Monolithic Power Systems, Inc.
MONOLITHIC POWER SYSTEMS INC (Form: DEF 14A, Received: 04/30/2013 17:24:27)
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant    x   
Filed by a Party other than the Registrant   o
 
Check the appropriate box:
 
 
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Preliminary Proxy Statement
 
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
x
Definitive Proxy Statement
 
o
Definitive Additional Materials
 
o
Soliciting Material Pursuant to §240.14a-12
 
MONOLITHIC POWER SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
 
n/a
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
 
Payment of Filing Fee (Check the appropriate box):
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No fee required.
 
o
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
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(2) 
Aggregate number of securities to which transaction applies:
 
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Fee paid previously with preliminary materials.
 
o          Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1) 
Amount previously paid with preliminary materials:
 
 
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Form, Schedule or Registration Statement No.:
 
 
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(4) 
Date Filed:
 
 
 

 

 
April 30, 2013
 
 
 
 
Dear Stockholder:
 
You are invited to attend the 2013 Annual Meeting of Stockholders of Monolithic Power Systems, Inc. to be held on Thursday, June 13, 2013, at 10:00 a.m., Pacific Daylight Time, at our corporate headquarters, 79 Great Oaks Boulevard, San Jose, CA 95119.
 
It is important that your shares be represented and voted whether or not you plan to attend the Annual Meeting in person. We continue using the Securities and Exchange Commission rule that permits companies to furnish proxy materials to stockholders over the Internet. If you are viewing the proxy statement on the Internet, you may grant your proxy electronically via the Internet by following the instructions on the Notice Regarding the Availability of Proxy Materials previously mailed to you and the instructions listed on the Internet site. If you have received a paper copy of the proxy statement and proxy card, you may grant a proxy to vote your shares by completing and mailing the proxy card enclosed with the proxy statement, or you may grant your proxy electronically via the Internet or by telephone by following the instructions on the proxy card.  If your shares are held in “street name,” which means shares held of record by a broker, bank, trust or other nominee, you should review the Notice Regarding the Availability of Proxy Materials or proxy statement and voting instruction form used by that firm to determine whether and how you will be able to submit your proxy by telephone or over the Internet. Submitting a proxy over the Internet, by telephone or by mailing a proxy card, will ensure your shares are represented at the Annual Meeting.
 
Your vote is important, regardless of the number of shares that you own.
 
On behalf of the Board of Directors, I thank you for your participation. We look forward to seeing you on June 13.
 
 
 
Sincerely,
   
 
   
 
Michael R. Hsing
 
Chairman of the Board, President and Chief Executive Officer
 
 
 

 
 
MONOLITHIC POWER SYSTEMS, INC.
 

 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
 
To Be Held on June 13, 2013


 
To the Stockholders of Monolithic Power Systems, Inc.:
 
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Monolithic Power Systems, Inc. (the “Company”), a Delaware corporation, will be held on Thursday, June 13, 2013, at 10:00 a.m., Pacific Daylight Time, at the Company’s corporate headquarters at 79 Great Oaks Boulevard, San Jose, CA 95119, for the following purposes:
 
 
1.
To elect three Class III directors to serve for three year terms until our annual meeting of stockholders in 2016 or until their respective successors are duly elected and qualified. The nominees for election to our Board of Directors are Herbert Chang, Eugen Elmiger, and Michael R. Hsing.
 
 
2.
To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013.
 
 
3.
To hold an advisory vote on the compensation of the Company’s named executive officers.
 
 
4.
To vote on a proposal to adopt the Company’s 2014 Equity Incentive Plan.
 
 
5.
To vote on a proposal to adopt the Company’s Master Cash Performance Bonus Plan.
 
 
6.
To transact such other business as may properly come before the meeting or any adjournment thereof.
 
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.
 
Only stockholders of record at the close of business on April 16, 2013 are entitled to notice of and to vote at the meeting.
 
Your vote is important .  All stockholders are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, we encourage you to submit your proxy as soon as possible using one of three convenient methods: (i) by accessing the Internet site described in this proxy statement or the voting instruction form provided to you; (ii) by calling the toll-free number; or (iii) by signing, dating and returning the enclosed proxy card or instruction form provided to you. By submitting your proxy promptly, you will save the Company the expense of further proxy solicitation. Any stockholder of record attending the meeting may vote in person even if he or she has already returned a proxy.
 
 
 
By Order of the Board of Directors,
   
 
   
 
Saria Tseng
 
Vice President, Strategic Corporate Development, General Counsel and Corporate Secretary
San Jose, California
April 30, 2013
 
 
 

 
 


 
 

 

MONOLITHIC POWER SYSTEMS, INC.
 




 

 




 
PROXY STATEMENT
FOR
2013 ANNUAL MEETING OF STOCKHOLDERS
 




 







INFORMATION CONCERNING SOLICITATION AND VOTING
 



 
 


 
 
 

 
 
Index
 
Page
General
1
Internet Availability of Proxy Materials
1
Record Date; Outstanding Shares
1
Procedure for Submitting Stockholder Proposals
1
Voting
2
Expenses of Solicitation
3
Quorum; Required Votes; Abstentions; Broker Non-Votes
3
Stockholder List
4
PROPOSAL ONE
5
Classified Board of Directors; Nominees
5
Information Regarding Nominees and Other Directors
5
Director Independence
6
Director Qualifications
6
Board Leadership Structure
8
Board Oversight of Risk
9
Board Meetings and Committees
10
Nomination Process
10
Stockholder Communications
11
Attendance at Annual Meetings of Stockholders by the Board of Directors
11
Code of Ethics and Business Conduct
11
Director Compensation
11
PROPOSAL TWO
14
Audit and Other Fees
14
Pre-Approval of Audit and Non-Audit Services
14
PROPOSAL THREE
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
16
Section 16(a) Beneficial Ownership Reporting Compliance
18
Certain Relationships and Related Transactions
18
EXECUTIVE OFFICER COMPENSATION
18
Compensation Discussion and Analysis
18
Compensation Committee Report
31
Compensation Committee Interlocks and Insider Participation
31
Compensation Risk Management
31
Summary Compensation Table
32
Grants of Plan-Based Awards for the Year Ended December 31, 2012
33
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards During the Year Ended December 31, 2012
34
Outstanding Equity Awards at 2012 Year-End
35
Option Exercises and Stock Vested
37
Potential Payments Upon Termination or Termination Upon Change-in-Control
37
Equity Compensation Plan Information
39
PROPOSAL FOUR
41
PROPOSAL FIVE
56
Audit Committee Report
61
Other Matters
61
Annexure A
62
Annexure B
63
Annexure C
84
 
 
 

 

General

This Proxy Statement is being furnished to holders of common stock, par value $0.001 per share (the “Common Stock”), of Monolithic Power Systems, Inc., a Delaware corporation (the “Company”), in connection with the solicitation of proxies by the Company’s Board of Directors (the “Board”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, June 13, 2013 at 10:00 a.m., Pacific Daylight Time, and at any adjournment or postponement thereof for the purpose of considering and acting upon the matters set forth herein.  The Annual Meeting will be held at the Company’s corporate headquarters located at 79 Great Oaks Boulevard, San Jose, CA 95119. The telephone number at that location is (408) 826-0600.

Internet Availability of Proxy Materials

Pursuant to the rules adopted by the Securities and Exchange Commission, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice Regarding the Availability of Proxy Materials to certain of our stockholders of record, and upon request we will send a paper copy of the proxy materials and proxy card to other stockholders of record. Brokers and other nominees who hold shares on behalf of beneficial owners will be sending their own similar notice. Stockholders will have the ability to access the proxy materials on the website referred to in the notice or request to receive a printed set of the proxy materials. Instructions on how to request a printed copy by mail or electronically may be found on the notice and on the website referred to in the notice, including an option to request paper copies on an ongoing basis. We intend to make this proxy statement available on the Internet and to mail the notice, or to mail the proxy statement and proxy card, as applicable, on or about May 2, 2013 to all stockholders of record at the close of business on April 16, 2013 (the “Record Date”).

The Company’s website is not intended to function as a hyperlink and the information contained on the Company’s website is not intended to be part of this proxy statement. 

Record Date; Outstanding Shares

Only stockholders of record at the close of business on the Record Date are entitled to notice of, and to vote at, the Annual Meeting and any adjournment thereof. Such stockholders are entitled to cast one vote for each share of Common Stock held as of the Record Date on all matters properly submitted for the vote of stockholders at the Annual Meeting. On the Record Date,   36,773,730 shares of Common Stock were issued and outstanding. No shares of the Company’s Preferred Stock were issued and outstanding. For information regarding security ownership by management, directors, and beneficial owners of more than 5% of the Common Stock, see the section of this Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

Procedure for Submitting Stockholder Proposals

Requirements for stockholder proposals to be considered for inclusion in the Company’s proxy materials . Proposals of stockholders of the Company which are to be presented by such stockholders at the Company’s 2014 annual meeting of stockholders must meet the stockholder proposal requirements contained in Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and must be received by the Company no later than January 2, 2014 in order that they may be included in the proxy statement and form of proxy relating to that meeting. Such stockholder proposals should be submitted to the Company’s principal executive office located at 79 Great Oaks Boulevard, San Jose, CA 95119, Attention: Corporate Secretary. No such stockholder proposals were received by the Company in respect of the Annual Meeting prior to the deadline for this year’s meeting.
  
Requirements for stockholder proposals to be brought before an Annual Meeting but not included in the Company’s proxy materials . If a stockholder wishes to present a proposal at the Company’s 2014 annual meeting, and the proposal is not intended to be included in the Company’s proxy statement relating to that meeting, the stockholder must give advance notice to the Company prior to the deadline for such meeting as determined in accordance with the Company’s Bylaws (which are attached as Exhibit 3.4 to our Form S-1 Registration Statement filed with the SEC on November 15, 2004). Under the Company’s Bylaws, in order to be deemed properly presented, notice of proposed business must be delivered to or mailed and received by the Secretary of the Company at the principal executive offices of the Company not fewer than 90 or more than 120 calendar days before the one year anniversary of the date on which the Company first mailed its proxy statement to stockholders in connection with the previous year’s annual meeting of stockholders (the “Notice Period”). As a result, the Notice Period for the Company’s 2014 annual meeting will begin on January 2, 2014 and end on February 1, 2014.  However, in the event the date of the 2014 annual meeting will be changed by more than 30 days from the date of this year’s meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of: (1) 90 calendar days in advance of the 2014 annual meeting and (2) 10 calendar days following the date on which public announcement of the date of the 2014 annual meeting is first made. A stockholder’s notice to the Secretary of the Company shall set forth as to each matter the stockholder proposes to bring before the 2014 annual meeting: (a) a brief description of the business desired to be brought before the 2014 annual meeting and the reasons for conducting such business at the 2014 annual meeting, (b) the name and address, as they appear on the Company’s books, of the stockholder proposing such business, (c) the class and number of shares of the Company that are beneficially owned by the stockholder, (d) any material interest of the stockholder in such business, and (e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A of the 1934 Act, in his or her capacity as a proponent to a stockholder proposal. If a stockholder gives notice of such a proposal after the Notice Period, the stockholder will not be permitted to present the proposal to the stockholders for a vote at the 2014 annual meeting.
 
