		7/21/2020	(6)			32,165				11,553,990				-				-
		2/2/2021	(7)			34,740				12,346,943				8,685				3,118,002
		10/25/2022	(8)			-				-				27,104				9,604,573
Saria Tseng		12/14/2013	(2)			43,200				15,820,272				-				-
		10/25/2018	(3)			48,000				17,358,240				-				-
		2/11/2019	(4)			3,759				1,263,267				-				-
		2/4/2020	(5)			12,405				4,451,162				-				-
		7/21/2020	(6)			32,165				11,553,990				-				-
		2/2/2021	(7)			34,740				12,346,943				8,685				3,118,002
		10/25/2022	(8)			-				-				27,104				9,604,573

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(1)

The market value of the unvested stock awards is based on the closing market price of our Common Stock of $493.33$353.61 as of December 31, 2021,2022, and includes any outstanding dividend equivalents accumulated on such awards.

 

(2)

Reflects MSUs granted in December 2013. The performance goals with respect to the MSUs were achieved as of December 31, 2015. These MSUs vest quarterly over five years from January 1, 2019 to December 31, 2023, for a total vesting period of ten years, subject to continued employment.

(3)

Reflects PSUsMSUs granted in FebruaryOctober 2018. The performance goals with respect to the PSUsMSUs were achieved as of December 31, 2019. 50% of these PSUs vested in February 2020, and the remaining 50%These MSUs will fully vest quarterly over the following two years through February 2022,on January 1, 2024, for a total vesting period of fourfive years and two months, subject to continued employment. In addition, the MSUs contain a post-vesting sales restriction for up to an additional two years.

 

(4)

Reflects MSUs granted in October 2018. The performance goals with respect to the MSUs were achieved as of December 31, 2019. These MSUs will fully vest on January 1, 2024, for a total vesting period of five years and two months, subject to continued employment. In addition, the MSUs contain a post-vesting sales restriction for up to an additional two years.

(5)

Reflects PSUs granted in February 2019. The performance goals with respect to the PSUs were achieved as of December 31, 2020. 50% of these PSUs vested in February 2021, and the remaining 50% vest quarterly over the following two years through February 2023, for a total vesting period of four years, subject to continued employment.

(6)(5)	Reflects PSUs granted in February 2020. The performance goals with respect to these PSUs were achieved as of December 31, 2021. 50% of these PSUs will vestvested in February 2022, and the remaining 50% will vest quarterly over the following two years through February 2024, for a total vesting period of four years, subject to continued employment.

(7)(6)	Reflects MPSUs granted in July 2020. The performance goals with respect to the MPSUs were achieved as of December 31, 2020. 75% of the MPSUs will vest in July 2023 and 25% of the MPSUs will vest in July 2024, for a total vesting period of four years, subject to continued employment.employment.  In addition, the MPSUs contain a post-vesting sales restriction for one year.

(8)(7)	Reflects PSUs granted in February 2021 at the target level of performance. For the2021. The revenue goal, upon achievementportion of the pre-determined performance goals at the endwere achieved as of 2022,December 31, 2022. 50% of these PSUs will vest in February 2023, and the remaining 50% will vest quarterly over the following two years through February 2025, for a total vesting period of four years, subject to continued employment. For the environmental goals, upon achievement of the performance goals at any time through December 31, 2023, these PSUs will fully vest immediately, but not earlier than December 31, 2022, for a total vesting period of up to three years, subject to continued employment. In addition, the PSUs relatedsubject to the environmental goals contain a post-vesting sales restriction for one year.
(8)	Reflects MSUs granted in October 2022 at the target level of performance. Upon achievement of the pre-determined stock price targets and the relative TSR performance during the performance period from October 25, 2022 to October 24, 2025, the shares will fully vest on October 24, 2025, for a total vesting period of three years, subject to continued employment. See “Named Executive Officer Compensation — Compensation Discussion and Analysis” for further discussion.

 

20212022 Option Exercises and Stock Vested

 

The following table sets forth certain information on the stock awards vested for our NEOs in 2021.2022. There were no option exercises in 2021.2022.

 

		Stock Awards								Stock Awards
Name		Number of Shares Acquired on Vesting (#)				Value Realized on Vesting ($)(1)				Number of Shares Acquired on Vesting (#)				Value Realized on Vesting ($)(1)
Michael Hsing			358,007				140,445,978				301,002				121,397,751
Bernie Blegen			49,277				18,803,753				40,842				16,421,555
Deming Xiao			107,946				42,935,566				93,117				37,592,669
Maurice Sciammas			107,946				42,935,566				93,117				37,592,669
Saria Tseng			107,946				42,935,566				93,117				37,592,669

The realized value for each NEO included a significant amount related to the MSUs granted in December 2013 that have a total vesting period of ten years: Mr. Hsing, $44,814,825; Mr. Blegen, $2,933,334; Mr. Xiao, $17,600,004; Mr. Sciammas, $17,600,004; and Ms. Tseng, $17,600,004. The grant date stock price was $31.73 for these MSUs, and since the grant date, our stock price has increased over 1,000% through the end of 2022.

 

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(1)

Value realized on vesting is equal to (a) the closing price of our Common Stock on the vesting date less any purchase price, multiplied by the number of shares that vested, plus (b) accumulated dividend equivalents attributable to such shares.

 

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20212022 Non-Qualified Deferred Compensation Plan

 

We have a non-qualified, unfunded deferred compensation plan, which allows key employees, including our NEOs, to defer the receipt of, and taxation on, cash compensation. Plan participants may defer up to 70% of their salary and up to 90% of their non-equity incentive plan compensation. Plan participants may elect to receive the deferred funds either in a lump sum or in annual installments of up to ten years, and to begin receiving distributions either at retirement or at a future date not less than 24 months from the election date. Investment returns on deferred balances are linked to the performance of the investment choices available in the plan. We do not make contributions to the plan or guarantee returns on the investments. The following table summarizes the non-qualified deferred compensation activity for our NEOs in 2021:2022:

 

Name		Executive Contributions in Last FY ($)(1)				Aggregate Earnings in Last FY ($)(2)				Aggregate Balance at Last FYE ($)(3)				Executive Contributions in Last FY ($)(1)				Aggregate Earnings in Last FY ($)(2)				Aggregate Balance at Last FYE ($)(3)
Michael Hsing			-				498,446				11,909,237				5,425,175				(317,913	)			17,016,499
Bernie Blegen			-				8,785				1,379,806				-				723				1,380,529
Deming Xiao			-				256,026				5,915,096				2,863,288				48,646				8,827,030
Maurice Sciammas			-				313,361				3,718,727				2,863,288				(444,549	)			6,137,467
Saria Tseng			122,400				953,629				8,000,766				2,863,288				(1,407,262	)			9,456,789

 

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(1)

All executive contributions are reported as salary or non-equity incentive plan compensation in “Named Executive Officer Compensation — 20212022 Summary Compensation Table.”

 

(2)

Represents the net amounts credited to the NEOs’ accounts as a result of the performance of their investment choices. The amounts are not included in “Named Executive Officer Compensation — 20212022 Summary Compensation TableTable”” because plan earnings are not “preferential or above-market” under the SEC rules.

