Note 7 - Stock-Based Compensation

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

7.  STOCK-BASED COMPENSATION

2004 Equity Incentive Plan (the “2004 Plan”)

The Board of Directors adopted the 2004 Plan in March 2004, and the stockholders approved it in November 2004. The 2004 Plan provided for annual increases in the number of shares available for issuance equal to the least of 5% of the outstanding shares of common stock on the first day of the year, 2.4 million shares, or a number of shares determined by the Board of Directors. The 2004 Plan expired on November 12, 2014 and equity awards can no longer be granted under the 2004 Plan. As of November 12, 2014, 2.9 million shares that were available for issuance expired under the 2004 Plan.

2014 Equity Incentive Plan (the “2014 Plan”)

The Board of Directors adopted the 2014 Plan in April 2013, and the stockholders approved it in June 2013. In October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The 2014 Plan became effective on November 13, 2014 and provides for the issuance of up to 5.5 million shares. The 2014 Plan will expire on November 13, 2024. As of December 31, 2015, 4.7 million shares remained available for future issuance. 

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense as follows (in thousands):

	Year Ended December 31,
	2015		2014		2013
Cost of revenue	$	1,166	$	903	$	631
Research and development		11,156		9,019		6,219
Selling, general and administrative		29,241		23,532		13,851
Total	$	41,563	$	33,454	$	20,701

RSUs

The Company’s restricted stock units (“RSUs”) include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions and performance conditions (“MPSUs”), and RSUs with market conditions (“MSUs”). Vesting of all awards requires continued employment with the Company. In addition, vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance goals. A summary of the RSUs is presented in the table below:

	Time-Based RSUs			Weighted- Average Grant Date Fair Value Per Share		PSUs and MPSUs			Weighted- Average Grant Date Fair Value Per Share		MSUs		Weighted- Average Grant Date Fair Value Per Share		Total			Weighted- Average Grant Date Fair Value Per Share
	(in thousands)					(in thousands)					(in thousands)				(in thousands)
Outstanding at January 1, 2013		1,099		$	16.96		531		$	18.49		-	$	-		1,630		$	17.46
Granted		299		$	24.25		875	(1)	$	24.43		1,800	$	23.57		2,974		$	23.89
Performance adjustment		-		$	-		(124	)(2)	$	21.98		-	$	-		(124	)	$	21.98
Released		(519	)	$	17.57		(206	)	$	18.90		-	$	-		(725	)	$	17.95
Forfeited		(125	)	$	17.06		(48	)	$	19.06		-	$	-		(173	)	$	17.61
Outstanding at December 31, 2013		754		$	19.41		1,028		$	23.02		1,800	$	23.57		3,582		$	22.53
Granted		335		$	36.71		1,091	(1)	$	34.23		-	$	-		1,426		$	34.82
Performance adjustment		-		$	-		(139	)(2)	$	31.40		-	$	-		(139	)	$	31.40
Released		(468	)	$	20.36		(304	)	$	18.12		-	$	-		(772	)	$	19.48
Forfeited		(32	)	$	19.75		(17	)	$	19.79		-	$	-		(49	)	$	19.77
Outstanding at December 31, 2014		589		$	28.48		1,659		$	28.11		1,800	$	23.57		4,048		$	26.14
Granted		271		$	49.82		1,291	(1)	$	45.24		-	$	-		1,562		$	46.03
Performance adjustment		-		$	-		(364	)(2)	$	39.20		-	$	-		(364	)	$	39.20
Released		(319	)	$	26.56		(629	)	$	23.40		-	$	-		(948	)	$	24.47
Forfeited		(42	)	$	35.60		(24	)	$	28.68		-	$	-		(66	)	$	33.06
Outstanding at December 31, 2015		499		$	40.75		1,933		$	38.99		1,800	$	23.57		4,232		$	32.64

_________________

(1) Amount reflects the maximum number of PSUs and MPSUs that can be earned assuming the achievement of the highest level of performance conditions.