 
1

 

Voting

Voting prior to the Annual Meeting . If you are the record holder of your stock, you have three options for submitting your votes prior to the Annual Meeting:
 
 
o
by following the instructions for Internet voting printed on your proxy card;
 
 
o
by using the telephone number printed on your proxy card; or
 
 
o
by completing the enclosed proxy card, signing and dating it and mailing it in the enclosed postage-prepaid envelope
 
If you have Internet access, the Company encourages you to record your vote on the Internet. It is convenient, and it saves the Company significant postage and processing costs. In addition, when voting via the Internet or by telephone prior to the meeting date, your vote is recorded immediately, and there is no risk that postal delays will cause your vote to arrive late, and therefore not be counted. All shares entitled to vote and represented by properly executed proxy cards received prior to the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxy cards.  If no instructions are indicated on a properly executed proxy card, the shares represented by that proxy card will be voted as recommended by the Board. If any other matters are properly presented for consideration at the Annual Meeting, including, among other things, consideration of a motion to adjourn the Annual Meeting to another time or place (including, without limitation, for the purpose of soliciting additional proxies), the persons named as proxies in the enclosed proxy card and acting thereunder will have discretion to vote on those matters in accordance with their best judgment. The Company does not currently anticipate that any matters other than the proposals described herein will be raised at the Annual Meeting.  If your shares are held in a stock brokerage account or by a bank, trust or other nominee, you will receive a notice from your broker, bank, trust or other nominee that includes instructions on how to vote your shares.  Your broker, bank, trust or other nominee will allow you to deliver your voting instructions over the Internet and may also permit you to submit your voting instructions by telephone.

YOUR VOTE IS IMPORTANT .  You should submit your proxy even if you plan to attend the Annual Meeting.
 
Voting by attending the Annual Meeting . A stockholder of record may also vote his or her shares in person at the Annual Meeting.  A stockholder planning to attend the Annual Meeting should bring proof of identification for entrance to the Annual Meeting. If a stockholder attends the Annual Meeting, he or she may also submit his or her vote in person, and any previous votes that were submitted by the stockholder, whether by Internet, telephone or mail, will be superseded by the vote that such stockholder casts at the Annual Meeting. If you wish to attend the Annual Meeting in person but you hold your shares through someone else, such as a broker, you must bring proof of your ownership to the Annual Meeting. For example, you could bring an account statement showing that you beneficially owned shares of our Common Stock as of the Record Date as acceptable proof of ownership. You must also contact your broker and follow its instructions in order to vote your shares at the Annual Meeting. You may not vote your shares at the Annual Meeting unless you have first followed the procedures outlined by your broker.

Changing vote; revocability of proxy . Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted at the Annual Meeting. Proxies may be revoked by:
 
 
o
filing a written notice of revocation bearing a later date than the previously submitted proxy which is received by the Secretary of the Company at or before the taking of the vote at the Annual Meeting;
 
 
o
duly executing a later dated proxy relating to the same shares and delivering it to the Secretary of the Company at or before the taking of the vote at the Annual Meeting;
 
 
o
submitting another proxy by telephone or via the Internet (your latest telephone or Internet voting instructions are followed); or
 
 
o
attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a previously submitted proxy).
 
 
2

 
 
Any written notice of revocation or subsequent proxy card must be received by the Secretary of the Company prior to the taking of the vote at the Annual Meeting. Such written notice of revocation or subsequent proxy card should be hand delivered to the Secretary of the Company or should be sent so as to be delivered to Monolithic Power Systems, Inc., 79 Great Oaks Boulevard, San Jose, CA 95119, Attention: Corporate Secretary, prior to the date of the Annual Meeting.

  If you hold your shares through a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee.

Expenses of Solicitation

The Company will bear all expenses of this solicitation, including the cost of preparing and mailing this solicitation material.  The Company may reimburse brokerage firms, custodians, nominees, fiduciaries and other persons representing beneficial owners of Common Stock for their reasonable expenses in forwarding solicitation material to such beneficial owners.  Directors, officers and employees of the Company may also solicit proxies in person or by telephone, letter, e-mail, messenger facsimile or other means of communication. Such directors, officers and employees will not be additionally compensated, but they may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. The Company may engage the services of a professional proxy solicitation firm to aid in the solicitation of proxies from certain brokers, bank nominees and other institutional owners. The Company’s costs for such services will be approximately $10,000.

Quorum; Required Votes; Abstentions; Broker Non-Votes
     
Holders of a majority of the outstanding shares entitled to vote must be present at the Annual Meeting in order to have the required quorum for the transaction of business.  Stockholders are counted as present at the meeting if they: (1) are present in person or (2) have properly submitted a proxy card by mail or voted by telephone or by using the Internet.  If the shares present at the Annual Meeting do not constitute the required quorum, the Annual Meeting may be adjourned to a subsequent date for the purpose of obtaining a quorum.

The required votes to approve the proposals to be considered at this Annual Meeting are as follows:
 
 
o
The affirmative vote of a plurality of the votes duly cast is required for the election of directors.
 
 
o
The affirmative vote of a majority of the votes duly cast is required to ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company.
 
 
o
The affirmative vote of a majority of the votes duly cast is required to approve, on an advisory basis, the compensation of the Company’s named executive officers.  While this vote is advisory and not binding on us or our Board, the Board and Compensation Committee intend to take into account the outcome of the vote when considering future executive compensation arrangements.
 
 
o
The affirmative vote of a majority of the votes duly cast is required to adopt the Company’s 2014 Equity Incentive Plan.
 
 
o
The affirmative vote of a majority of the votes duly cast is required to adopt the Company’s Master Cash Performance Bonus Plan.
 
 Under the General Corporation Law of the State of Delaware, both abstaining votes and broker non-votes are counted as present and entitled to vote and are, therefore, included for purposes of determining whether a quorum is present at the Annual Meeting. An abstaining vote is not counted as a vote cast for the election of directors, but has the same effect as a vote cast against proposals requiring approval by a majority of the votes cast, such as the ratification of our independent registered public accounting firm. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.  A broker non-vote is not counted as a vote cast for the election of directors or as a vote cast for proposals requiring approval by a majority of the votes cast and, therefore, does not have the effect of a vote against such proposals. For purposes of ratifying our independent registered public accounting firm, brokers have discretionary authority to vote.
 
 
3

 

Stockholder List
 
A list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder for any purpose germane to the Annual Meeting during ordinary business hours at our corporate headquarters offices located at 79 Great Oaks Boulevard, San Jose, CA 95119 for the ten days prior to the Annual Meeting, and also at the Annual Meeting.
 
 
4

 

PROPOSAL ONE
 
ELECTION OF DIRECTORS
 
Classified Board of Directors; Nominees
 
The Company’s Board currently consists of eight persons.   Our certificate of incorporation provides for a classified Board consisting of three classes of directors, each serving staggered three-year terms.  As a result, a portion of our Board will be elected each year for three-year terms.

                Three Class III directors are to be elected to the Board at the 2013 Annual Meeting. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the Board’s nominees , Herbert Chang , Eugen Elmiger and Michael R. Hsing . Messrs. Chang and Hsing are standing for re-election to the Board. Mr. Elmiger is standing for election for the first time. Mr. Elmiger was appointed to the Board in October 2012 to fill a vacancy on the Board.     Each person nominated for election has agreed to serve if elected, and the Board has no reason to believe that any nominee will be unavailable or will decline to serve. In the event, however, that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who is designated by the current Board to fill the vacancy. The term of office of each person elected as a Class III director will continue for three years until his successor has been duly elected and qualified.  If elected, the term for Messrs. Chang, Elmiger and Hsing will expire at the 2016 annual meeting.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE ELECTION TO THE BOARD OF EACH OF THE PROPOSED NOMINEES.

Information Regarding Nominees and Other Directors

Name
 
Age
 
Director
Since
 
Principal Occupation
Michael R. Hsing
 
53
 
1997
 
Chairman of the Board, President and Chief Executive Officer of the Company / Nominee
James C. Moyer
 
70
 
1998
 
Chief Design Engineer of the Company and Director
Herbert Chang (1)(3)
 
51
 
1999
 
Lead Director / Nominee
             
Eugen Elmiger (3)
 
49
 
2012
 
Director / Nominee
Victor K. Lee (2)
 
56
 
2006
 
Director
Douglas McBurnie (2)(3)
 
70
 
2007
 
Director
Karen A. Smith Bogart (1)(3)
 
56
 
2007
 
Director
Dr. Jeff Zhou (1)(2)
 
58
 
2010
 
Director
 
 
(1) 
Member of the Compensation Committee
 
(2) 
Member of the Audit Committee
 
(3) 
Member of the Nominating and Governance Committee
 
Nominees for Class III Directors Whose Term Expires in 2013

Herbert Chang has served on our Board since September 1999. Mr. Chang has been the President of InveStar Capital, Inc. since April 1996, Chief Executive Officer of C Squared Management Corporation since April 2004, and is currently a Managing Member of Growstar Associates, Ltd., which is the General Partner and the Fund Manager of VCFA Growth Partners, L.P. Mr. Chang’s companies focus on investing in companies in the semiconductor, telecommunications, networking, software, and/or Internet industries. Mr. Chang serves on the board of directors of a number of private companies. Mr. Chang received a B.S. in geology from National Taiwan University and an M.B.A. from National Chiao Tung University in Taiwan.

Eugen Elmiger has served on our Board since October 2012.  Mr. Elmiger currently serves as Chief Executive Officer of Maxon group, a leading advanced motion company, a position that he has held since January 2011.  From 1991 to 2011, Mr. Elmiger held senior executive positions in the sales, marketing and engineering divisions of Maxon motor. Mr. Elmiger holds a B.S. in Electrical Engineering from the Lucerne (Horw) University of Applied Science and Art.

Michael R. Hsing has served on our Board and as our President and Chief Executive Officer since founding Monolithic Power Systems in August 1997. In 2010, Mr. Hsing was appointed as Chairman of the Board. Before founding our Company, Mr. Hsing held senior technical positions at Supertex, Inc. and Micrel, Inc. Mr. Hsing is an inventor on numerous patents related to the process development of bipolar mixed-signal semiconductor manufacturing. Mr. Hsing holds a B.S.E.E. from the University of Florida.
 
 
5

 

Incumbent Class I Directors Whose Term Expires in 2014

Victor K. Lee has served on our Board since September 2006. Mr. Lee served as Chief Financial Officer of Ambarella, Inc., a fabless semiconductor company from August 2007 to March 2011. From December 2002 through June 2007, Mr. Lee served as Chief Financial Officer and Secretary of Leadis Technology Inc., a fabless semiconductor company. From February 2001 until December 2002, Mr. Lee was engaged as an independent consultant and from December 1999 to January 2001, Mr. Lee served as the Chief Financial Officer and Secretary of SINA Corporation, an Internet media company. From September 1998 to August 1999, Mr. Lee was the Vice President and Acting Chief Financial Officer of VLSI Technology, Inc., a semiconductor manufacturer, and from 1997 to 1998, Vice President, Corporate Controller of VLSI Technology, Inc. From 1989 to 1997, Mr. Lee was a finance director at Advanced Micro Devices, Inc. Mr. Lee holds a B.S. in Industrial Engineering and Operations Research and an M.B.A. from the University of California, Berkeley.

Douglas McBurnie has served on our Board since May 2007. Mr. McBurnie is a retired semiconductor executive with over 35 years of industry experience. Since 1998, Mr. McBurnie served as a consultant to and director for several public and private technology companies, including Leadis Technology, Inc. From 1997 to 1998, he was Senior Vice President, Computer, Consumer & Network Products Group of VLSI Technology, Inc. From 1994 to 1997, Mr. McBurnie served as Vice President and General Manager of several divisions at National Semiconductor. Mr. McBurnie holds a B.A. degree from Baldwin Wallace College.