 

(3)

Includes the following cumulative amounts reported as compensation for the NEOs in the Summary Compensation Tables for previous years: Mr. Hsing, $9,237,379; Mr. Blegen, $786,811; Mr. Xiao, $4,286,146; Mr. Sciammas, $2,565,913; and Ms. Tseng, $4,950,820.$5,073,221.

 

Potential Payments Upon Termination or Termination Upon Change in Control

 

Employment Agreements and Change in Control Arrangements

 

We have entered into employment agreements with each of our NEOs. The employment agreements establish the initial titles, salaries, and reporting responsibilities for the NEOs. The employment agreements also provide that each NEO may participate in our equity, bonus and benefits programs. Each of the employment agreements with Mr. Hsing, Mr. Xiao and Mr. Sciammas was amended in December 2008 to bring the agreements into compliance with Section 409A of the Internal Revenue Code. The employment agreement with Mr. Xiao was subsequently amended in March 2011 to grant Mr. Xiao an equity interest in Hue Ming LLC, a Delaware limited liability company formed by us, in connection with an ownership transfer of a corporate apartment in Chengdu, China, to Mr. Xiao. The equity interest became fully vested in March 2016 and Hue Ming LLC was dissolved.

 

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In addition to the terms described above, the employment agreements also provide certain severance benefits upon termination without cause or for good reason, including within one year following a change in control (a “Change in Control with Termination”), as described in the following table. We have followed general market practices for senior executives in allowing limited change in control arrangements for selected officers.

 

NEOs	Agreement and Date		Termination without Cause or Departure for Good Reason		Change in Control with Termination
Michael Hsing	Employment Agreement dated March 10, 2008, as amended December 16, 2008.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for 12 months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for a period of 12 months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.
		●	Acceleration of vesting of equity grants equal to the number of shares that would have vested had the executive remained an employee for 12 months following the termination of employment.	●	Acceleration of vesting of 100% of the executive’s unvested equity grants.(1)

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Bernie Blegen	Employment Agreement dated July 19, 2016.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for a period of 12 months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.
		●	Acceleration of vesting of equity grants equal to the number of shares that would have vested had the executive remained an employee for six months following the termination of employment.	●	Acceleration of vesting of 100% of the executive’s unvested equity grants.(1)
Deming Xiao	Employment Agreement dated March 10, 2008, as amended December 16, 2008 and March 3, 2011.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for a period of 12 months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.
		●	Acceleration of vesting of equity grants equal to the number of shares that would have vested had the executive remained an employee for six months following the termination of employment.	●	Acceleration of vesting of 100% of the executive’s unvested equity grants.(1)
Maurice Sciammas	Employment Agreement dated March 10, 2008, as amended December 16, 2008.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for a period of 12 months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.
		●	Acceleration of vesting of equity grants equal to the number of shares that would have vested had the executive remained an employee for six months following the termination of employment.	●	Acceleration of vesting of 100% of the executive’s unvested equity grants.(1)
Saria Tseng	Employment Agreement dated December 16, 2008, as amended February 9, 2010.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for six months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.	●	Base salary, target annual bonus and COBRA premiums for group-health plan benefits for a period of 12 months, payable in installments in accordance with our standard payroll practices as long as the executive is not employed by another company.
		●	Acceleration of vesting of equity grants equal to the number of shares that would have vested had the executive remained an employee for six months following the termination of employment.	●	Acceleration of vesting of equity grants equal to the number of shares that would have vested had the executive remained an employee for six months following the termination of employment.	●	Acceleration of vesting of 100% of the executive’s unvested equity grants.(1)

 

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(1)

With respect to the PSUs that have not been earned because the performance period is still in progress, a pro-rata portion of such awards shall vest to the extent the applicable performance levels are achieved through the date of the change in control, in accordance with the individual grant agreements. With respect to the MSUs that have not been earned because the performance period is still in progress, such awards shall vest if the per-share price paid in the change in control is greater than the price targets. In addition, the market condition related to the relative TSR performance will be deemed satisfied, in accordance with the individual grant agreements.

 

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Each of the employment agreements with our NEOs also contains a provision whereby during the period of employment and thereafter, the executive shall not, without the prior written consent of us, disclose or use any confidential information or proprietary data other than for our interest. These employment agreements also contain a covenant not to solicit, beginning with the date of the executive’s termination and until one year thereafter.  

 

A “change in control” of MPS means a merger or consolidation after which our stockholders do not hold a majority of our outstanding voting securities, any transaction involving the transfer of greater than 50% of our voting power (unless otherwise provided for in an award agreement), a change in the composition of the Board occurring within a 12-month period, as a result of which less than a majority of the directors are incumbent directors (as such term is defined in the employment agreements), or a sale of all or substantially all our assets. “Cause” generally means the NEO’s failure to perform the duties or responsibilities of his or her employment, the NEO personally engaging in illegal conduct that is detrimental to us, the NEO being convicted of or pleading nolo contendere to a felony or other crime involving moral turpitude, or the NEO committing a material act of dishonesty, fraud or misappropriation of property. “Good Reason” generally means the NEO’s termination of employment following the expiration of an applicable cure period (as designated in each employment agreement) following the occurrence of: a material reduction in compensation (except where a substantially equivalent reduction is applied to all our officers), a material, adverse reduction in the NEO’s authority, responsibilities or duties, or a material change in the location at which the NEO performs services.

 

Estimated Payments Upon Termination or Change in Control with Termination

 

The following table sets forth the estimated payments required to be made to each NEO in connection with the termination of his or her employment upon specified events, assuming a stock price of $493.33$353.61 per share, the closing price as of December 31, 2021.30, 2022. The estimated amounts shown also assume that the termination was effective as of December 31, 2021,30, 2022, and include estimates of severance benefits which would be paid to the executives upon their termination. The actual amounts payable to each NEO can only be determined at the time of the termination of the executive’s employment.

 

		Termination without Cause or Departure for Good Reason								Change in Control with Termination								Termination without Cause or Departure for Good Reason															Change in Control with Termination
Name		Base Salary and Target Bonus ($)		Acceleration of Vesting of Equity Awards ($)		Other ($)		Total Compensation ($)		Base Salary and Target Bonus ($)		Acceleration of Vesting of Equity Awards ($)		Other ($)		Total Compensation ($)		Base Salary and Target Bonus ($)				Acceleration of Vesting of Equity Awards ($)				Other ($)			Total Compensation ($)				Base Salary and Target Bonus ($)				Acceleration of Vesting of Equity Awards ($)				Other ($)				Total Compensation ($)
Michael Hsing		2,160,000		146,205,607		26,716		148,392,323		2,160,000		342,356,616		26,716		344,543,333			2,268,000				110,177,181			27,661				112,472,842				2,268,000				172,755,679				27,661				175,051,340
Bernie Blegen		525,000		12,978,779		9,552		13,513,331		1,050,000		64,442,705		19,104		65,511,809			551,250				7,853,638			9,040				8,413,928				1,102,500				38,547,247				18,080				39,667,827
Deming Xiao		570,000		27,325,767		13,358		27,909,125		1,140,000		117,339,095		26,716		118,505,811			598,500				17,519,020			12,151				18,129,671				1,197,000				61,510,491				24,302				62,731,793
Maurice Sciammas		570,000		27,325,767		18,910		27,914,677		1,140,000		117,339,095		37,819		118,516,914			598,500				17,519,020			19,632				18,137,152				1,197,000				61,510,491				39,264				62,746,755
Saria Tseng		570,000		27,325,767		20,334		27,916,101		1,140,000		117,339,095		40,668		118,519,763			598,500				17,519,020			19,632				18,137,152				1,197,000				61,510,491				39,264				62,746,755

 

In the event the NEOs resign without good reason or we terminate their employment for cause, we will have no obligation to pay or provide any compensation or benefits as a result of the employment agreements between us and the NEOs. In the event of the NEOs’ death or disability, except as required by applicable law, we will have no obligation to pay or provide any compensation or benefits under the employment agreements between us and the NEOs.