(2) Amount reflects the number of PSUs and MPSUs that have not been earned or may not be earned based on management’s probability assessment at each reporting period.

The intrinsic value related to awards released for the years ended December 31, 2015, 2014 and 2013 was $49.2 million, $28.9 million and $18.6 million, respectively. As of December 31, 2015, the total intrinsic value of all outstanding awards was $269.6 million, based on the closing stock price of $63.71. As of December 31, 2015, unamortized compensation expense related to all outstanding awards was approximately $86.0 million with a weighted-average remaining recognition period of approximately five years.

Time-Based RSUs:

For the years ended December 31, 2015, 2014 and 2013, the Board of Directors granted 271,000, 335,000 and 299,000 shares with service conditions, respectively, to employees and non-employee directors. The RSUs generally vest over one to four years, subject to continued employment with the Company.

2015 MPSUs:

On December 31, 2015, the Board of Directors granted 127,000 shares to the executive officers and certain key employees, which represent a target number of RSUs to be awarded upon achievement of both market conditions and performance conditions (“2015 MPSUs”). The maximum number of 2015 MPSUs that an employee can earn is 500% of the target shares. The 2015 MPSUs consist of four separate tranches with various performance periods ending on December 31, 2019. The first tranche contains market conditions only, which require the achievement of five MPS stock price targets ranging from $71.36 to $95.57 over a four-year period. The second, third and fourth tranches contain both market conditions and performance conditions. Each tranche requires the achievement of five MPS stock price targets to be measured against a base price equal to the greater of: (1) the average closing stock price during the 20 consecutive trading days immediately before the start of the measurement period for that tranche, or (2) the closing stock price immediately before the start of the measurement period for that tranche. In addition, each of the second, third and fourth tranches requires the achievement of one of following six operating metrics:

● Successful implementation of full digital solutions vs. current analog topology for certain products.

● Successful implementation and adoption by a key player of an integrated, software-based, field-oriented-control with 3D hall sensor to motor drive.

● Successful implementation of certain advanced power analog processes.

● Successful design wins and achievement of a specific level of revenues with a global networking customer.

● Achievement of a specific level of revenues with a global electronics manufacturer.

● Achievement of a specific level of market share with certain core power products.

Subject to the employees’ continued employment with the Company, the 2015 MPSUs will fully vest on January 1, 2020 if the pre-determined individual market and performance goals in each tranche are met during the performance periods. In addition, the 2015 MPSUs contain post-vesting restrictions on sales of the vested shares by employees for up to two years.

The Company determined the grant date fair value of the 2015 MPSUs using a Monte Carlo simulation model with the following weighted-average assumptions: stock price of $61.35, expected volatility of 33.2%, risk-free interest rate of 1.3%, dividend yield of 0.0% and an illiquidity discount of 7.8% to account for the post-vesting sales restrictions. Assuming the achievement of all of the required performance goals, the total stock-based compensation cost for the 2015 MPSUs is approximately $26.4 million to be recognized for each tranche as follows: $9.2 million for the first tranche, $4.6 million for the second tranche, $5.3 million for the third tranche, and $7.3 million for the fourth tranche.

For the first tranche, stock-based compensation expense will be recognized over four years even if the market conditions are not satisfied. For the second, third and fourth tranches, stock-based compensation expense for each tranche will be recognized over one to four years depending upon the number of the operating metrics management deems probable of achievement in each reporting period. If it becomes probable in a reporting period that more than one operating metric is expected to be achieved during the performance periods, the Company will recognize stock-based compensation expense for more than one tranche in the reporting period.

2015 PSUs:

In February 2015, the Board of Directors granted 172,000 shares to the executive officers, which represent a target number of RSUs to be awarded based on the Company’s average two-year (2015 and 2016) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as determined by the Semiconductor Industry Association (“2015 Executive PSUs”). The maximum number of 2015 Executive PSUs that an executive officer can earn is 300% of the target shares. 50% of the 2015 Executive PSUs will vest in the first quarter of 2017 if the pre-determined performance goals are met during the performance period. The remaining shares will vest over the following two years on a quarterly basis. Vesting is subject to the employees’ continued employment with the Company. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2015 Executive PSUs is approximately $25.0 million.