Incumbent for Class II Directors Whose Term Expires in 2015

James C. Moyer has served on our Board since October 1998 and has served as our Chief Design Engineer since September 1997. Before joining our Company, from June 1990 to September 1997, Mr. Moyer held senior technical positions at Micrel, Inc. Prior to that, Mr. Moyer held senior design engineering positions at Hytek Microsystems Inc., National Semiconductor Corporation, and Texas Instruments Inc. Mr. Moyer holds a B.A.E.E. from Rice University. 
 
Karen A. Smith Bogart has served on our Board since May 2007. Ms. Smith Bogart is President of Pacific Tributes Inc., a start-up firm located in Santa Barbara, CA, a position that she has held since 2006.  From 2003 to 2006, Ms. Smith Bogart was Chairman and President, Greater Asia Region and Senior Vice President of Eastman Kodak Company, located in Shanghai, China. She is also a lecturer in business strategy, product management, organizational capabilities, and leadership at the University of California at Santa Barbara.  Ms. Smith Bogart previously managed many of Eastman Kodak’s largest global businesses, including Kodak Professional Imaging, Consumer Printing, and Consumer Cameras and Batteries. Ms. Bogart is also a director for Mohawk Industries, Inc.  Ms. Smith Bogart holds a B.A. in Political Science from the State University of New York at Geneseo; a Masters in Industrial and Labor Relations from Cornell University; an M.B.A. from the University of Rochester; and a Master of Arts in Human Organizational Systems from Fielding Graduate University.

             Dr. Jeff Zhou has served on our Board since February 2010. Dr. Zhou currently serves as President of Hanergy Holding America, Inc., which develops thin film solar technology, a position he has held since 2012.  Dr. Zhou was Vice President Product Engineering of Nanosolar, Inc. from 2011 to 2012. Dr. Zhou was Chief Operating Officer at NDS Surgical Imaging, a medical imaging technology company during 2010. From 2008 to 2009, Dr. Zhou was Vice President of Global Engineering and General Manager of Asia Pacific Business at NDS Surgical Imaging.  From 2005 to 2007, Dr. Zhou was Vice President of Engineering for several business divisions and General Manager of the China and India Design Centers at Flextronics Inc. From 2000 to 2005, Dr. Zhou was Vice President and General Manager of several divisions at Honeywell International Inc. Dr. Zhou holds a Ph.D. degree in Electrical Engineering from the University of Florida.

There is no family relationship among any of our executive officers, directors and nominees.

Director Independence

The Board has determined that each of Karen A. Smith Bogart, Herbert Chang, Eugen Elmiger, Victor K. Lee, Douglas McBurnie and Jeff Zhou are “independent” under the applicable listing standards of The NASDAQ Stock Market (“NASDAQ”).

Director Qualifications

Our Board includes eight members who are well-qualified to serve on the Board and represent our stockholders’ best interests. Our Board consists of directors who have the following characteristics:
 
 
1. 
Possess a professional background that would enable the development of a deep understanding of our business;
 
2. 
Bring diversity to the Board through their experiences in various industries, both domestically and internationally;
 
 
6

 
 
 
3. 
Are independent thinkers and work well together;
 
4. 
Have the ability to embrace our values and culture;
 
5. 
Have high ethical standards;
 
6. 
Possess sound business judgment and acumen; and
 
7. 
Are willing to commit their time and resources necessary for the Board to effectively fulfill its responsibilities.

We believe that each of the director nominees and the rest of the directors possess these attributes. In addition, the directors bring to the Board a breadth of experience, including extensive financial and accounting expertise, public company board experience, knowledge of the semiconductor business and technology, broad global experience, and extensive operational and strategic planning experience in complex, high-growth global companies.

The following describes the key qualifications, business skills, experience and perspectives that each of our directors and director nominees brings to the Board, in addition to the general qualifications described above and described in their individual biographies:

Michael R. Hsing:
Mr. Hsing, the co-founder of the Company, is a visionary in power management technology as well as a strong leader, motivator and successful entrepreneur. Mr. Hsing provides the Board with valuable insight into management’s perspective with respect to the Company’s operations, and he provides the Board with the most comprehensive view of the Company’s operational history over the past few years. Under his leadership, the Company has experienced significant revenue growth and has been highly profitable. Since the Company’s initial public offering in 2004, stockholder value measured by market capitalization has increased significantly. Having worked in the semiconductor industry for over 25 years, Mr. Hsing’s experience and insight enable him to understand how to control costs effectively and maximize the Company’s technology advantages, which has helped to fuel the Company’s growth and created value for our stockholders. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Hsing should serve as a director of the Company.
   
James C. Moyer:
Mr. Moyer is a technical expert in the design of analog semiconductors. As co-founder of the Company, Mr. Moyer is intimately familiar with the Company and our products. Mr. Moyer brings insight to the Board because of his cumulative experience gained as an engineer and technical leader in the semiconductor industry. This experience gives him a highly developed understanding of the needs and requirements of the analog market for the Company’s complex products and allows him as a director to lead the Company in the right direction in terms of strategy and business approach. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Moyer should serve as a director of the Company.
   
Herbert Chang:
Mr. Chang has been a member of the Board since 1999, which gives him significant knowledge of our recent experiences and history. We also continue to benefit from the broad experience gained by Mr. Chang through his numerous successful investments in both public and private high-technology companies. Mr. Chang has served on several boards of the companies in which he has invested, which has given him significant leadership and oversight experience. In addition, through these board and investor responsibilities, Mr. Chang has developed a deep knowledge of the Company’s industry, the Company’s operations, and the accompanying complex financial transactions and controls necessary for us to succeed. Mr. Chang’s financial expertise has also helped the Board analyze significant complex financial transactions that the Company has considered from time to time. Mr. Chang also has very relevant international experience based on his educational background and work experience in the countries where the Company does business. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Chang should serve as a director of the Company.
   
Eugen Elmiger
Mr. Elmiger is a seasoned business executive with over 20 years of experience, including extensive international marketing, sales and product management expertise, executive board experience, knowledge of high-tech component business and technology, broad global experience and operational and strategic planning experience in complex, high-growth global companies. This experience allows him to contribute his valuable executive leadership talent and understanding of international business to Board deliberations. His industrial, medical and automotive background is a valuable asset to the Board as the Company expands its business in these markets. Mr. Elmiger’s appointment to the Board also allows him to bring a new perspective, new ideas and new outlooks to the Board. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Elmiger should serve as a director of the Company.
 
 
7

 
 
Victor K. Lee:
Mr. Lee is the audit committee financial expert on the Audit Committee of the Board. He has been the Chief Financial Officer at several public and private companies, and has worked in the semiconductor industry for over 25 years. Mr. Lee is familiar with not only the inner workings of the industry, but also has intimate knowledge of the financial issues that semiconductor companies often face. His experience has allowed him to understand the broad issues, in particular those affecting the financial and accounting aspects of our business, that the Board must consider and to make sound recommendations to the Company’s management and the Board. Mr. Lee also provides the Board with valuable insight into financial management, disclosure issues and tax matters relevant to our business. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. Lee should serve as a director of the Company.
   
Douglas McBurnie:
Mr. McBurnie possesses over 35 years of experience in the semiconductor industry, primarily in executive positions, which has given him valuable executive leadership experience. His understanding of the market and the competitive landscape in which the Company operates is a valuable asset to our Board in understanding how to help the Company succeed. Mr. McBurnie also served on a board of a public company and understands the importance of corporate governance as a result of this service. His experience as a director of another publicly held semiconductor company is valuable in providing insight on effective management and best practices techniques for our Board and committees of the Board. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Mr. McBurnie should serve as a director of the Company.
   
Karen A. Smith Bogart:
Ms. Smith Bogart has held senior executive positions at several domestic and multi-national companies in various industries, which has given her significant executive leadership experience. She is a seasoned entrepreneur, which allows her to see issues from the perspective of the Company’s investors, and has experience outside of the semiconductor industry. Ms. Smith Bogart has international experience in countries where MPS operates and understands the Company’s multi-national culture. Ms. Smith Bogart’s experiences outside of the semiconductor industry have enabled her to bring a different perspective, with creative and different ideas, when addressing issues that the Board faces. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Ms. Smith Bogart should serve as a director of the Company.
   
Dr. Jeff Zhou:
Dr. Zhou is a senior business executive with over 20 years of industry experience at large, multi-national corporations with global footprints. Dr. Zhou has an extensive background in the global manufacturing and electronics industry. This experience allows him to contribute his valuable executive leadership talent and understanding of international business to Board deliberations. Dr. Zhou’s appointment to the Board also allows him to bring a new perspective, new ideas and new outlooks to the Board. Based on the Board’s identification of these qualifications, skills and experiences, the Board has concluded that Dr. Zhou should serve as a director of the Company.
 
Board Leadership Structure

The size of the Company’s Board consists of eight members, six of which the Board has determined are independent and two of which are insiders.  The Board has designated one of the independent directors, Mr. Chang, as the Lead Director because our President and Chief Executive Officer, Mr. Hsing, also serves as the Chairman of the Board. We believe that the number of independent, experienced directors that make up our Board, along with the independent oversight of our Lead Director, benefits the Company and our stockholders by providing a counterbalance to the management perspective provided by Mr. Hsing and Mr. Moyer during Board deliberations. 

We recognize that different board leadership structures may be appropriate for different companies. We believe that our current Board leadership structure is optimal for us. Our leadership structure demonstrates to our employees, suppliers, customers and other stakeholders that we are governed by strong, balanced leadership, with a single person setting the tone for the Board and management and having primary responsibility for managing our day-to-day operations. This message is increasingly important as we continue to seek to achieve business success through new product releases and gaining market share in our industry. At the same time, our leadership structure sends the message that we also value strong, independent oversight of our management operations and decisions in the form of our Lead Director. Further, having a single leader for both the Company and the Board eliminates the potential for strategic misalignment or duplication of efforts, and provides clear leadership for the Company.
 
 
8

 

As discussed above, the positions of Chairman of the Board and President and Chief Executive Officer are held by the same person and the Board has appointed a Lead Director, Mr. Herbert Chang.  Mr. Chang’s roles and responsibilities as the Lead Director include:
 
 
1. 
Reviewing meeting agendas, schedules, and information sent to the Board;
 
2. 
Retaining independent advisors on behalf of the Board, or committees, as the Board may determine is necessary or appropriate;
 
3. 
Ensuring personal availability for consultation and communication with independent directors and with the Chairman of the Board, as appropriate;
 
4. 
Performing such other functions as the independent directors may designate from time to time;
 
5. 
Presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors;
 
6. 
Serving as liaison between the Chairman and independent directors;
 
7. 
Calling meetings of independent directors; and
 
8. 
Ensuring that the Board is at least two-thirds independent and that key committees are independent.
 
Our independent directors meet in executive session during a portion of every regularly scheduled Board meeting, and otherwise as needed. Our Lead Director presides over meetings of our independent directors and we believe that these meetings help to ensure an appropriate level of independent scrutiny of the functioning of our Board. 