 

CEO Pay Ratio

For 2022, our CEO pay ratio was determined as follows:

●

The annual total compensation of our CEO was $20,664,936, as reported in the “Total” column in the 2022 Summary Compensation Table disclosed above.

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●

The median of the annual total compensation of all employees (other than our CEO) was $44,194. The median employee was located in China.

●

The ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 468 to 1.  This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.

To determine the median of the annual total compensation of our employees, we applied the following methodologies and assumptions:

●

We selected December 31, 2020 as the date for purposes of establishing the employee population used in identifying the median employee.

●

As of December 31, 2020, our global headcount consisted of approximately 2,200 permanent and temporary employees, with a majority of these employees located in international locations with various market wages and cost of living standards. All of these employees were included in the employee population used in identifying the median employee.

●

We used payroll and equity plan records for the twelve-month period from January 1, 2020 to December 31, 2020. The components of annual compensation included base salary, sales commissions, bonuses, the grant date fair value of stock awards and certain employee benefits.

●

Total compensation was annualized for permanent employees who commenced employment during the year. Total compensation was not annualized for temporary employees.

●

No cost-of-living or other adjustments permissible by the SEC rules were made.

For purposes of calculating the amount of compensation paid to our median employee in 2022, we used the same median employee that we identified in 2020, as permitted under the SEC rules. There have been no changes in our employee population or employee compensation arrangements that we believe would significantly impact the pay ratio disclosure. 

The SEC rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

Alternative Measure:

As discussed in the Compensation Discussion and Analysis section above, more than 96% of our CEO’s annual compensation was tied to rigorous performance conditions in 2022, while the annual compensation of our median employee was not tied to performance goals. Accordingly, as an alternative measure, management believes that a more direct and meaningful pay ratio is to compare compensation that is not tied to any performance objectives. Based on this method, our alternative CEO pay ratio was determined as follows:

●

The alternative annual total compensation of our CEO was $751,846 (consisting of his cash salary for 2022).

●

The median of the annual total compensation of all employees (other than our CEO) remained $44,194.

●

The ratio of the alternative annual total compensation of our CEO to the median of the annual total compensation of all employees was 17 to 1.

Pay Versus Performance

The following Pay Versus Performance information presents the compensation of our NEOs disclosed in the Summary Compensation Table (“SCT”), as well as compensation actually paid (“CAP”) to our NEOs and certain performance measures prepared in accordance with Item 402(v) of SEC Regulations S-K.

As discussed further below, the CAP amounts do not necessarily represent actual compensation earned or realized by our NEOs in a given year. The Compensation Committee did not consider the Pay Versus Performance information in making its compensation decisions for our NEOs. For additional information about our performance-based pay philosophy and how the Compensation Committee aligns executive compensation with our performance, refer to “NamedExecutive Officer Compensation — Compensation Discussion and Analysis.” 

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																		Value of Initial Fixed $100 Investment Based on:
Year		Summary Compensation Table Total for PEO ($)(1)				Compensation Actually Paid to PEO ($)(2)				Average Summary Compensation Table Total for Non-PEO NEOs ($)(1)				Average Compensation Actually Paid to Non-PEO NEOs ($)(2)				TSR ($)(3)				Peer Group TSR ($)(3)				Net Income   (in thousands)  ($)(4)				Company-Selected Measure: 90-Day Average Stock Price ($)(5)
2022			20,664,936				(66,596,378	)			8,578,977				(18,412,649	)			203.03				136.90				437,672				376.53
2021			20,254,831				114,053,034				7,227,671				35,989,415				281.12				213.35				242,023				504.76
2020			14,670,153				166,896,795				4,194,878				50,263,845				207.49				151.14				164,375				297.97

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(1)	For each of 2022, 2021 and 2020 (each, a “Covered Year”), Mr. Hsing served as our principal executive officer (“PEO”). For each Covered Year, our non-PEO NEOs were Mr. Blegen, Mr. Xiao, Mr. Sciammas and Ms. Tseng.

(2)	The CAP amounts reflect the following adjustments to the SCT amounts for each Covered Year:

			FY 2022								FY 2021								FY 2020
Reconciliation of SCT amounts to CAP amounts (a)			PEO ($)				Average Non- PEO NEOs ($)				PEO ($)				Average Non- PEO NEOs ($)				PEO ($)				Average Non- PEO NEOs ($)
Total SCT amounts				20,664,936				8,578,977				20,254,831				7,227,671				14,670,153				4,194,878
-	“Stock Awards” amounts under the SCT			(13,865,090	)			(5,061,001	)			(13,782,908	)			(3,880,508	)			(12,395,153	)			(3,189,878	)
+	Fair value of awards granted in the Covered Year that are outstanding and unvested as of the end of the Covered Year			13,362,890				3,843,543				18,645,892				5,249,657				25,907,039				6,629,115
+	Vesting date fair value of awards granted in the Covered Year and vested in the Covered Year			-				-				-				-				-				-
+/-	Year-over-year change in fair value of awards granted in prior years that are outstanding and unvested as of the end of the Covered Year			(60,534,831	)			(19,793,194	)			73,338,316				23,214,310				118,265,198				36,946,829
+/-	Year-over-year change in fair value of awards granted in prior years that vested in the Covered Year			(26,224,283	)			(7,053,985	)			15,596,903				4,178,285				20,449,558				5,682,901
-	Fair value of awards granted in prior years that failed to vest in the Covered Year			-				-				-				-				-				-
+	Value of dividends paid on awards in the Covered Year (b)			-				-				-				-				-				-
+	Excess fair value for award modifications (c)			-				1,073,011				-				-				-				-
Total CAP amounts				(66,596,378	)			(18,412,649	)			114,053,034				35,989,415				166,896,795				50,263,845

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(a)

Our equity awards include PSUs with a purchase price condition, MSUs and MPSUs. The grant date fair value for these awards was determined using a Monte Carlo simulation model. Assumptions used in the grant date valuation are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. For equity awards vested during the applicable Covered Year, the fair value was based on the closing stock price plus accumulated dividend equivalents at the vesting date. For outstanding equity awards for which the performance conditions have not been achieved, the year-end fair value was determined using a Monte Carlo simulation model. The increases or decreases in the year-end fair value were mainly driven by changes in our stock price. For outstanding awards for which all the performance conditions have been achieved but additional time-based service conditions are required, the year-end fair value was based on the closing stock price plus accumulated dividend equivalents.

