Note 8 - Stock-based Compensation

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

8.  STOCK-BASED COMPENSATION

2014 Equity Incentive Plan (as amended, 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, as amended, 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, 2019, 1.6 million shares remained available for future issuance under the 2014 Plan. 

Stock-Based Compensation Expense

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

	Year Ended December 31,
	2019		2018		2017
Cost of revenue	$	2,409	$	1,888	$	1,654
Research and development		19,584		15,990		14,816
Selling, general and administrative		56,706		42,729		36,147
Total stock-based compensation expense	$	78,699	$	60,607	$	52,617
Tax benefit related to stock-based compensation	$	2,754	$	4,383	$	5,054

RSUs

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with the Company.

A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):

	Time-Based RSUs					PSUs and MPSUs					MSUs					Total
	Number of Shares			Weighted-Average Grant Date Fair Value Per Share		Number of Shares			Weighted-Average Grant Date Fair Value Per Share		Number of Shares			Weighted-Average Grant Date Fair Value Per Share		Number of Shares			Weighted-Average Grant Date Fair Value Per Share
Outstanding at January 1, 2017		366		$	51.35		2,284		$	43.24		1,620		$	23.57		4,270		$	36.47
Granted		81		$	94.25		585	(1)	$	62.72		-		$	-		666		$	66.56
Vested		(175	)	$	48.35		(597	)	$	41.94		-		$	-		(772	)	$	43.39
Forfeited		(14	)	$	61.80		(6	)	$	49.82		-		$	-		(20	)	$	58.46
Outstanding at December 31, 2017		258		$	66.30		2,266		$	48.59		1,620		$	23.57		4,144		$	39.91
Granted		133		$	114.36		630	(1)	$	85.06		600		$	68.48		1,363		$	80.62
Vested		(136	)	$	60.23		(717	)	$	41.08		-		$	-		(853	)	$	44.13
Forfeited		(15	)	$	82.20		(5	)	$	63.16		(1	)	$	68.48		(21	)	$	76.92
Outstanding at December 31, 2018		240		$	95.38		2,174		$	61.61		2,219		$	35.69		4,633		$	50.94
Granted		52		$	141.32		512	(1)	$	99.88		-		$	-		564		$	103.68
Vested		(103	)	$	81.53		(656	)	$	53.72		(324	)	$	23.57		(1,083	)	$	47.34
Forfeited		(9	)	$	117.31		(43	)	$	42.72		(9	)	$	68.48		(61	)	$	57.01
Outstanding at December 31, 2019		180		$	115.45		1,987		$	74.50		1,886		$	37.63		4,053		$	59.16

(1) Amount reflects the number of awards that  may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period.

The intrinsic value related to vested RSUs was $138.3 million, $90.0 million and $74.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, the total intrinsic value of all outstanding RSUs was $679.5 million, based on the closing stock price of $178.02. As of December 31, 2019, unamortized compensation expense related to all outstanding RSUs was $100.1 million with a weighted-average remaining recognition period of approximately three years. 

Cash proceeds from vested PSUs with a purchase price totaled $16.6 million and $10.6 million for the years ended  December 31, 2019 and 2018, respectively. There were no proceeds for the year ended December 31, 2017.

Time-Based RSUs

For the years ended December 31, 2019, 2018 and 2017, the Compensation Committee granted 52,000, 133,000, and 81,000 RSUs, respectively, with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued service with the Company.

PSUs and MPSUs

2019 PSUs:

In  February 2019, the Compensation Committee granted 151,000 PSUs to the executive officers, which represent a target number of shares to be earned based on the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Executive PSUs”). The maximum number of shares that an executive officer can earn is 300% of the target number of the 2019 Executive PSUs. 50% of the 2019 Executive PSUs will vest in the first quarter of 2021 if the pre-determined performance goals are met during the performance period. The remaining 2019 Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2019 Executive PSUs is $46.6 million.

The 2019 Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2019 Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $130.67, expected term of 2.6 years, expected volatility of 29.0% and risk-free interest rate of 2.5%.