Board Oversight of Risk

The Board is primarily responsible for the oversight of risks that could affect the Company. The Company’s senior management team, which conducts the Company’s day-to-day risk management, is responsible for assisting the Board with its risk oversight function.  This oversight is conducted principally through committees of the Board, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees, but the full Board has retained responsibility for general oversight of risk. The Board satisfies its responsibility by requiring each committee chair to regularly report regarding the committee’s considerations and actions, as well as by requiring officers responsible for oversight of particular risks within the Company to submit regular reports. As these reports are submitted independent of review by Mr. Hsing, our President and Chief Executive Officer and the Chairman of our Board, the Board believes that its conduct of its risk oversight function has no impact on the Board’s leadership structure other than to reinforce the involvement of the Board in ongoing management of the Company.
 
In addition to requiring regular reporting from committees and officers, the Board also hears from third-party advisors in order to maintain oversight of risks that could affect the Company, including the Company’s independent auditors, outside counsel, compensation consultants and others. These advisors are consulted on a periodic basis and as particular issues arise in order to provide the Board with the benefit of independent expert advice and insights on specific risk-related matters.

At its regularly scheduled meetings, the Board also receives management updates on the business, including operational issues, financial results and business outlook and strategy.

Our Audit Committee also assists the full Board in its oversight of risk by discussing with management the Company’s compliance with legal and regulatory requirements, the Company’s policies with respect to risk assessment and management of risks that may affect the Company, and the Company’s system of disclosure control and system of controls over financial reporting.  Risks related to our company-wide compensation programs are reviewed by our Compensation Committee. For more information on the Compensation Committee’s compensation risk assessment, see “Executive Officer Compensation – Compensation Risk Management.” Our Nominating and Governance Committee provides compliance oversight and reports to the full Board on compliance and makes recommendations to our Board on corporate governance matters, including director nominees, the determination of director independence, and board and committee structure and membership.

We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing the Company and that our Board leadership structure supports this approach.
 
 
9

 

Board Meetings and Committees

The Board held a total of six (6) meetings during 2012. During 2012, all directors attended at least 75% of the meetings of the Board and the committees upon which such director served.

Audit Committee. The Board has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the 1934 Act, which currently consists of three members: Victor K. Lee, Douglas McBurnie and Jeff Zhou. Mr. Lee is the chairman of the Audit Committee. This committee oversees the Company’s financial reporting process and procedures, is responsible for the appointment and terms of engagement of the Company’s independent registered public accounting firm, reviews and approves the Company’s financial statements, and coordinates and approves the activities of the Company’s independent registered public accounting firm. The Board has determined that Mr. Lee is an “audit committee financial expert,” as defined under the rules of the SEC, and all members of the Audit Committee are “independent” in accordance with the applicable SEC regulations and the applicable listing standards of NASDAQ. The Audit Committee held seven (7) meetings during 2012. The Audit Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com by clicking on the name of the applicable committee.  
 
Compensation Committee. The Board has designated a Compensation Committee consisting of three members: Karen A. Smith Bogart, Herbert Chang and Jeff Zhou. Mr. Zhou is the chairman of the Compensation Committee. This committee is responsible for providing oversight of the Company’s compensation policies, plans and benefits programs and assisting the Board in discharging its responsibilities relating to (a) oversight of the compensation of the Company’s Chief Executive Officer and other executive officers, and (b) approving and evaluating the executive officer compensation plans, policies and programs of the Company. The committee also assists the Board in administering the Company’s 2004 Equity Incentive Plan and 2004 Employee Stock Purchase Plan. The committee may delegate authority to subcommittees when appropriate. All members of the Compensation Committee are “independent” in accordance with the applicable listing standards of NASDAQ. The Compensation Committee held six (6) meetings during 2012. The Compensation Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com.

Nominating and Governance Committee. The Board has designated a Nominating and Governance Committee consisting of four members: Karen A. Smith Bogart, Herbert Chang, Eugen Elmiger and Douglas McBurnie.  Ms. Smith Bogart is the chairwoman of the Nominating and Governance Committee.  This committee is responsible for the development of general criteria regarding the qualifications and selection of Board members, recommending candidates for election to the Board, developing overall governance guidelines and overseeing the overall performance of the Board. All members of the Nominating and Governance Committee are “independent” in accordance with the applicable listing standards of NASDAQ. The Nominating and Governance Committee held four (4) meetings in 2012. The Nominating and Governance Committee acts pursuant to a written charter adopted by the Board, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com.

Nomination Process

The Board has adopted guidelines for the identification, evaluation and nomination of candidates for director. The Nominating and Governance Committee considers the suitability of each candidate, including any candidates recommended by stockholders holding at least 5% of the outstanding shares of the Company’s voting securities continuously for at least 12 months prior to the date of the submission of the recommendation for nomination. If the Nominating and Governance Committee wishes to identify new independent director candidates for Board membership, it is authorized to retain and approve fees of third party executive search firms to help identify prospective director nominees.  Our policy on board diversity relates to the selection of nominees for the Board. Our policy provides that while creating a Board with a variety of experiences and viewpoints should always be considered by the Nominating and Governance Committee when considering director nominees, a director nominee should neither be chosen nor excluded because of race, color, gender, national origin or sexual orientation or identity. Instead, in selecting a director nominee, the Nominating and Governance Committee focuses on skills, expertise or background that would complement the existing Board, recognizing that the Company’s businesses and operations are diverse and global in nature. While there are no specific minimum qualifications for director nominees, the ideal candidate should (a) exhibit independence, integrity, and qualifications that will increase overall Board effectiveness, and (b) meet other requirements as may be required by applicable rules, such as financial literacy or expertise for audit committee members. The Nominating and Governance Committee uses the same process for evaluating all nominees, regardless of the original source of the nomination.  After completing its review and evaluation of director candidates, the Nominating and Governance Committee recommends to the Board the director nominees for selection. 

A stockholder that desires to recommend a candidate for election to the Board should direct such recommendation in writing to Monolithic Power Systems, Inc., 79 Great Oaks Boulevard, San Jose, CA 95119, Attention: Corporate Secretary, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years and evidence of the nominating person’s ownership of Company stock.  Such stockholder nomination must be made pursuant to the notice provisions set forth in the Company’s Bylaws and for each proposed nominee who is not an incumbent director, the stockholder’s notice must set forth all of the information regarding such nominating person and proposed nominee set forth in the Company’s Bylaws.
 
 
10

 
 
Stockholder Communications

The Board has approved a Stockholder Communication Policy to provide a process by which stockholders may communicate directly with the Board or one or more of its members.  You may contact any of our directors by writing to them, whether by mail or express mail, c/o Monolithic Power Systems, Inc., 79 Great Oaks Boulevard, San Jose, CA 95119, Attention: Corporate Secretary. Any stockholder communications that the Board is to receive will first go to the Corporate Secretary, who will log the date of receipt of the communication as well as the identity of the correspondent in the Company’s stockholder communications log. The Corporate Secretary will review, summarize and, if appropriate, draft a response to the communication in a timely manner. The Corporate Secretary will then forward copies of the stockholder communication to the Board member(s) (or specific Board member(s) if the communication is so addressed) for review, provided that such correspondence concerns the functions of the Board or its committees or otherwise requires the attention of the Board or its members.

Attendance at Annual Meetings of Stockholders by the Board of Directors

We do not have a formal policy regarding attendance by members of the Board at our annual meetings of stockholders. Four of our directors attended the 2012 Annual Meeting.

Code of Ethics and Business Conduct

The Company has adopted a Code of Ethics and Business Conduct, which is applicable to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics and Business Conduct is available in the “Investor Relations” section of our website at http://www.monolithicpower.com. The Company will disclose on its website any amendment to the Code of Ethics and Business Conduct, as well as any waivers of the Code of Ethics and Business Conduct, that are required to be disclosed by the rules of the SEC or NASDAQ. 

Director Compensation

Analysis of 2012 Compensation Elements

For 2012, a study was conducted by Meyercord & Associates to review the non-employee director compensation. In its analysis, Meyercord & Associates used the market data of the Company’s industry peer group, which was determined with the assistance of management and the Compensation Committee. The peer group companies included: Anadigics, Inc., Applied Micro Circuits Corporation, Cavium, Inc., DSP Group, Inc., Entropic Communications, Inc., Exar Corporation, Hittite Microwave Corporation, Lattice Semiconductor Corporation, LTX-Credence Corporation, Micrel, Inc., PLX Technology, Inc., Pericom Semiconductor Corporation, Power Integrations, Inc., Rudolph Technologies, Inc., Sigma Designs, Inc., Silicon Image, Inc., Vitesse Semiconductor Corporation and Volterra Semiconductor Corporation.

Based on the results, Meyercord & Associates recommended a few changes to reflect the best practice of compensating non-employee directors with constant value for services.  The Board changed the annual director equity grants to a dollar amount divided by the closing stock price on the first day of the open trading window following the date the grants are approved.  In addition, the Board eliminated equity grants for chairs and members of each committee and replaced such equity grants with equivalent cash fees. The Board approved the following compensation for our non-employee directors:

Annual Board Retainer Fee
$35,000
Lead Director Fee
$12,000
Compensation Committee Chairperson Fee
$15,500 (plus $10,000 incremental stipend)
Compensation Committee Membership Fee (excluding Chairperson)
$7,000
Nominating and Governance Committee Chairperson Fee
$13,500 (plus $10,000 incremental stipend)
Nominating and Governance  Committee Membership Fee (excluding Chairperson)
$6,000
Audit Committee Chairperson Fee
$22,500
Audit Committee Membership Fee (excluding Chairperson)
$10,500
Initial Grant to New Directors
5,000 restricted stock units (“RSUs”)
Annual Grant to Incumbent Directors
RSU number equivalent to $85,000 divided by closing stock price on the first day of the open trading window.
 
 
11

 
 
The Board determined that during 2012, the chair of the Compensation Committee and the chair of the Nominating and Governance Committee would be expected to devote considerably more time and effort to the tasks of those committees than would be normal and expected, and approved an incremental stipend of $10,000 for each of the chair of the Compensation Committee and the Nominating and Governance Committee for 2012 only.

For the initial grant of RSUs to new directors, when applicable, 50% vests one year from the date of grant and the remaining 50% vests two years from the date of grant. 100% of the annual grant of RSUs vests one year from the date of the grant.

 Throughout the year, director participation on the Board committees changed, so the non-employees’ actual payments for 2012 may not reflect their current responsibilities. The following table sets forth the total compensation paid by the Company to each non-employee director in 2012. Mr. Hsing and Mr. Moyer, who are the Company’s employees, did not receive additional compensation for their services as directors. Mr. Hsing’s compensation as a named executive officer is reflected in the section “Executive Officer Compensation – Summary Compensation Table” below.
 