(b)

We do not pay dividend equivalents prior to the vesting date of the underlying equity awards. Dividend equivalents accumulated during the vesting periods are reflected in the fair value of the awards.

(c)

The amount reflects the incremental fair value, if any, related to the October 2022 MSUs determined on the modification date. Refer to “Named Executive Officer Compensation - Compensation Discussion and Analysis” and “Grants of Plan-Based Awards for the Year Ended December 31, 2022” for further discussion.

(3)

For purposes of this tabular disclosure, our peer group represents the PHLX Index, which we also disclose in the stock performance graph required by Item 201(e) of Regulation S-K included in our Annual Report on Form 10-K for the year ended December 31, 2022. For each Covered Year, our TSR and our peer group’s TSR were calculated as the cumulative TSR from December 31, 2019 through the last day of the applicable Covered Year, assuming that $100 was invested on December 31, 2019.

(4)	The amounts represent GAAP net income.

(5)

In our assessment, the Company-Selected Measure is the 90-day average trading price of our Common Stock as of December 31 of each Covered Year, which represents the most important financial performance measure used by us to link CAP to our NEOs for 2022 to our performance. Refer to “Named Executive Officer Compensation — Compensation Discussion and Analysis” for further discussion.

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Relationship Between CAP and Performance Measures

Because our executive compensation program is significantly comprised of performance-based equity awards, the primary determinants of the CAP amounts, as calculated under SEC rules, are our stock price, actual payouts from awards vested during the applicable Covered Year, and the number of unvested awards based on projected and actual performance achievement. As shown in the table above, the CAP amounts include year-end revaluations of equity awards granted in the applicable Covered Year, plus the year-over-year changes in the fair value of vested and outstanding equity awards granted in multiple historical years, all of which are heavily impacted by the performance of our stock price.

Relationship Between CAP and TSR:

The following chart compares the CAP amounts to the cumulative TSR since December 31, 2019, measured as of the last day of each Covered Year.

Relationship Between CAP and Net Income:

The following chart compares the CAP amounts to our net income for each Covered Year.

Net income is not a direct performance measure in our executive compensation program. However, we use non-GAAP operating income as the performance measure in our short-term cash incentive plan. Net income and non-GAAP operating income metrics measure different levels of our profitability. The CAP amounts do not always correlate to our profitability because our executive compensation program is heavily weighted towards long-term equity awards, which could vary significantly in value with changes to our stock price.

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Relationship Between CAP and Company-Selected Measure:

The following chart compares the CAP amounts to the Company-Selected Measure for each Covered Year.

Financial Performance Measures

The following list includes the financial performance measures that, in our assessment, represent the most important financial performance measures used by us to link CAP to our NEOs for 2022 to our performance. These measures are not ranked.

1.

90-day average stock price

2.

TSR relative to the PHLX Index

3.

Non-GAAP operating income

4.

Revenue

Equity Compensation Plan Information

 

The following table summarizes certain information under our equity compensation plans as of December 31, 2021:2022:

 

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (#)(a)				Weighted-average exercise price of outstanding options, warrants and rights ($)(b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (#)(c)
Equity compensation plans approved by stockholders (1)			2,509,000	(2)			2.58	(3)			10,079,000	(4)

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Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (#)(a)				Weighted-average exercise price of outstanding options, warrants and rights ($)(b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (#)(c)
Equity compensation plans approved by stockholders (1)			2,659,000	(2)			0.42	(3)			9,073,000	(4)

 

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(1)

Our equity compensation plans approved by stockholders include the following:

 

(i)

2004 Equity Incentive Plan (the “2004 Equity Plan”), which expired in November 2014. We can no longer grant equity awards under the 2004 Equity Plan. Certain equity awards granted prior to its expiration date remained unvested and outstanding as of December 31, 2021.2022.

 

(ii)

Amended 2014 Equity Plan, which became effective in June 2020 and provides for the issuance of up to 10.5 million shares. The Amended 2014 Equity Plan has a ten-year term.term and will expire in June 2030.

 

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(iii)

2004 Employee Stock Purchase Plan (the “ESPP”),ESPP, which incorporates an evergreen provision pursuant to which on January 1 of each year, the aggregate number of shares of Common Stock reserved for issuance can increase by a number of shares equal to the least of: (a) 2% of the outstanding shares of Common Stock on the first day of the year, (b) 1.0 million shares or (c) a lesser number of shares determined by the Board. The 2004 ESPP has a 20-year term.term and will expire in February 2024.

 

(2)

Includes the following outstanding awards: 125,000106,000 RSUs, 945,000527,000 PSUs, 1,218,0001,805,000 MSUs, and 221,000 MPSUs. The number of securities reported for performance awards was generally based on the actual number of shares that have been earned, but are subject to additional service conditions before they vest. For those performance awards that have not been earned because the performance period was still in progress, the number of securities reported was based on the probable outcome of the performance conditions.conditions, and thus may understate eventual dilution.

 

(3)

Includes theRSUs, MSUs and MPSUs have no purchase price related to theprice. PSUs which require employees to pay MPS $30 per share upon vesting of the shares. BeginningHowever, beginning in 2020, thethis purchase price requirement for the PSUs is waived if certain price targets are met during the performance period. All other outstanding awards (RSUs, MSUs and MPSUs) have no purchase price.

 

(4)

Includes 5,590,0004,599,000 shares that remained available for future issuance under the Amended 2014 Equity Plan (all of which may be subject to awards other than options, warrants and 4,489,000other rights), and 4,474,000 shares that remained available for future issuance under the 2004 ESPP.

 

Audit Committee Report

 

The purpose of the Audit Committee is to provide oversight of our accounting and financial reporting processes and the audit of our financial statements; appoint the independent registered public accounting firm to audit our financial statements; and assist the Board in the oversight of: (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications, independence and performance, and (iv) our internal accounting and financial controls. In addition, the Audit Committee provides the Board with such information and materials as it may deem necessary to make the Board aware of financial matters requiring the attention of the Board.

 

The Audit Committee has a duly adopted charter, which it reviews on an annual basis.

 

The Audit Committee is responsible for recommending to the Board that our financial statements be included in its Annual Report on Form 10-K. The Audit Committee took a number of steps in making this recommendation for 2021,2022, including:

 

●

reviewing and discussing the audited financial statements with our independent registered public accounting firm and management;

●

reviewing and discussing the audited financial statements with ourthe independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board; and management;

 

●

discussing with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board; and

●

receiving the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence, and discussing with the independent registered public accounting firm their independence.

 

Based upon the reviews and discussions described in this report, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 20212022 for filing with the SEC.