In February 2015, the Board of Directors granted 58,000 shares to certain non-executive employees, which represent a target number of RSUs to be awarded based on the Company’s 2016 revenue goals for certain regions or product line divisions, or the Company’s average two-year (2015 and 2016) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as determined by the Semiconductor Industry Association (“2015 Non-Executive PSUs”). The maximum number of 2015 Non-Executive PSUs that an employee can earn is either 200% or 300% of the target shares, depending on the job classification of the employee. 50% of the 2015 Non-Executive PSUs will vest in the first quarter of 2017 if the pre-determined performance goals are met during the performance period. The remaining shares will vest over the following two years on an annual or quarterly basis. Vesting is subject to the employees’ continued employment with the Company. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2015 Non-Executive PSUs is approximately $7.0 million.

2014 PSUs:

In February 2014, the Board of Directors granted 252,000 shares to the executive officers, which represented a target number of RSUs that would be awarded based on the Company’s average two-year (2014 and 2015) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as determined by the Semiconductor Industry Association (“2014 Executive PSUs”). The maximum number of 2014 Executive PSUs that an executive officer could earn was 300% of the target shares. 50% of the 2014 Executive PSUs vest in the first quarter of 2016 if the pre-determined performance goals are met during the performance period. The remaining shares vest over the following two years on a quarterly basis. Vesting is subject to the employees’ continued employment with the Company.

In February 2016, the Compensation Committee approved the revenue achievement for the 2014 Executive PSUs and a total of 694,000 shares were earned by the executive officers. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2014 Executive PSUs is approximately $21.9 million.

In April 2014, the Board of Directors granted 61,000 shares to certain non-executive employees, which represented a target number of RSUs that would be awarded based on the Company’s 2015 revenue goals for certain regions or product line divisions, or the Company’s average two-year (2014 and 2015) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as determined by the Semiconductor Industry Association (“2014 Non-Executive PSUs”). The maximum number of 2014 Non-Executive PSUs that an employee could earn was either 200% or 300% of the target shares, depending on the job classification of the employee. 50% of the 2014 Non-Executive PSUs vest in the second quarter of 2016 if the pre-determined performance goals are met during the performance period. The remaining shares will vest over the following two years on an annual or quarterly basis. Vesting is subject to the employees’ continued employment with the Company.

In February 2016, the Compensation Committee approved the revenue achievement for the 2014 Non-Executive PSUs and a total of 103,000 shares were earned by the non-executive employees. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2014 Non-Executive PSUs is approximately $3.8 million.

 In connection with the acquisition of Sensima in July 2014, the Board of Directors granted PSUs to key Sensima employees who became employees of the Company. See Note 2 for further discussion.

2013 MSUs:

In December 2013, the Board of Directors granted 360,000 shares to the executive officers and certain key employees, which represented a target number of RSUs that would be awarded upon achievement of five MPS stock price targets ranging from $40.00 to $56.00 during a five-year performance period from January 1, 2014 to December 31, 2018 (“2013 MSUs”). The maximum number of 2013 MSUs that an employee could earn was 500% of the target shares. The 2013 MSUs will vest quarterly from January 1, 2019 to December 31, 2023 if the pre-determined performance goals are met during the performance period. Vesting is subject to the employees’ continued employment with the Company. As of December 31, 2015, all five MPS stock price targets have been achieved and the employees earned a total of 1.8 million shares.

The Company determined the grant date fair value of the 2013 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $31.73, expected volatility of 38.7%, risk-free interest rate of 1.6% and dividend yield of 0.0%.  The total stock-based compensation cost for the 2013 MSUs is approximately $42.4 million.