Non-Employee
Directors
 
Fees Earned or
Paid in Cash
   
Stock Awards
(1)
   
Option Awards (1)
   
Total Excluding Dividend Adjustments (2)
 
Karen A. Smith Bogart
  $ 65,500     $ 84,999     $ ---     $ 150,499  
Herbert Chang
  $ 60,000     $ 84,999     $ ---     $ 144,999  
Eugen Elmiger
  $ 20,500     $ 94,050     $ ---     $ 114,550  
Victor Lee
  $ 57,500     $ 84,999     $ ---     $ 142,499  
Douglas McBurnie
  $ 51,500     $ 84,999     $ ---     $ 136,499  
Jeff Zhou
  $ 71,000     $ 84,999     $ ---     $ 155,999  

 
(1)
Reflects the aggregate grant date fair value of awards granted in 2012, computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718. The following table summarizes the number of outstanding stock awards and option awards held by each of the non-employee directors as of December 31, 2012:

Non-Employee
Directors
 
Stock
Awards
   
Option
Awards
 
Karen A. Smith Bogart
    5,062       73,29 0  
Herbert Chang
    5,062       17, 799  
Eugen Elmiger
    5,235       --  
Victor Lee
    5,062       99,4 65  
Douglas McBurnie
    5,062       8 8,995  
Jeff Zhou
    5,062       41,88 0  
 
 
12

 
 
 
(2)
On December 11, 2012, the Company’s Board declared a special cash dividend of $1.00 per common share, which was paid on December 28, 2012 to all stockholders of record as of the close of business on December 21, 2012.  Holders of unvested RSUs and outstanding options did not receive this special cash dividend but the Company’s Board approved a modification of unvested RSUs whereby the number of units covered by each unvested RSU as of December 28, 2012 was increased by a ratio of 1.0471.  In addition, the Board approved a modification whereby the number of shares subject to each outstanding option as of December 28, 2012 was increased by a ratio of 1.0471 with a corresponding reduction in the exercise price.  The purpose of the adjustments was to prevent dilution in the value of the awards due to the decrease in share value resulting from the dividend. The incremental fair value as a result of the modifications, computed in accordance with FASB ASC Topic 718, is as follows:

Non-Employee
Directors
 
Stock Awards
   
Option Awards
   
Total Dividend Adjustments
 
Karen A. Smith Bogart
  $ 4,899     $ 50,851     $ 55,750  
Herbert Chang
  $ 4,899     $ 10,359     $ 15,258  
Eugen Elmiger
  $ 5,082     $ ---     $ 5,082  
Victor Lee
  $ 4,899     $ 76,400     $ 81,299  
Douglas McBurnie
  $ 4,899     $ 65,174     $ 70,073  
Jeff Zhou
  $ 4,899     $ 28,039     $ 32,938  

 
13

 

PROPOSAL TWO
 
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
The Audit Committee of the Board has appointed Deloitte & Touche, LLP (“Deloitte & Touche”) as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2013.  Deloitte & Touche has audited the Company’s financial statements since the Company’s 1999 fiscal year.  Representatives of Deloitte & Touche 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 of this selection by the stockholders.  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 the Company and its stockholders. If the stockholders do not ratify the appointment of Deloitte & Touche, the Audit Committee may reconsider its selection.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2013.

Audit and Other Fees

The following table shows the fees paid by the Company for the audit and other services provided by Deloitte & Touche for fiscal years 2012 and 2011 (in thousands):

   
2012
   
2011
 
Audit fees
  $ 955     $ 955  
Audit-related fees
    76       57  
Tax fees
    75       177  
All other fees
    --       35  
Total
  $ 1,106     $ 1,224  

Audit Fees.   In fiscal 2012 and fiscal 2011, audit fees consisted of fees billed for professional services rendered for the audit of the Company’s annual financial statements and review of the interim financial statements included in the Company’s quarterly reports and the audit of the Company’s internal control over financial reporting.

Audit fees also include services that are normally provided by the independent auditors in connection with foreign statutory and regulatory filings and advice on 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 the Company's 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.
 
All Other Fees represent services other than the services described above.
 
Pre-Approval of Audit and Non-Audit Services

The charter of the Company’s Audit Committee requires that the Audit Committee pre-approve all audit and non-audit services provided to the Company by its 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 fiscal 2012 and fiscal 2011 were pre-approved by the Audit Committee.
 
 
14

 

PROPOSAL THREE

ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION

As required under Section 14A of the Securities Exchange Act of 1934, the Company is 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 the Company’s 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 the Company’s stockholders the opportunity to express their views about the compensation the Company pays to its named executive officers, 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, and will conduct the next say-on-pay vote at the 2014 Annual Meeting.

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 named executive officer compensation program is the same as our goal for operating the Company―to create long-term value for our stockholders. To achieve this goal, we have designed and implemented our compensation programs for our named executives to motivate and reward them 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 the Company for long and productive careers.

Stockholders may vote “for” or “against” the resolution or abstain from voting on the resolution.  The result of the say on pay vote will not be binding on the Company or the Board.  However, the Board values 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 THE COMPANY’S 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.

 
15

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   
The following table sets forth, as of April 5, 2013, information relating to the beneficial ownership of the Company’s common stock or shares exchangeable into the Company’s common stock by: (i) each person known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding shares of the Company’s common stock, (ii) each director (or nominee), (iii) each of the named executive officers named in the 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., 79 Great Oaks Boulevard, San Jose, CA 95119.
 
Name of Beneficial Owner
 
Number of Shares Beneficially Owned
   
Percent of Shares Beneficially Owned (1)
 
             
Named Executive Officers and Directors:
           
Michael R. Hsing (2)
    2,069,301       6 %
James C. Moyer (3)
    1,464,525       4 %
Maurice Sciammas (4)
    504,988       1 %
Deming Xiao (5)
    461,159       1 %
Saria Tseng (6)
    172,006       *  
Meera Rao (7)
    133,345       *  
Victor K. Lee (8)
    109,056       *  
Herbert Chang (9)
    98,762       *  
Karen A. Smith Bogart (10)
    88,081       *  
Douglas McBurnie (11)
    68,025       *  
Jeff Zhou (12)
    53,171       *  
Eugen Elmiger (13)
    5,000       *  
All directors and executive officers as a group (12 persons) (14)
    5,227,419       14 %
                 
5% stockholders:
               
FMR LLC (15) (21)
    5,320,137       14 %
Columbia Wanger Asset Management, LLC (16) (21)
    2,295,000       6 %
BlackRock Inc. (17) (21)
    2,296,058       6 %
Frontier Capital Management Co., LLC (18) (21)
    2,078,206       6 %
Adage Capital Partners, L.P. (19) (22)
    2,044,527       6 %
The Vanguard Group (20) (21)
    1,975,506       5 %
 
* Represents beneficial ownership of less than 1%.
 
(1) 
Based on 36,726,997 shares of our common stock outstanding on April 5, 2013.  Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options and restricted stock units held by that person that are currently exercisable or become exercisable within 60 days of April 5, 2013 are considered to be outstanding and beneficially owned by such person. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
 
(2) 
Includes (i) 465,566 shares held of record by Michael Hsing and Sharon Z. Hsing, husband and wife, as joint tenants, (ii) 133,040 shares held of record by Michael Hsing and Sharon Hsing, Co-Trustees of the Michael Hsing 2004 Trust, (iii) 133,040 shares held of record by Michael Hsing and Sharon Hsing, Co-Trustees of the Sharon Hsing 2004 Trust, (iv) 33,000 shares held of record by the Hsing Family Foundation, (v) 602,057 shares of our common stock issuable under options exercisable within 60 days of April 5, 2013, and (vi) 15,567 shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
 
16

 
 
(3) 
Includes (i) 437,283 shares held in the Moyer Family Revocable Trust and (ii) 20,941 shares of our common stock issuable under options exercisable within 60 days of April 5, 2013.
 
(4) 
Includes (i) 44,004 shares held of record by Maurice Sciammas and Christina Sciammas, Co-Trustees of the Sciammas Family Living Trust, (ii) 14,371 shares held of record by Maurice Sciammas and Christina Sciammas, Co-Trustees of the Maurice Sciammas 2004 Trust, (iii) 14,371 shares held of record by Maurice Sciammas and Christina Sciammas, Co-Trustees of the Christina Sciammas 2004 Trust, (iv) 273,456 shares of our common stock issuable under options exercisable within 60 days of April 5, 2013, and (v) 8,638 shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(5) 
Includes (i) 12,688 shares owned by Julia Chu, Mr. Xiao’s wife, (ii) 282,907 shares of our common stock issuable under options exercisable within 60 days of April 5, 2013, and (iii) 10,172 shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(6) 
Includes (i) 3,000 shares held of record by the Saria Tseng Charity Fund, (ii) 42,198 shares of our common stock issuable under options exercisable within 60 days of April 5, 2013, and (iii) 8,246 shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(7) 
Includes (i) 1,429 shares of our common stock issuable upon options exercisable within 60 days of April 5, 2013, and (ii) 8,135 shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(8) 
Includes (i) 94,467 shares of our common stock issuable upon options exercisable within 60 days of April 5, 2013, and (ii) no shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(9) 
Includes (i) 7,500 shares of our common stock issuable upon options exercisable within 60 days of April 5, 2013, and (ii) no shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(10) 
Includes (i) 73,292 shares of our common stock issuable upon options exercisable within 60 days of April 5, 2013, and (ii) no shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(11) 
Includes (i) 63,998 shares of our common stock issuable upon options exercisable within 60 days of April 5, 2013, and (ii) no shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(12) 
Includes (i) 41,882 shares of our common stock issuable under options exercisable within 60 days of April 5, 2013, and (ii) no shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(13) 
Includes (i) no shares of our common stock issuable under options exercisable within 60 days of April 5, 2013, and (ii) no shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(14)
Includes (i) 1,504,127 shares of our common stock issuable under options exercisable within 60 days of April 5, 2013, and (ii) 50,758 shares of restricted stock units scheduled to release within 60 days of April 5, 2013.
 
(15) 
Pursuant to a 13G/A filed with the SEC on February 14, 2013, FMR LLC beneficially owns 5,320,137 shares and has sole voting power over 2,071,224 shares and sole dispositive power over 5,320,137 shares.
 
(16) 
Pursuant to a 13G/A filed with the SEC on February 14, 2013, Columbia Wanger Asset Management, LLC beneficially owns 2,295,000 shares and has sole voting power over 2,062,000 shares and sole dispositive power over 2,295,000 shares.
 
(17) 
Pursuant to a 13G/A filed with the SEC on February 5, 2013, BlackRock, Inc. beneficially owns 2,296,058 shares and has sole voting over 2,296,058 shares and sole dispositive power over 2,296,058 shares.
 
 
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(18) 
Pursuant to a 13G/A filed with the SEC on February 14, 2013, Frontier Capital Management Co., LLC. beneficially owns 2,078,206 shares and has sole voting power over 1,399,456 shares and sole dispositive power over 2,078,206 shares.
 
(19) 
Pursuant to a 13G filed with the SEC on April 8, 2013, Adage Capital Partners, L.P. beneficially owns 2,044,527 shares and has shared voting power over 2,044,527 shares and shared dispositive power over 2,044,527 shares.
 
(20) 
Pursuant to a 13G/A filed with the SEC on February 12, 2013, The Vanguard Group beneficially owns 1,975,506 shares and has sole voting power over 44,107 shares and sole dispositive power over 1,933,399 shares.
 
(21) 
Represents ownership as of December 31, 2012 obtained from Form 13G/A filings. The ownership as of April 5, 2013 was not publicly available.
 
(22) 
Represents ownership as of March 28, 2013 obtained from Form 13G filings. The ownership as of April 5, 2013 was not publicly available.
 
Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the 1934 Act and regulations of the SEC thereunder require the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of initial ownership and changes in ownership with the SEC.  Based solely on its review of copies of such forms received by the Company, or on written representations from certain reporting persons that no other reports were required for such persons, the Company believes that, during 2012, all of the Section 16(a) filing requirements applicable to its executive officers, directors and 10% stockholders were complied with.

Certain Relationships and Related Transactions
 
The Company has a written policy on related party transactions, as defined in the Company’s Code of Ethics and Business Conduct and the Audit Committee Charter. In accordance with the Company’s 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 the Company 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.
 