 

Members of the Audit Committee (as of the date the actions above were taken):

 

Victor K. Lee, Chairman

Herbert Chang

Jeff Zhou

 

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PROPOSAL FIVE

APPROVAL OF THE AMENDED AND RESTATED 2004 ESPP

At the Annual Meeting, the Board is seeking stockholder approval to amend and restate our 2004 ESPP (the “Amended 2004 ESPP”). The 2004 ESPP became effective upon our initial public offering in November 2004 and will expire in February 2024. The Amended 2004 ESPP was approved by the Board on April 28, 2023. If approved by our stockholders, the Amended 2004 ESPP will become effective on August 16, 2023, and essentially succeed the 2004 ESPP after the final purchase period which will end on August 15, 2023. The Amended 2004 ESPP is intended to continue to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code and provides substantially the same benefits to employees that are offered under the 2004 ESPP. As such, stockholder approval of the Amended 2004 ESPP is also being sought for the purpose of qualifying certain shares of our Common Stock issued under the Amended 2004 ESPP for special tax treatment under Section 423 of the Internal Revenue Code.

Competition for talent in the semiconductor industry is intense, and it is essential that we continue to attract, retain and motivate highly qualified employees to support our rapid growth. The Board believes that our stockholders should approve the Amended 2004 ESPP because it will continue to be an important component of the broad-based compensation package we offer to our employees. The majority of the semiconductor companies we compete with for talent offer similar stock purchase programs. If approved, the Amended 2004 ESPP will continue to provide eligible employees with an opportunity to own shares of our Common Stock at a reasonable discount from market value and benefit from the stock price appreciation, which will further enhance the alignment of employee and stockholder interests. If stockholders do not approve the Amended 2004 ESPP, it will not be effective, and the 2004 ESPP will expire by its terms in February 2024.

The Amended 2004 ESPP contains the following key changes (in addition to certain other conforming and non-substantive or immaterial changes): 

1.

Term.  The Amended 2004 ESPP has a 15-year term and will expire on August 16, 2038.

2.

Eligible Employees.  The Amended 2004 ESPP revised the definition of employees who can participate in the plan to those individuals who are common law employees of MPS or a participating subsidiary. Consequently, all employees of MPS or a participating subsidiary who is customarily employed for 20 or fewer hours per week, or five or fewer months per calendar year will be permitted to participate in the Amended 2004 ESPP.

3.

Number of Shares Available for Issuance.  The Amended 2004 ESPP removed the evergreen provision under the 2004 ESPP and provides for the issuance of up to 4,400,000 shares of our Common Stock, which represents the total number of shares that will remain available for issuance upon expiration of the 2004 ESPP. The Board is not asking for stockholders to approve any additional shares for the Amended 2004 ESPP.

As of the Record Date, 4,400,000 shares represent approximately 9.3% of our total shares of Common Stock outstanding. Since inception, employees have purchased a total of 1,616,000 shares under the 2004 ESPP. Annual dilution, which equals shares purchased divided by total shares of our Common Stock outstanding at the end of the year, was approximately 0.1% in each of 2022, 2021 and 2020.

If the Amended 2004 ESPP is approved, it is expected that there will be sufficient shares available under the Amended 2004 ESPP to satisfy our needs under the plan for its full 15-year term.

Summary of Key Provisions of theAmended 2004 ESPP

The material terms of the Amended 2004 ESPP are summarized below. This description is qualified in its entirety by the complete text of the Amended 2004 ESPP, which is attached to this Proxy Statement as Annexure B.

Shares Available for Issuance. The maximum number of shares that will be offered under the Amended 2004 ESPP will be 4,400,000.

Administration. Our Board, or a committee of our Board, administers the Amended 2004 ESPP. Our Board or the committee has full and exclusive authority to interpret the terms of the Amended 2004 ESPP and determine eligibility.

Eligibility. Employees are eligible to participate if they are customarily employed by us or any participating subsidiary. However, an employee may not be granted an option to purchase shares of our Common Stock if such employee (i) immediately after grant owns 5% or more of the total combined voting power or value of all classes of our capital stock; or (ii) whose rights to purchase shares accrues at a rate that exceeds $25,000 worth of stock (determined at the fair market value of the shares at the time such purchase right is granted) for each calendar year in which such option is outstanding at any time. The basis for participation in the Amended 2004 ESPP is meeting eligibility requirements and electing to participate by enrolling in participation in the Amended 2004 ESPP for one of the offering periods.

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Offering Periods and Contributions. The Amended 2004 ESPP is intended to qualify under Section 423 of the Internal Revenue Code and provides for consecutive six-month offering periods. The offering periods generally start on the first trading day on or after February 16 and August 16 of each year. The administrator has the authority to adjust the timing and duration of future offering periods.

The Amended 2004 ESPP permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation which includes a participant’s base straight time gross earnings, commissions (to the extent such commissions are an integral, recurring part of compensation), overtime, and shift premium, but exclusive of payments for incentive compensation, bonuses and other compensation. A participant may purchase a maximum of 2,000 shares during an offering period. The administrator may adjust this limit prior to the commencement of subsequent offering periods.

Purchase of Shares. Amounts deducted and accumulated by the participant are used to purchase shares of our Common Stock at the end of each six-month offering period. The price is 85% of the lower of the fair market value of our Common Stock at the beginning of an offering period or end of such offering period. As of the Record Date, the closing price of our Common Stock as reported on the Nasdaq Global Select Market was $466.42 per share.

Participants may end their participation at any time during an offering period, and will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with us.

Transferability of Rights. No participant is permitted to assign, transfer, pledge, or otherwise dispose of either the payroll deductions credited to his or her account or an option or any rights granted under the Amended 2004 ESPP other than by will or the laws of descent and distribution.

Change of Control. In the event of a change of control, a successor corporation will assume or substitute each outstanding option. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened, and a new exercise date will be set.

Changes in Capitalization. In the event of certain changes in our capitalization (for instance, a stock split) and other corporate transactions affecting our Common Stock, the administrator in its discretion will adjust the number and class of Common Stock that may be delivered under the Amended 2004 ESPP, the purchase price per share and the number of shares of our Common Stock covered by each outstanding option.

Amendment or Termination. The Amended 2004 ESPP will automatically terminate on August 16, 2038, unless we terminate it sooner. Our Board has the authority to amend or terminate the Amended 2004 ESPP, except that, subject to certain exceptions described in the Amended 2004 ESPP, no such action may adversely affect any outstanding rights to purchase shares of our Common Stock.

Federal Income Tax Consequences

The following discussion is a summary of the general U.S. federal income tax rules applicable to purchases offered by MPS under the Amended 2004 ESPP. This summary is not intended to be exhaustive and does not discuss the income tax laws of any city, state, or foreign jurisdiction in which a participant may reside.

Under the U.S. federal income tax rules, no income will be taxable to a participant at the time of grant of the option or purchase of shares. However, a participant may become liable for tax upon dispositions of shares acquired under the Amended 2004 ESPP, and the tax consequences will depend on how long a participant has held the shares prior to disposition.

If a participant sells or otherwise disposes of the purchased shares within two years after the beginning of the associated offering period or within one year after the purchase date, then the participant will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the shares on the purchase date exceeded the purchase price, and we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal in amount to such excess. The participant will also recognize a capital gain to the extent the amount realized upon the sale of the shares exceeds the sum of the aggregate purchase price for those shares and the ordinary income recognized in connection with their acquisition.