In  October 2018, the Compensation Committee granted 53,000 PSUs to certain non-executive employees, which represent a target number of shares to be earned based on the Company’s 2020 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2019 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2019 Non-Executive PSUs will vest in the first quarter of 2021 if the pre-determined performance goals are met during the performance period. The remaining 2019 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2019 Non-Executive PSUs is $10.9 million.

The 2019 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2019 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $108.43, expected term of 2.9 years, expected volatility of 28.7% and risk-free interest rate of 2.9%. 

2018 PSUs:

In  February 2018, the Compensation Committee granted 188,000 PSUs to the executive officers, which represent a target number of shares to be earned based on the Company’s average two-year (2018 and 2019) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2018 Executive PSUs”). The maximum number of shares that an executive officer can earn is 300% of the target number of the 2018 Executive PSUs. 50% of the 2018 Executive PSUs will vest in the first quarter of 2020 if the pre-determined performance goals are met during the performance period. The remaining 2018 Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2018 Executive PSUs is $46.1 million.

In  February 2018, the Compensation Committee granted 44,000 PSUs to certain non-executive employees, which represent a target number of shares to be earned based on the Company’s 2019 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2018 and 2019) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2018 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2018 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2018 Non-Executive PSUs will vest in the first quarter of 2020 if the pre-determined performance goals are met during the performance period. The remaining 2018 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2018 Non-Executive PSUs, excluding cancelled shares for the terminated employees, is $8.8 million.

The 2018 Executive PSUs and the 2018 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2018 Executive PSUs and the 2018 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $110.00, expected term of 2.6 years, expected volatility of 27.5% and risk-free interest rate of 2.3%. 

2017 PSUs:

In February 2017, the Compensation Committee granted 200,000 PSUs to the executive officers, which represented a target number of shares that would be earned based on the Company’s average two-year (2017 and 2018) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2017 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number of the 2017 Executive PSUs. In  February 2019, the Compensation Committee approved the revenue achievement for the 2017 Executive PSUs and a total of 521,000 shares were awarded to the executive officers. 50% of the 2017 Executive PSUs vested in the first quarter of 2019. The remaining 2017 Executive PSUs vest over the following two years on a quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2017 Executive PSUs is $31.5 million.

In February 2017, the Compensation Committee granted 48,000 PSUs to certain non-executive employees, which represented a target number of shares that would be earned based on the Company’s 2018 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2017 and 2018) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2017 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2017 Non-Executive PSUs, depending on the job classification of the employee. In  February 2019, the Compensation Committee approved the revenue achievement for the 2017 Non-Executive PSUs and a total of 101,000 shares were awarded to the employees. 50% of the 2017 Non-Executive PSUs vested in the first quarter of 2019. The remaining 2017 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2017 Non-Executive PSUs, excluding cancelled shares for the terminated employees, is $6.1 million.

The 2017 Executive PSUs and the 2017 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2017 Executive PSUs and the 2017 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $89.37, expected term of 2.6 years, expected volatility of 28.6% and risk-free interest rate of 1.3%. 

2015 MPSUs:

In December 2015, the Compensation Committee granted 86,000 MPSUs to the executive officers and 41,000 MPSUs to certain non-executive employees, which represented a target number of shares that would be earned upon achievement of both market conditions and performance conditions (“2015 MPSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2015 MPSUs. The 2015 MPSUs consisted of four separate tranches with various performance periods all ended on  December 31, 2019. The first tranche contained market conditions only, which required the achievement of five stock price targets ranging from $71.36 to $95.57 with a performance period from  January 1, 2016 to  December 31, 2019. 

The second, third and fourth tranches contained both market and performance conditions. The five stock price targets for the second tranche ranged from $89.56 to $106.81 with a performance period from  January 1, 2017 to  December 31, 2019. The five stock price targets for the third tranche ranged from $120.80 to $135.48 with a performance period from  January 1, 2018 to  December 31, 2019. The five stock price targets for the fourth tranche ranged from $126.08 to $136.79 with a performance period from  January 1, 2019 to  December 31, 2019.