Mr. Xiao’s spouse, Julia Chu, is an employee of the Company as Director of Quality Improvement and Failure Analysis. In 2012, Ms. Chu changed her employment status to a part-time basis and received a base salary of $71,701 and a non-equity incentive award of $64,609. In 2012, Ms. Chu was granted 7,750 shares of restricted stock units. The restricted stock units had a grant date fair market value of $149,675. This equity award was approved by the Compensation Committee.

EXECUTIVE OFFICER COMPENSATION
 
Compensation Discussion and Analysis
 
This Compensation Discussion and Analysis describes our executive compensation philosophy and programs, compensation decisions made under those programs, and factors considered in making these decisions. This section focuses on the compensation of our “named executive officers” (“NEOs”) for fiscal year 2012, who were:
 
 
·
Michael R. Hsing, Chief Executive Officer, President and Chairman of the Board;

 
·
Meera Rao, Chief Financial Officer;

 
·
Deming Xiao, President of MPS Asia Operations;

 
·
Maurice Sciammas, Senior Vice President of Worldwide Sales and Marketing; and

 
·
Saria Tseng, Vice President, Strategic Corporate Development, General Counsel and Corporate Secretary.
 
 
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Executive Summary

Compensation Philosophy

The primary goal of our compensation program for our NEOs is the same as our goal for operating the Company ― 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;

 
·
align their interests with those of our stockholders;
 
 
·
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 the Company for long and productive careers.

Our compensation elements fulfill one or more of our performance, alignment and retention objectives. These elements consist of salary, long-term equity awards and short-term cash incentive compensation. 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, is in keeping with the long-term goals of the Company. We combine the compensation elements for each named executive officer in a manner we believe optimizes the executive’s overall contribution to the Company and its stockholders.

In the 2012 Annual Meeting of Stockholders, we received an overwhelming 94% of the votes by our stockholders in favor of our executive compensation program.  We believe this high level of approval was the result of the changes we have implemented in the second half of 2011 and 2012 in response to the outcome of the “say-on-pay” vote in the 2011 Annual Meeting of Stockholders.

While the say-on-pay vote was only advisory and not binding on the Company, the Board and the Compensation Committee carefully considered the results of the vote in the context of our overall executive compensation program in several special compensation committee meetings and board meetings, with advice from the Compensation Committee’s independent compensation consultant and the Company’s institutional proxy advisor.

Subsequent to the 2012 Annual Meeting of Stockholders, we have continuously reached out to a number of our most significant stockholders and their advisors, including our largest institutional stockholders, to discuss their considerations of the executive compensation program.   In response to these discussions with our stockholders, we have further examined our executive compensation program as a whole and have made certain changes to our compensation policies and decisions for 2012 and 2013 to further align our executive compensation structure with our stockholders’ interests and current market practices going forward, including the following:

 
·
We increased the percentage of the CEO’s equity compensation that is earned based on pre-established performance goals to 50%, and we used long-term performance goals that focus on the Company’s growth and profitability (as described below).  As a result, more than 50% of the target value of the CEO’s short-term and long-term incentives for 2012 and 2013 is subject to performance.  Below is a table of the five years history of the CEO’s compensation compared to the Company’s performance in revenue and operating income:

 
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(1)
On December 11, 2012, the Company’s Board declared a special cash dividend of $1.00 per common share, which was paid on December 28, 2012 to all stockholders of record as of the close of business on December 21, 2012.  Holders of unvested RSUs and outstanding options did not receive this special cash dividend but the Company’s Board approved a modification of unvested RSUs whereby the number of units covered by each unvested RSU as of December 28, 2012 was increased by a ratio of 1.0471.  In addition, the Board approved a modification whereby the number of shares subject to each outstanding option as of December 28, 2012 was increased by a ratio of 1.0471 with a corresponding reduction in the exercise price. The purpose of the adjustments was to prevent dilution in the value of the awards due to the decrease in share value resulting from the dividend.  The dividend adjustments reflect the incremental fair value as a result of the modifications, computed in accordance with FASB ASC Topic 718.

 
(2)
The reconciliation of GAAP operating income to Non-GAAP operating income and related disclosures are provided in Annexure A.

 
·
We imposed restrictions on the maximum cash bonus the Compensation Committee can award to the executives based on pre-established performance criteria.  We eliminated the Compensation Committee’s ability to exercise upward discretion with regard to exceeding maximum cash bonuses under the program, even though the Compensation Committee had never exercised any upward discretion to adjust cash incentive awards to a level exceeding the maximum cash bonuses paid to our NEOs under the program.  In fact, the Compensation Committee has, several times in the past, exercised its negative discretion and significantly reduced the earned payout to the executives to reflect market conditions and/or the Company’s overall performance.  In 2012, the Compensation Committee again exercised its negative discretion and reduced the achieved short-term compensation by as much as 19%. The Compensation Committee continues to have the ability to exercise its negative discretion, but does not have the upward discretion to award cash exceeding the maximum cash bonus.

 
·
50% of the number of shares subject to equity compensation awards that may be earned by each of our NEOs will be in the form of performance-based equity awards, rather than awards that vest based solely on the passage of time. The performance metrics for these awards are based on the Company’s long-term performance in revenue growth, as pre-set at the beginning of the performance period by the Board, which is generally over a two-year period, and an overall “modifier” based on the Company’s performance relative to its peers, as measured by total stockholder return, or “TSR.”  These performance-based equity awards will only be earned if the Company meets certain revenue targets and can be forfeited entirely if certain minimum revenue targets are not met at the end of the two-year period. In addition, these awards can be earned at a maximum 300% of the target if certain significant stretch revenue goals are met at the end of the two-year period.

 
·
We adopted different metrics that are used to determine the short term performance-based incentive from the long-term performance-based incentive.  The short term performance-based cash incentive compensation payable to all of our NEOs is based on the Company’s performance in operating income, as pre-set at the beginning of the performance period by the Board.  The use of the operating income metric in our short-term incentive plan, combined with the use of revenue growth and/or TSR performance metrics in our long-term incentive plan, will provide a balanced approach that seeks to reward our executives for achieving the Company’s financial objectives, without taking excessive risk.
 
 
20

 
 
 
·
We adopted a Compensation Recoupment Policy, which we refer to as a “clawback policy,” that 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 cash compensation awards were based are restated due to fraud or intentional misconduct by the executive;

 
·
We adopted significant stock ownership guidelines that are applicable to our NEOs;

 
·
We have not entered into or modified any employment, severance, or other agreements that provide for an excise tax gross-up payment since 2008; and

 
·
We adopted a policy prohibiting our directors and officers (including our NEOs) from engaging in certain hedging and monetization transactions with respect to the Company securities that they hold without prior Board approval. The policy also prohibits our directors and officers (including our NEOs) from engaging in any short sales of the Company’s securities.

We believe that these changes and adjustments to our compensation program align the interests of our NEOs and our stockholders and strengthen our compensation governance framework, which resulted in an overwhelming support of our pay-for-performance compensation program by our stockholders in the 2012 Annual Meeting of Stockholders.

Highlights of our 2012 Financial and Business Performance

Our compensation program promotes and incentivizes strong growth in revenue and profitability.  As a result of management’s push for growth, we are seeing our overall business improve as we realize the benefits of steps taken to introduce innovative products, expand our sales and marketing team and achieve design wins in new high value markets.  We believe that these actions will diversify and sustain our future revenue growth. Major financial highlights in 2012 include:

 
·
Revenue grew 8.8% to $213.8 million in 2012, outperforming the analog industry with the Semiconductor Industry Association estimating that total analog industry revenue shrank 7.2%.

 
·
Gross margin increased from 51.7% in 2011 to 52.9% in 2012.

 
·
Operating income was $17.3 million in 2012, representing a 28.8% increase over 2011.

 
·
Diluted EPS was $0.43 per share in 2012, representing a 13.2% increase over 2011.

Our most significant recent business achievements in 2012 include:

 
·
We grew revenue in each of our targeted market segments – industrial, computing, and communications.
 
 
·
Our performance in the industrial markets was fueled by increased product sales for applications in smart meters and general industrial, as well as commercial LED lighting.  We have seen significant design win activities in building automation, security, appliances, environmental controls and automotive markets.
 
 
·
In the computing markets, we have been able to grow storage revenue and our industry leading point of load products have gained wide acceptance in servers and ultrabooks.
 
 
·
In the communications markets, we introduced additional ease of use power module products targeting high efficiency and space constrained applications.  These products have generated great interest from networking as well as top tier customers in other market segments.
 
 
·
We launched our next generation BCD4 process technology which represents as much as a 50% die size reduction from our BCD3 technology.  BCD3 technology leapfrogged the competition and BCD4 will enable us to deliver the highest power density products in the semiconductor industry greatly reducing system size and complexity.
 
 
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In addition, we have delivered strong total stockholder return, with our stock price increasing 54% in 2012, which is considerably higher than the total stockholder return of our peer group and the PHLX Semiconductor Sector Index, as show in the graph below:
 
The Company is experiencing growth in revenues and is well positioned for future performance. We believe that our compensation programs are aligned with the interests of our stockholders and provide appropriate incentives for achieving further improvement in our overall business and financial performance.

Compensation Objectives

Our Compensation Committee believes that our executive compensation program is effective because it is designed to reward the achievement of specific annual, long-term and strategic goals, and that in so doing the program aligns the interests of our NEOs with the interests of our stockholders over the long term.  We seek to reward performance that meets or exceeds established goals, with the ultimate objective of increasing stockholder value. In order to achieve this goal, the compensation programs that are applicable to the NEOs are designed and implemented to retain, motivate and reward our executives for sustained financial and operating performance and leadership excellence, while at the same time aligning the interests of the NEOs with the interests of our stockholders by linking a significant portion of their total compensation to our achievement of specified short-term and long-term performance goals.

We maintain a balance of short-term and long-term compensation elements to encourage decision-making that optimizes short-term results and, at the same time, is in keeping with the long-term goals of the Company. As described in more detail under “― Executive Compensation Components ” below, our key compensation elements consist of salary, long-term equity awards and short-term cash incentive compensation.  We combine these compensation elements for each NEO in a manner that we believe optimizes the executive’s overall contribution to the Company and its stockholders.

Our Compensation Committee also considers potential risks when reviewing and approving compensation programs and takes steps to limit incentives that would encourage excessive levels of risk.  With the assistance of independent compensation consultants, our Compensation Committee evaluated our compensation programs, policies and decisions in 2012 and determined that:
 
 
·
compensation levels remain at competitive levels for our CEO and the other NEOs;
 
 
·
the compensation provided to our NEOs remains consistent with the level of performance delivered by the Company and our NEOs individually; and
 
 
·
the mix of cash and equity-based compensation with different performance measurement criteria provides the proper incentive to our NEOs without encouraging excessive risk taking.
 
 
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The Roles of the Compensation Committee and the CEO 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 the CEO and the other NEOs. The Compensation Committee Charter, which is available in the “Investor Relations” section of our website at http://www.monolithicpower.com, was originally adopted on October 26, 2007, and is updated periodically.  The Compensation Committee meets on no less than a quarterly basis and has the authority to delegate any of its responsibilities to subcommittees as appropriate.  In 2012, the Compensation Committee met six times.
 
For 2012, the Compensation Committee independently evaluated the performance of the CEO and determined CEO compensation in light of the goals and objectives of the compensation program. In 2012, the CEO and the Compensation Committee together assessed the performance of the other NEOs.  The Compensation Committee then determined the other NEOs’ compensation based on initial recommendations from the CEO. The other NEOs discussed their individual performance objectives with the CEO, but they did not play a role in their own compensation determinations. In 2012, the Company’s CEO attended a portion of all of the meetings of the Compensation Committee but departed each meeting prior to any discussion of his own compensation. The Compensation Committee also regularly met in closed session without the CEO or other management personnel present.