If the participant sells or otherwise disposes of the purchased shares more than two years after the beginning of the associated offering period and more than one year after the purchase date, the participant will generally recognize ordinary income in the year of sale or disposition equal to the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price or (b) the excess of the fair market value of the shares as of the beginning of the offering period over the purchase price (determined as of the beginning of the offering period). Any further gain or any loss will be taxed as a long-term capital gain or loss. We will not be entitled to an income tax deduction with respect to such disposition.

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Registration with the SEC

We have already filed Registration Statements on Form S-8 relating to the issuance of the 4.4 million shares of Common Stock that will be available under the Amended 2004 ESPP with the SEC pursuant to the Securities Act of 1933, as amended.

New Plan Benefits

The amount of future benefits that will be received by eligible employees, including our NEOs, under the Amended 2004 ESPP is not determinable at this time because participation is voluntary, participation levels depend on each eligible employee’s election, the level of payroll deductions is entirely within the discretion of each participant, and the per-share purchase price depends on the future value of our Common Stock.

The table below sets forth the number of shares purchased by the NEOs and other employees under the 2004 ESPP since its inception:

Name and Position		Shares Purchased (#)
Michael Hsing			4,757
Chief Executive Officer, President and Chairman of the Board
Bernie Blegen			5,328
Chief Financial Officer
Deming Xiao			20,101
President of Asia Operations
Maurice Sciammas			11,049
Senior Vice President, Worldwide Sales and Marketing
Saria Tseng			19,595
Vice President, Strategic Corporate Development and General Counsel
All current executive officers as a group			60,830
All current non-employee directors as a group			-
All employees as a group, excluding current executive officers			1,555,142

THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THEAMENDED 2004 ESPP.

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Other Matters

 

We know of no other matters to be submitted at the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of proxy to vote the shares they represent as we may recommend.

 

Forward-Looking Statements

 

Safe Harbor Statement

 

This Proxy Statement contains forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts or guarantees of future performance or events, are based on current expectations, estimates, beliefs, assumptions, goals, and objectives, and involve significant known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results expressed by these statements. Readers of this Proxy Statement are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. Forward-looking statements involve significant risks and uncertainties, including those identified in our SEC filings, including, but not limited to, our Annual Report on Form 10-K filed with the SEC on February 25, 2022.24, 2023. The forward-looking statements in this Proxy Statement represent our projections and current expectations, as of the date hereof, not predictions of actual performance.

 

		BY ORDER OF THE BOARD OF DIRECTORS
Dated: May 2, 20221, 2023
		Saria Tseng
		Saria Tseng
		Vice President, Strategic Corporate Development, General Counsel and Corporate Secretary

 

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Annexure A

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (1)

RECONCILIATION OF GAAP TO NON-GAAP MEASURES (1)

(in thousands, except per-share amounts)

 

		FY 2021				FY 2020				FY 2019				FY 2022				FY 2021				FY 2020
GAAP operating income		$	262,417			$	158,882			$	102,562			$	526,785			$	262,417			$	158,882
Stock-based compensation expense			123,479				85,551				78,699				160,992				123,479				85,551
Amortization of acquisition-related intangible assets			44				-				110				132				44				-
Deferred compensation plan expense			5,124				5,650				3,995
Deferred compensation plan expense (income)															(7,011	)			5,124				5,650
Non-GAAP operating income			391,064				250,083				185,366				680,898				391,064				250,083
Litigation expense			9,225				7,804				2,464				8,001				9,225				7,804
Non-GAAP operating income used in short-term cash incentive plan		$	400,289			$	257,887			$	187,830			$	688,899			$	400,289			$	257,887
GAAP net income		$	242,023			$	164,375			$	108,839			$	437,672			$	242,023			$	164,375
Stock-based compensation expense			123,479				85,551				78,699				160,992				123,479				85,551
Amortization of acquisition-related intangible assets			44				-				110				132				44				-
Deferred compensation plan expense			561				1,057				189
Deferred compensation plan expense (income)															(411	)			561				1,057
Tax effect			(9,434	)			(14,229	)			(10,128	)			1,559				(9,434	)			(14,229	)
Non-GAAP net income		$	356,673			$	236,754			$	177,709			$	599,944			$	356,673			$	236,754
GAAP net income per share - diluted		$	5.05			$	3.50			$	2.38			$	9.05			$	5.05			$	3.50
Non-GAAP net income per share - diluted		$	7.45			$	5.04			$	3.88			$	12.41			$	7.45			$	5.04
Shares used in the calculation of diluted net income per share			47,889				47,014				45,763				48,358				47,889				47,014

 

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(1)

These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. MPS utilizes both GAAP and non-GAAP financial measures to assess what it believes to be its core operating performance, and to evaluate and manage its internal business and assist in making financial, operating and compensation decisions. Our Compensation Committee also evaluates non-GAAP financial measures when reviewing management’s performances and reaching compensation decisions. MPS believes that the non-GAAP financial measures, together with GAAP measures, provide investors with an alternative presentation useful to their understanding of MPS’s core operating results and trends. Additionally, MPS believes that the inclusion of non-GAAP measures, together with GAAP measures, may provide investors with an alternative presentation useful to their understanding of MPS’s core operating results and trends. Additionally, MPS believes that the inclusion of non-GAAP measures, together with GAAP measures, may provide investors with an additional dimension of comparability to similar companies. However, investors should be aware that non-GAAP financial measures utilized by other companies are not likely to be comparable in most cases to the non-GAAP financial measures utilizedused by other companies are not likely to be comparable in most cases to the non-GAAP financial measures used by MPS.

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Annexure B

MONOLITHIC POWER SYSTEMS, INC.

2004 EMPLOYEE STOCK PURCHASE PLAN

(Amended and Restated as of August 16, 2023)

The following constitutes the provisions of the Amended and Restated 2004Employee Stock Purchase Plan of Monolithic Power Systems, Inc.

1. Purpose. The purpose of the Plan is to provide Employees with an opportunity to purchase Common Stock through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an “employee stock purchase plan” under Section 423 of the Code. The provisions of the Plan, accordingly, will be construed so as to extend and limit Plan participation in a manner that is consistent with the requirements of that section of the Code.

2. Definitions.

(a) “Administrator” means the Board or any committee thereof designated by the Board in accordance with Section 14.

(b) “Board” means the Board of Directors of the Company.

(c) “Change of Control” means the occurrence of any of the following events:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or

(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(iii) The consummation of a merger or consolidation of the Company, with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company, or such surviving entity or its parent outstanding immediately after such merger or consolidation; or

(iv) A change in the composition of the Board, as a result of which fewer than a majority of the Directors are Incumbent Directors. “Incumbent Directors” means Directors who either (A) are Directors as of the effective date of the Plan (pursuant to Section 23), or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those Directors whose election or nomination was not in connection with any transaction described in subsections (i), (ii) or (iii) or in connection with an actual or threatened proxy contest relating to the election of Directors of the Company.