In addition, each of the second, third and fourth tranches required the achievement of one of following six operating metrics:

1.	Successful implementation of full digital solutions for certain power products.
2.	Successful implementation, and adoption by a key customer, of an integrated, software-based field-oriented control with sensors to motor drivers.
3.	Successful implementation of certain advanced power analog processes.
4.	Successful design wins and achievement of a specific level of revenue with a global networking customer.
5.	Achievement of a specific level of revenue with a global electronics manufacturer.
6.	Achievement of a specific level of market share with certain core power products.

The following table summarizes the achievement of the market and performance conditions:

Tranche	Market Conditions	Performance Conditions
One	All stock price targets were achieved as of September 30, 2017.	Not required.
Two	All stock price targets were achieved as of December 31, 2017.	Operating metric #1 was achieved as of December 31, 2018.
Three	All stock price targets were achieved as of September 30, 2018.	Operating metric #2 was achieved as of December 31, 2018.
Four	All stock price targets were achieved as of March 31, 2019.	Operating metric #3 was achieved as of September 30, 2019.

A total of 0.6 million shares were awarded to the employees. The 2015 MPSUs will vest on  January 1, 2020, with post-vesting sales restrictions on the vested shares for up to an additional 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%, and an illiquidity discount of 7.8% to account for the post-vesting sales restrictions. Based on the actual achievement of all of the market and performance goals, the total stock-based compensation cost for the 2015 MPSUs, excluding cancelled shares for the terminated employees, is $24.6 million ($8.3 million for the first tranche, $4.5 million for the second tranche, $5.2 million for the third tranche, and $6.6 million for the fourth tranche). 

MSUs

2018 MSUs:

In  October 2018, the Compensation Committee granted 60,000 MSUs to the executive officers and 60,000 MSUs to certain non-executive employees, which represented a target number of shares that would be earned upon achievement of stock price targets (“2018 MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2018 MSUs if the Company achieved five stock price targets ranging from $140 to $172 during a performance period from October 26, 2018 to December 31, 2023. As of December 31, 2019, all stock price targets have been achieved and the employees were awarded a total of 0.6 million shares. The 2018 MSUs will vest on  January 1, 2024, with post-vesting sales restrictions on the vested shares for up to an additional two years. The total stock-based compensation cost for the 2018 MSUs, excluding cancelled shares for the terminated employees, is $40.4 million.

The Company determined the grant date fair value of the 2018 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $108.43, expected volatility of 31.6%, a risk-free interest rate of 3.0%, and an illiquidity discount of 8.7% to account for the post-vesting sales restrictions. 

2013 MSUs:

In December 2013, the Compensation Committee granted 276,000 MSUs to the executive officers and 84,000 MSUs to certain non-executive employees, which represented a target number of shares that would be earned upon achievement of stock price targets (“2013 MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2013 MSUs if the Company achieved five price targets ranging from $40 to $56 during a performance period from January 1, 2014 to December 31, 2018. As of December 31, 2015, all stock price targets have been achieved and the employees were awarded a total of 1.8 million shares. The 2013 MSUs vest quarterly from January 1, 2019 to December 31, 2023. The total stock-based compensation cost for the 2013 MSUs, excluding cancelled shares for the terminated employees, is $38.2 million.

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% and a risk-free interest rate of 1.6%. There was no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

ESPP

Under 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 purchase shares 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 annual increase by an amount equal to the least of one 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, 2019, 4.5 million shares were available for future issuance. The ESPP will expire in November 2024.

For the years ended December 31, 2019, 2018 and 2017, 28,000, 33,000 and 40,000 shares, respectively, were issued. The intrinsic value of the shares issued was $0.7 million, $1.1 million and $1.0 million for the years ended December 31, 2019, 2018 and 2017, respectively. The unamortized expense was $0.1 million as of December 31, 2019, which will be recognized through the first quarter of 2020. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions: 

	Year Ended December 31,
	2019			2018			2017
Expected term (in years)		0.5			0.5			0.5
Expected volatility		37.0	%		29.5	%		23.5	%
Risk-free interest rate		2.2	%		2.0	%		0.9	%
Dividend yield		1.1	%		1.0	%		0.9	%

Cash proceeds from the shares issued under the ESPP were $3.3 million, $3.0 million and $2.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.