Compensation Consultants

In 2012, the Compensation Committee retained Meyercord & Associates as the compensation consultant to the Committee with respect to the Company’s non-employee director and executive compensation programs. Meyercord & Associates did not perform any other work for the Company for which it received compensation in excess of $120,000. The Compensation Committee periodically seeks input from Meyercord & Associates on a range of external market factors, including evolving compensation trends, appropriate peer companies and market survey data.  Meyercord & Associates also provides general observations on the Company’s compensation programs, but it does not determine the amount or form of compensation for the NEOs.  See the discussion below under the heading “Determining Compensation for 2012” for a description of the services provided by Meyercord & Associates to the Compensation Committee relating to 2012 compensation of our NEOs.  The Compensation Committee has assessed the independence of Meyercord & Associates pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Meyercord & Associates from serving as an independent consultant to the Compensation Committee.
 
 
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Executive Compensation Components

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

Compensation Component
Objectives Associated with the
Compensation Component
Key Features of the
Compensation Component
Base salary
Designed to reward individual effort associated with job-related duties and to attract and retain talented executive officers.
Paid in cash.
 
The Compensation Committee annually reviews and determines the base salary of our NEOs in consultation with our CEO. Base salaries are evaluated in the context of competitive conditions as indicated by an analysis of salary practices at our peer companies, discussed below.
 
Short-term cash
incentive compensation
Designed to encourage outstanding individual and Company performance by motivating the NEOs to achieve short-term Company and individual goals.
Paid in cash as bonus based on the achievement of the Company’s operating income targets, as well as achieving certain corporate and individual goals.
 
The Compensation Committee believes that the performance criteria in the plan and the weighting between individual and company performance reflects best practices for achieving a desirable balance across company, team and individual performance and seeks to align the financial interests of the Company’s executives with those of the Company’s stockholders. Our short-term cash incentive compensation is subject to our clawback policy, which requires 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 cash compensation awards were based are restated due to fraud or intentional misconduct by the executive.
 
Long-term incentive compensation
•  
Designed to align the interests of our executives with the interests of the stockholders focusing on the Company’s long-term revenue performance and stockholder return.
Our long-term incentive compensation consists of restricted stock units (“RSUs”). In determining the number of RSUs granted to each of the NEOs, the Compensation Committee establishes the aggregate value of the RSUs granted based on an individual multiple of each NEO’s target cash compensation. The multiple was determined based on the position and responsibility of each NEO.

In 2012, 50% of the equity compensation payable to our NEOs, as determined by the Compensation Committee, is in the form of performance-based awards, rather than awards which vest based on the passage of time. The performance metrics for these awards are based on the Company’s long-term revenue performance, as pre-set at the beginning of the performance period by the Board, and the Company’s performance relative to its peers, as measured by total stockholder return.

Determining Compensation for 2012

In 2012, Meyercord & Associates reviewed the Company’s executive compensation program, focusing on improving the program’s effectiveness in support of the Company’s long-term growth and business strategy. Meyercord & Associates participated in the Compensation Committee meetings and Board meetings involving discussions related to executive compensation and made recommendations including timetables of implementing changes after careful studies of the Company’s executive compensation history and thorough understandings of the Company’s compensation philosophy, as well as its short-term and long-term business objectives of profitability and return to stockholders.
 
 
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As part of the reviews, Meyercord & Associates recommended an industry peer group consisting of 18 publicly traded semiconductor companies with revenues between 0.5 times and 2 times of the Company’s revenue for the most recent four quarters.  Meyercord & Associates developed the peer group, with the assistance of management and the Compensation Committee.  The peer group consisted of:

2012 Industry Peer Group Companies
Anadigics, Inc.
Applied Micro Circuits Corporation
Cavium, Inc.
DSP Group, Inc.
Entropic Communications, Inc.
Exar Corporation
Hittite Microwave Corporation
Lattice Semiconductor Corporation
LTX-Credence Corporation
Micrel, Inc.
PLX Technology, Inc.
Pericom Semiconductor Corporation
Power Integrations, Inc.
Rudolph Technologies, Inc.
Sigma Designs, Inc.
Silicon Image, Inc.
Vitesse Semiconductor Corporation
Volterra Semiconductor Corporation

 In making 2012 compensation decisions, this peer group provided a relevant gauge of compensation levels, taking into account that the enterprise value should be in similar range of the Company from 50% to 200%. In addition, the peer group indicates the practices of organizations of comparable scope and focus and provides a reference point for establishing corporate performance expectations for our compensation programs.

The chart below illustrates the CEO’s total compensation components during the period from 2008 to 2012, which reflects how the CEO’s total compensation from 2008 to 2010 varied dramatically in large measure due to variations in annual equity grant dates for stock options and restricted stock units.  Because no equity awards had been granted during 2009, the 2010 grants were larger than what might have otherwise been granted.  Beginning in 2011, we grant annual performance equity awards in the beginning months of the year.
 
 
25

 

 
(1)
On December 11, 2012, the Company’s Board declared a special cash dividend of $1.00 per common share, which was paid on December 28, 2012 to all stockholders of record as of the close of business on December 21, 2012.  Holders of unvested RSUs and outstanding options did not receive this special cash dividend, but the Company’s Board approved a modification of unvested RSUs whereby the number of units covered by each unvested RSU as of December 28, 2012 was increased by a ratio of 1.0471.  In addition, the Board approved a modification whereby the number of shares subject to each outstanding option as of December 28, 2012 was increased by a ratio of 1.0471 with a corresponding reduction in the exercise price.  The purpose of the adjustments was to prevent dilution in the value of the awards due to the decrease in share value resulting from the dividend. The dividend adjustments reflect the incremental fair value as a result of the modifications, computed in accordance with FASB ASC Topic 718.

Analysis of 2012 Compensation Elements

Based on the recommendations of Meyercord & Associates, the Compensation Committee decided to significantly change the Company’s executive compensation program for 2012.  These changes reflect the Company’s commitment to provide the NEOs with market competitive compensation that closely aligns the interests of the NEOs with those interests of our stockholders.

Base Salaries .   We generally seek to set our executives’ base salaries each year at levels which are competitive with our peer companies based on each individual executive’s role and the scope of his or her responsibilities, also taking into account the executive’s experience and the base salary levels of other executives within the Company. The Compensation Committee typically reviews base salaries every fiscal year and adjusts base salaries to take into account competitive market data, company and individual performance from the prior fiscal year and promotions or changes in responsibilities. For 2012, we benchmarked base salaries at the 50th percentile of our peer group.

The NEO’s base salaries for 2012, compared to 2011, were as follows:

NEOs
 
2012
Base Salary
   
2011
Base Salary
   
% Increase
 
Michael Hsing
  $ 448,000     $ 400,000       12 %
Meera Rao
  $ 260,000     $ 260,000       0 %
Deming Xiao
  $ 340,000     $ 320,000       6 %
Maurice Sciammas
  $ 300,000     $ 300,000       0 %
Saria Tseng
  $ 300,000     $ 260,000       15 %

For 2012, the base salary for Mr. Hsing increased 12% in view of the lack of any increase in Mr. Hsing’s base salary over the last four years and, as discussed in more detail below, the recent reduction in Mr. Hsing’s target cash bonus opportunity under our short-term incentive compensation program.  The base salary for Mr. Xiao increased 6% to better align his pay with increased responsibilities in business operations and competitive considerations in the marketplace.  The base salary for Ms. Tseng increased 15% to better align her pay with increased responsibilities in legal affairs and strategic corporate development, as well as competitive considerations in the marketplace.

Short-Term Cash Incentive Compensation .  In 2012, the Compensation Committee established cash incentive compensation (“bonus”) opportunities for our NEOs based on the Company meeting certain operating income performance targets as well as the Company and the NEOs achieving certain corporate and individual goals during 2012. The Compensation Committee felt that the performance criteria in the short-term cash incentive program and the weighing between individual and Company performance metrics reflected best practices for achieving a desirable balance across the Company, team and individual performance and aligned the financial interests of the Company’s executives with those of the Company’s stockholders.

For 2012, the Compensation Committee decided to use non-GAAP operating income as the sole performance metric for determining the Company performance element of the short-term incentive compensation.  The Compensation Committee believes that non-GAAP operating income best reflects of our short-term performance for the purposes of determining the bonus level.  For the purposes of this performance metric, non-GAAP operating income is defined as GAAP operating income less stock-based compensation expense and any extraordinary one-time charges. The plan has variable performance payouts based on achieving the financial and discretionary goals.

The plan structure for 2012 was as follows:

 
1.
A target financial bonus as a percentage of base salary was established for each of the NEOs based on the approved annual operating plan. If the Company achieved 80% or less of the target non-GAAP operating income, zero financial bonus would be earned. If the Company achieved $27.4 million in non-GAAP operating income, then 100% of the target financial bonus would be earned. If the Company achieved 115% of the target non-GAAP operating income, then the maximum financial bonus would be earned.  The Compensation Committee elected to reduce the maximum financial bonus from  250% of target in 2011 to 200% of target in 2012. If the Company achieved results between the maximum and target or target and threshold levels, then the amount of payout would be determined based on straight-line mathematical interpolation.
 
 
26

 
 
 
2.
The CEO’s total target bonus opportunity was reduced from 125% of base salary in 2011 to 100% of base salary in 2012, which was based on the Company’s non-GAAP operating income and the Company’s overall performance as determined by the Compensation Committee and approved by the Board.

 
3.
For the rest of the NEOs for 2012, their total target bonus consisted of two components: a financial bonus and a bonus based on the achievement of management objectives (“MBOs”). In addition, the CEO could recommend that the Compensation Committee award a special discretionary bonus not to exceed 10% of each NEO’s target bonus for extraordinary performance.  Specifically,

 
a.
The total target bonus for each other NEO was 80% of the executive’s annual base salary;

 
b.
The financial bonus accounted for 50% of the NEO’s total target bonus and was to be earned in equal amounts based on the Company’s non-GAAP operating income targets, as established in the approved annual operating plan (see #1 above).

 
c.
The MBO bonus accounted for 50% of the NEO’s total target bonus and was to be earned based on achievement of each officer’s individual management objectives, as determined by the CEO and approved by the Compensation Committee.

For 2012, the Company’s actual non-GAAP operating income exceeded 115% of the target non-GAAP operating income, which resulted in the maximum bonus payout (200%) of the target financial bonus.  The Compensation Committee has the authority to reduce the amounts payable in its discretion (but not the authority to increase such amounts), and the Compensation Committee concluded that it is in the best interests of the Company and its stockholders to reduce the amounts paid to equal the amounts shown in the table below.