(d) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

(e) “Common Stock” means the common stock, par value $0.001 per share, of the Company.

(f) “Company” means Monolithic Power Systems, Inc., a Delaware corporation.

(g) “Compensation” means an Employee’s base straight time gross earnings, commissions (to the extent such commissions are an integral, recurring part of compensation), overtime and shift premium, but exclusive of payments for incentive compensation, bonuses and other compensation.

 

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(h) “Designated Subsidiary” means any Subsidiary that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan.

(i) “Director” means a member of the Board.

(j) “Effective Date” means August 16, 2023, which is the first day of the Offering Period following approval of the amendment and restatement of the Plan by the Board on April 28, 2023, subject to the approval of the Company’s stockholders at the 2023 annual meeting of stockholders.

(k) “Employee” means any individual who is a common law employee of an Employer. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Employer. Where the period of leave exceeds ninety (90) days and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. The Administrator, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date, determine (on a uniform and nondiscriminatory basis) that the definition of Employee will or will not include an individual if he or she: (1) has not completed at least two years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (2) customarily works not more than 20 hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (3) customarily works not more than 5 months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (4) is an officer or other manager, or (5) is a highly compensated employee under Section 414(q) of the Code.

(l) “Employer” means any one or all of the Company and its Designated Subsidiaries.

(m) “Enrollment Date” means the first Trading Day of each Offering Period.

(n) “Exchange Act” means the Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.

(o) “Exercise Date” means the last day of each Offering Period. The first Exercise Date under the original Plan was August 15, 2005. The first Exercise Date under the amendment and restatement of the Plan shall be February 15, 2024.

(p) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including, without limitation, the Nasdaq Global Select Market, its Fair Market Value will be the closing sales price for the Common Stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable, or;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value will be the mean of the closing bid and asked prices for the Common Stock on the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable, or;

(iii) In the absence of an established market for the Common Stock, its Fair Market Value will be determined in good faith by the Administrator.

(q) “First Offering Period” means the Offering Period that started on February 15, 2005and ended on August 15, 2005.

(r) “Offering Periods” means the periods of approximately six (6) months during which an option granted pursuant to the Plan may be exercised, (i) commencing on the first Trading Day on or after February 16 of each year and terminating on the first Trading Day on or following August 15, approximately six (6) months later, and (ii) commencing on the first Trading Day on or after August 16 of each year and terminating on the first Trading Day on or following February 15, approximately six (6) months later. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan.

 

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(s) “Original Plan Effective Date” means February 27, 2004.

(t) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(u) “Plan” means this 2004 Employee Stock Purchase Plan, as amended or amended and restated from time to time.

(v) “Purchase Price” means an amount equal to eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided, however, that the Purchase Price may be adjusted by the Administrator pursuant to Section 20.

(w) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

(x) “Trading Day” means a day on which the U.S. national stock exchanges and the Nasdaq System are open for trading.

3. Eligibility.

(a) First Offering Period. Any individual who was an Employee immediately prior to the First Offering Period under the Plan was automatically enrolled in such First Offering Period.

(b) Subsequent Offering Periods. Any individual who is an Employee as of the Enrollment Date of any future Offering Period following the First Offering Period will be eligible to participate in such Offering Period, subject to the requirements of Section 5.

(c) Limitations. Any provisions of the Plan to the contrary notwithstanding, no Employee will be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time.

4. Offering Periods. The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after February 16 and August 16 of each year, or on such other date as the Administrator shall determine, and continuing thereafter until terminated in accordance with Section 20. The Administrator shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter and to the extent that the length of the Offering Period does not exceed 27 months (or any other applicable length as set forth in Section 423 of the Code).

5. Participation.

(a) First Offering Period. An Employee who was a participant in the First Offering Period under the Plan pursuant to Section 3(a) was entitled to continue his or her participation in such Offering Period only if he or she submitted to the Company’s payroll office (or its designee) a properly completed subscription agreement authorizing payroll deductions in the form provided by the Administrator for such purpose (i) no earlier than the effective date of the filing of the Company’s Registration Statement on Form S-8 with respect to the shares of Common Stock issuable under the Plan in 2004 (the “Original S-8 Effective Date”) and (ii) no later than five (5) business days from the Original S-8 Effective Date or such other period of time as the Administrator may have determined (the “Enrollment Window”). A participant’s failure to submit the subscription agreement during the Enrollment Window pursuant to this Section 5(a) would have resulted in the automatic termination of his or her participation in the First Offering Period under the Plan.

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(b) Subsequent Offering Periods. An Employee who is eligible to participate in the Plan pursuant to Section 3(b) may become a participant by submitting, on or before a date prescribed by the Administrator prior to an applicable Enrollment Date, a properly completed subscription agreement authorizing payroll deductions in an electronic form or other enrollment procedure prescribed by the Administrator.

6. Payroll Deductions.

(a) At the time a participant enrolls in the Plan pursuant to Section 5, he or she will elect to have payroll deductions made on each payday during the Offering Period in an amount not exceeding 15% of the Compensation which he or she receives on each such payday.

(b) Payroll deductions authorized by a participant will commence on the first payday following the Enrollment Date and will end on the last payday in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10; provided, however, that for the First Offering Period under the Plan, payroll deductions commenced on the first payday on or following the end of the Enrollment Window.

(c) All payroll deductions made for a participant will be credited to his or her account under the Plan (initially in the currency in which paid by the Company or Designated Subsidiary, as applicable) and will be withheld in whole percentages only. A participant may not make any additional payments into such account. Any payroll deductions initially credited in a currency other than U.S. Dollars will be converted into U.S. Dollars so that all purchases of Common Stock under the Plan are made with U.S. Dollars. The Company may, at its discretion, convert the payroll deductions to U.S. Dollars at any time during an Offering Period. Any changes or fluctuations in the exchange rate at which the payroll deductions collected on a participant's behalf are converted into U.S. Dollars shall be borne solely by the participant, with the applicable exchange rate determined by the Administrator in its sole discretion.

(d) A participant may discontinue his or her participation in the Plan as provided in Section 10, or may change the rate of his or her payroll deductions during the Offering Period by (i) properly completing and submitting to the Company’s payroll office (or its designee), on or before a date prescribed by the Administrator prior to an applicable Exercise Date, a new subscription agreement authorizing the change in payroll deduction rate in the form provided by the Administrator for such purpose, or (ii) following an electronic or other procedure prescribed by the Administrator; provided, however, that a participant may only make one payroll deduction change during each Offering Period. If a participant has not followed such procedures to change the rate of payroll deductions, the rate of his or her payroll deductions will continue at the originally elected rate throughout the Offering Period and future Offering Periods (unless terminated as provided in Section 10). The Administrator may, in its sole discretion, limit the nature and/or number of payroll deduction rate changes that may be made by participants during any Offering Period. Any change in payroll deduction rate made pursuant to this Section 6(d) will be effective as of the first full payroll period following five (5) business days after the date on which the change is made by the participant (unless the Administrator, in its sole discretion, elects to process a given change in payroll deduction rate more quickly).