2013 PSUs:

In February 2013, the Board of Directors granted 220,000 shares to the executive officers, which represented a target number of RSUs that would be awarded upon achievement of certain pre-determined revenue targets in 2014 (“2013 Executive PSUs”). The maximum number of 2013 Executive PSUs that an executive officer could earn was 300% of the target shares. In February 2015, the Compensation Committee approved the revenue achievement for the 2013 Executive PSUs and a total of 622,000 shares were earned by the executive officers. 50% of the 2013 Executive PSUs vested in the first quarter of 2015 and the remaining shares vest over the following two years on a quarterly basis. Vesting is subject to the employees’ continued employment with the Company. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2013 Executive PSUs is approximately $15.5 million.

In February 2013, the Board of Directors granted 91,000 shares to certain non-executive employees, which represented a target number of RSUs that would be awarded upon achievement of certain pre-determined revenue targets for the Company as a whole, certain regions or product-line divisions in 2014 (“2013 Non-Executive PSUs”). The maximum number of 2013 Non-Executive PSUs that an employee could earn was either 200% or 300% of the target shares, depending on the job classification of the employee. In February 2015, the Compensation Committee approved the revenue achievement for the 2013 Non-Executive PSUs and a total of 154,000 shares were earned by the non-executive employees. 50% of the 2013 Non-Executive PSUs vested in the first quarter of 2015 and the remaining shares vest over the following two years on an annual or quarterly basis. Vesting is subject to the employees’ continued employment with the Company. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2013 Non-Executive PSUs is approximately $3.0 million.

Stock Options 

A summary of stock option activity is presented in the table below:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)					(in years)		(in thousands)
Outstanding at January 1, 2013		3,813		$	15.62		2.6	$	25,380
Exercised		(2,446	)	$	15.49
Forfeited and expired		(11	)	$	15.27
Outstanding at December 31, 2013		1,356		$	15.86		1.9	$	25,506
Exercised		(742	)	$	16.09
Forfeited and expired		(24	)	$	10.07
Outstanding at December 31, 2014		590		$	15.80		1.2	$	20,039
Exercised		(498	)	$	15.55
Forfeited and expired		(2	)	$	6.10
Outstanding at December 31, 2015		90		$	17.50		1.3	$	4,134
Options exercisable at December 31, 2015 and expected to vest		90		$	17.50		1.3	$	4,134
Options exercisable at December 31, 2015		89		$	17.50		1.3	$	4,126

The following table summarizes certain information related to outstanding and exercisable options as of December 31, 2015:

			Options Outstanding						Options Exercisable
Range of Exercises Prices			Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Shares		Weighted- Average Exercise Price
			(in thousands)				(in years)		(in thousands)
$11.09	-	$19.29		69	$	16.25		1.5		69	$	16.25
$19.56	-	$23.02		21	$	21.76		0.7		20	$	21.76
				90	$	17.50		1.3		89	$	17.50

Total intrinsic value of options exercised was $18.6 million, $17.3 million and $27.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. Proceeds from the exercise of stock options were $7.7 million, $11.9 million and $37.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015, unamortized compensation expense related to unvested options was not material.

Employee Stock Purchase Plan

Under the 2004 Employee Stock Purchase Plan (the “ESPP”), eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six-month offering period or stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period in accordance with the Internal Revenue Code and applicable Treasury Regulations.  The ESPP provides for an automatic annual increase by an amount equal to the lesser of 1.0 million shares, 2% of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors.  As of December 31, 2015, approximately 4.7 million shares were available for future issuance.

For the years ended December 31, 2015, 2014 and 2013, 56,000, 78,000 and 111,000 shares, respectively, were issued under the ESPP. The intrinsic value of shares issued was $0.6 million, $0.9 million and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. The unamortized expense as of December 31, 2015 was $78,000. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Year Ended December 31,
	2015			2014			2013
Expected term (years)		0.5			0.5			0.5
Expected volatility		30.3	%		29.4	%		28.0	%
Risk-free interest rate		0.2	%		0.1	%		0.1	%
Dividend yield		1.4	%		0.7	%		-

Cash proceeds from the ESPP were $2.2 million, $2.1 million and $2.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.