(e) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(c), a participant’s payroll deductions may be decreased to zero percent (0%) at any time during an Offering Period. Subject to Section 423(b)(8) of the Code and Section 3(c) hereof, payroll deductions will recommence at the rate originally elected by the participant effective as of the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10.

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(f) At the time the option is exercised, in whole or in part, or at the time some or all of the Company’s Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company’s federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but will not be obligated to, withhold from the participant’s compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Stock by the Employee.

7. Grant of Option. On the Enrollment Date of each Offering Period, each Employee participating in such Offering Period will be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such participant’s payroll deductions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Purchase Price; provided that in no event will a participant be permitted to purchase during each Offering Period more than 2,000 shares of Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase will be subject to the limitations set forth in Sections 3(c) and 13. The Employee may accept the grant of such option (i) with respect to the First Offering Period under the Plan, by submitting a properly completed subscription agreement in accordance with the requirements of Section 5(a) on or before the last day of the Enrollment Window, and (ii) with respect to any future Offering Period under the Plan, by electing to participate in the Plan in accordance with the requirements of Section 5(b). The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that a participant may purchase during each Offering Period. Exercise of the option will occur as provided in Section 8, unless the participant has withdrawn pursuant to Section 10. The option will expire on the last day of the Offering Period.

8. Exercise of Option.

(a) Unless a participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares of Common Stock will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option will be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares of Common Stock will be purchased; any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full share will be retained in the participant’s account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in Section 10. Any other monies left over in a participant’s account after the Exercise Date will be returned to the participant. During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her.

(b) Notwithstanding any contrary Plan provision, if the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20. The Company may make pro rata allocation of the shares of Common Stock available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares of Common Stock for issuance under the Plan by the Company’s shareholders subsequent to such Enrollment Date.

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9. Delivery. As soon as administratively practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Company will arrange the delivery to each participant, as appropriate, the shares purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. No participant will have any voting, dividend, or other shareholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the participant as provided in this Section 9.

10. Withdrawal.

(a) Under procedures established by the Administrator, a participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan, at least ten days prior to an applicable Exercise Date, by following an electronic or other withdrawal procedure prescribed by the Administrator. All of the participant’s payroll deductions credited to his or her account will be paid to such participant as promptly as practicable after the effective date of his or her withdrawal and such participant’s option for the Offering Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions will not resume at the beginning of the succeeding Offering Period unless the participant re-enrolls in the Plan in accordance with the provisions of Section 5.

(b) A participant’s withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.

11. Termination of Employment. Upon a participant’s ceasing to be an Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant’s account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15, and such participant’s option will be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment will be treated as continuing to be an Employee for the participant’s customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice.

12. Interest. No interest will accrue on the payroll deductions of a participant in the Plan.

13. Stock.

(a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19, as of the Effective Date, the maximum number of shares of Common Stock which will be made available for sale under the Plan will be 4,400,000 shares of Common Stock.

(b) Shares of Common Stock to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse.

14. Administration. The Board or a committee of members of the Board who will be appointed from time to time by, and will serve at the pleasure of, the Board, will administer the Plan. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such procedures that it deems necessary for administration of the Plan (including, without limitation, to adopt such procedures and sub-plans as are necessary or appropriate to permit the participation in the Plan by employees who are foreign nationals or employed outside the United States). The Administrator, in its sole discretion and on such terms and conditions as it may provide, may delegate to one or more individuals all or any part of its authority and powers under the Plan. Every finding, decision and determination made by the Administrator (or its designee) will, to the full extent permitted by law, be final and binding upon all parties.

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15. Designation of Beneficiary.

(a) A participant may designate a beneficiary who is to receive any shares of Common Stock and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may designate a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent will be required for such designation to be effective.

(b) Such designation of beneficiary may be changed by the participant at any time. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company will deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

(c) All beneficiary designations under this Section 15 will be made in such form and manner as the Administrator may prescribe from time to time.

16. Transferability. Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw from an Offering Period in accordance with Section 10.

17. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company will not be obligated to segregate such payroll deductions. Until shares of Common Stock are issued under the Plan (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a participant will only have the rights of an unsecured creditor with respect to such shares.

18. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.

19. Adjustments, Dissolution, Liquidation or Change of Control.

(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock such that an adjustment is determined by the Administrator (in its sole discretion) to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Administrator will, in such manner as it may deem equitable, adjust the number and class of Common Stock which may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised, and the numerical limits of Sections 7 and 13.

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(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress will be shortened by setting a new Exercise Date (the “New Exercise Date”), and will terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date will be before the date of the Company’s proposed dissolution or liquidation. The Board will notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10.

(c) Change of Control. In the event of a Change of Control, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Offering Period then in progress will be shortened by setting a new Exercise Date (the “New Exercise Date”) and such Offering Period will end on the New Exercise Date. The New Exercise Date will be before the date of the Company’s proposed Change of Control. The Board will notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10.

20. Amendment or Termination.

(a) The Administrator may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19, no such termination can affect options previously granted under the Plan, provided that an Offering Period may be terminated by the Administrator on any Exercise Date if the Administrator determines that the termination or suspension of the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 19 and this Section 20, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company will obtain stockholder approval in such a manner and to such a degree as required.

(b) Without stockholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Administrator will be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars using any reasonable method, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable which are consistent with the Plan.

(c) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:

(i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;

(ii) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and

(iii) allocating shares.

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Such modifications or amendments will not require stockholder approval or the consent of any Plan participants.

21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan will be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

22. Conditions Upon Issuance of Shares. Shares of Common Stock will not be issued with respect to an option under the Plan unless the exercise of such option and the issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, including the rules and regulations promulgated thereunder, the Exchange Act and the requirements of any stock exchange upon which the shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

23. Term of Plan. The Plan was originally effective on the Original Plan Effective Date. This amended and restated version of the Plan will become effective upon the Effective Date. It will continue in effect for a term of fifteen (15) years following the Effective Date, unless sooner terminated under Section 20.

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SAMPLE SUBSCRIPTION AGREEMENT

MONOLITHIC POWER SYSTEMS, INC.

2004 EMPLOYEE STOCK PURCHASE PLAN

(Amended and Restated as of August 16, 2023)

SUBSCRIPTION AGREEMENT

1.

hereby elects to participate in Monolithic Power Systems, Inc.’s 2004 Employee Stock Purchase Plan (the “Plan”), as amended and restated from time to time, including as of August 16, 2023, and subscribes to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the Plan.

2.	I hereby authorize payroll deductions from each paycheck in the amount of % of my Compensation on each payday (from 0 to 15%) during the Offering Period in accordance with the Plan. (Please note that no fractional percentages are permitted.)

3.

I understand that said payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option.

4.	I have received a copy of the complete Plan. I understand that my participation in the Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to shareholder approval of the Plan.

5.	Shares of Common Stock purchased for me under the Plan should be issued in the name(s) of Employee or Employee and Spouse only.

6.

I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I hereby agree to notify the Company in writing within 30 days after the date of any disposition of my shares and I will make adequate provision for Federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.

7.	I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.

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