NEOs
 
Total
Target
Bonus
   
Total
Bonus
Achieved
   
Actual
Bonus Payout Approved by the Compensation Committee
 
Michael Hsing
  $ 448,000     $ 896,000     $ 841,260  
Meera Rao
  $ 208,000     $ 332,800     $ 309,693  
Deming Xiao
  $ 272,000     $ 435,200     $ 354,138  
Maurice Sciammas
  $ 240,000     $ 384,000     $ 365,338  
Saria Tseng
  $ 240,000     $ 384,000     $ 375,338  

Overall, our Compensation Committee may, in its discretion, reduce the amount of bonus otherwise payable to our NEOs under our short-term non-equity incentive compensation program.  Our Compensation Committee has, in the past, exercised its negative discretion several times and reduced a significant portion of the cash bonus payouts that were earned under the pre-established financial objectives.  In those instances, the executives would have been entitled to incentive bonuses well in excess of the target bonuses.  The Compensation Committee exercised its negative discretion for various reasons.  For example, in recognition of the difficulty of setting performance targets during the depth of the recession and financial crisis, the Compensation Committee would evaluate the market condition and the Company’s financial performance in totality and adjust the payout amount downward. We believe that such actions demonstrate alignment between the interests of our management team and stockholders. However, our Compensation Committee has never exercised upward discretion to adjust cash incentive payout exceeding maximum bonus even when the Company has outperformed target metrics and ranked highest among its peer group, because the Compensation Committee believes that the rewards to our executives will be reflected in the Company’s long-term equity performance.

Long-Term Equity Incentive Compensation .   Long-term equity awards are designed to reward and retain our valued executives, to help us effectively compete for executives that can strategically position the Company for future growth and financial success, and to encourage our executives to focus on achieving long-term development goals for the future.
 
 
27

 

            In determining the number of RSUs granted to each of the NEOs, the Compensation Committee establishes the aggregate value of the RSUs granted based on the application of an individual multiple to each NEO’s target cash compensation. The Compensation Committee selects the individual multiple based on the position and responsibility of each of the NEOs and the extent to which each of these officers was viewed as being able to develop the vision, drive the strategy and affect certain cost savings for the Company at large.

In 2012, the Board granted the following equity awards to our NEOs:


                     
Dividend Adjustments (1)
       
NEOs
 
Time-Based RSUs
   
Target
Performance Share Units
   
Total
   
Time-Based RSUs and Performance Share Units
   
Stock Options
   
Total Equity Awards
with Dividend Adjustments
 
Michael Hsing
    76,451       76,450       152,901       13,353       27,057       193,311  
Meera Rao
    22,244       22,243       44,487       3,764       1,429       49,680  
Deming Xiao
    32,724       32,723       65,447       5,110       12,721       83,278  
Maurice Sciammas
    25,666       25,665       51,331       3,905       13,901       69,137  
Saria Tseng
    25,666       25,665       51,331       3,723       3,048       58,102  


 
(1)
On December 11, 2012, the Company’s Board declared a special cash dividend of $1.00 per common share, which was paid on December 28, 2012 to all stockholders of record as of the close of business on December 21, 2012.  Holders of unvested RSUs and outstanding options did not receive this special cash dividend, but the Company’s Board approved a modification of unvested RSUs whereby the number of units covered by each unvested RSU as of December 28, 2012 was increased by a ratio of 1.0471.  In addition, the Board approved a modification whereby the number of shares subject to each outstanding option as of December 28, 2012 was increased by a ratio of 1.0471 with a corresponding reduction in the exercise price.  The purpose of the adjustments was to prevent dilution in the value of the awards due to the decrease in share value resulting from the dividend. The dividend adjustments reflect the incremental shares granted as a result of the modifications.

The Compensation Committee recognizes that a significant portion of the Company’s long-term equity incentive compensation should be tied to the achievement of Company long-term performance as a means of achieving greater alignment between compensation and performance for the NEOs.  For 2012, the equity awards will vest over a four-year period:

 
·
50% of the RSUs are time-based equity awards which vest quarterly over two years (the “Time-based RSUs”).

 
·
The remaining 50% of the RSU awards is a target number of RSUs to be earned in the first quarter of 2014 upon achievement of a pre-determined performance target (the “PSUs”), half of which will vest when earned, with the remainder vesting quarterly over another two years thereafter.

The amount of PSUs ultimately earned by the NEOs will vary based upon the actual revenue for 2013.  In addition, the amount of PSUs ultimately earned can be adjusted downward based on the Company’s two-year total stockholder return at the end of the performance period.  The specific terms of the PSUs are as follows:

 
1.
The performance period will be calendar years 2012 and 2013.  Achievement of the pre-established performance metric will be determined based on the annual financial results for 2013, and the relative TSR of the Company as compared to the compensation peer group over the two-year performance period from the beginning of the performance period to the end of 2013.

 
2.
The target performance metric is $225 million in revenue in 2013.  If the target performance metric is met, the NEOs will be eligible to earn 100% of the target PSU awards.

 
3.
The maximum performance metric is $280 million in revenue in 2013.  If the maximum performance metric is met, the NEOs will be eligible to earn 300% of the target PSU awards.

 
4.
If the Company’s revenue is $204 million or below in 2013, the NEOs will earn 0% of the target PSU awards.
 
 
28

 
 
 
5.
If, at the end of the performance period, the Company’s TSR is below the 50 th percentile of the comparative TSR of the compensation peer group and at or above the 25 th percentile of the comparative TSR of the compensation peer group, then the amount of PSUs earned as determined by the achievement of revenue goals as described above will be reduced by another 10% of the amount.

 
6.
If, at the end of the performance period, the Company’s TSR is below the 25 th percentile of the comparative TSR of the compensation peer group, then the amount of PSUs earned as determined by the achievement of revenue goals as described above will be reduced by another 15% of the amount.

 
7.
No upward adjustment will be made to the PSUs earned if the Company’s TSR is at or exceeds the 50 th percentile of the Company’s compensation peer group.

We believe that the changes and adjustments to our compensation program in 2012 align the interests of our NEOs and our stockholders and build upon our strong compensation governance framework.

We have determined that our stockholders should cast an advisory vote on the compensation of our NEOs on an annual basis. Accordingly, our board recommends that you vote “FOR” Proposal 3 at the annual meeting. For more information, see “ Proposal 3 – Advisory Vote on Named Executive Officer Compensation ” in this proxy statement.

Compensation Changes for 2013- Long-Term Equity Incentive Compensation

The Compensation Committee recognizes that a significant portion of the Company’s long-term equity incentive compensation should be tied to the achievement of Company performance as a means of achieving greater alignment between compensation and performance for the NEOs.  Therefore, for 2013, we have increased the portion of RSU awards that is performance-based: 25% of the RSU grants are time-based equity awards which vest quarterly over two years, and the remaining 75% of the RSU awards is a target number of RSUs that can be earned upon achievement of a pre-determined performance target for the Company’s revenue in 2014, half of which will vest when earned, with the remainder vesting quarterly over two years after 2014.  By allocating a larger percentage of total compensation to performance-based equity awards, we have aligned our executive compensation structure with our stockholders’ interests by tying a significant portion of executive’s compensation to the Company’s performance.

Severance and Change-in-Control Arrangements

We have severance arrangements with all of our NEOs pursuant to employment agreements, which provide for such executives to receive certain payments and benefits upon termination of their employment with the Company in certain circumstances, including in connection with a change-in-control. For all change-in-control severance arrangements, the named executive officer 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. A “change-in-control” of the Company refers to 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, or a sale of substantially all our assets. “Cause” is generally defined as: the named executive officer’s failure to perform the duties or responsibilities of his or her employment, the named executive officer personally engaging in illegal conduct that is detrimental to the Company, the named executive officer being convicted of or pleading nolo contendere to a felony or other crime involving moral turpitude, or the named executive officer committing a material act of dishonesty, fraud or misappropriation of property. “Good reason” generally means the named executive officer’s termination of employment following the expiration of any cure period following the occurrence of: a material reduction in compensation (except where a substantially equivalent reduction is applied to all officers of the Company), a material reduction in the named executive officer’s duties, or a material change in the location at which the named executive officer performs services.

The Company implemented the severance and change-in-control arrangements for retention purposes and to ensure the continued loyalty and service of our named executive officers notwithstanding the possibility of a termination or severance. These arrangements were subjectively determined through negotiations with each named executive officer and are discussed in “ Potential Payments Upon Termination or Termination Upon Change-in-Control ” below.

Other Compensation
 
The Compensation Committee does not provide compensation packages for our executives that include many perquisites. Further, we do not provide our executives with deferred compensation plans or defined benefit plans, other than our 401(k) plan for which our Company does not make a matching contribution. The Company also offers a number of other benefits to named executive officers pursuant to benefit programs that provide for broad-based employee participation. These benefit programs include the Employee Stock Purchase Program, 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 named executive officers or other employees.
 
 
29

 

Stock Ownership Guidelines

In February 2012, the Compensation Committee established stock ownership guidelines for our executive officers and directors. These guidelines reinforce the importance of aligning the interests of our executive officers and directors with the interests of our stockholders.
 
For the executive officers, the guidelines are determined as a multiple of each executive officer’s base salary, and then converted to a fixed number of shares.   The multiples applicable to our NEOs are as follows:  
 

NEOs
  
Stock Ownership
Guideline
 
Michael Hsing
  
 
5 x base salary
  
Meera Rao
  
 
2 x base salary
  
Deming Xiao
  
 
2 x base salary
  
Maurice Sciammas
  
 
2 x base salary
  
Saria Tseng
  
 
2 x 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 the Company’s 401(k), or acquired through the 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 . All of the named executive officers currently meet 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.  The guideline for the non-employee directors is set at two (2) times each of the non-employee director’s annual retainer.  These guidelines are initially determined as of the later of the date these Stock Ownership Guidelines were adopted and the date the non-employee director was elected to the Board.

Policy Regarding Clawback of Incentive Compensation

In February 2012, the board of directors adopted a Compensation Recoupment Policy, which requires the Board of Directors 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 of Directors determines, in its sole discretion, that it is in the best interests of the Company and its stockholders for the executive to repay or forfeit all or any portion of the subject performance-based cash  compensation.  
 
Equity Incentive Granting Policies

For a discussion of our equity incentive granting process, see the section of this proxy statement entitled “ Equity Incentive Grant Policies” below.

Anti-Hedging and Monetization Transactions and Short Sales

We prohibit our directors and officers (including our named executive officers) from engaging in hedging or monetization transactions with respect to the Company securities that they obtained through the Company’s 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, and we prohibit our officers and directors from engaging in such transactions without prior Board approval.  We also prohibit our directors and officers (including our named executive officers) from engaging in any short sales of the Company’s securities.
 
 
30

 

Tax and Accounting Impacts of Equity Grants
 
In issuing equity incentive grants to our employees, including our named executive officers, the accounting and tax impacts on the Company’s income statement are considered as part of the financial planning process.

Under section 162(m) of the Internal Revenue Code, we may not receive a federal income tax deduction for compensation paid to our CEO or any of the three other most highly compensated executive officers (other than the CFO) employed on the last day of the fiscal year to the extent that any of such persons receive more than $1,000,000 in compensation in the fiscal year. However, if we pay compensation that is “qualified performance-based compensation” under section 162(m), we may be able to receive a federal income tax deduction for the compensation paid even if such compensation exceeds $1,000,000 in a single year. See “Proposal Five - Approval of the Monolithic Power Systems, Inc. Master Cash Performance Bonus Plan ” for the proposal to adopt the Company's master cash performance bonus plan, so that incentive compensation payable to these executive officers may qualify as performance-based compensation for purposes of section 162(m) of the Internal Revenue Code.
 
Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 718 requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of options and RSUs under our equity incentive award plans are accounted for under FASB ASC Topic 718. The Compensation Committee considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

Compensation Committee Report

 The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis with the Company’s management. Based upon such review and discussion, the Compensation Committee recommended to the Company’s Board that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders and its Annual Report on Form 10-K for the year ended December 31, 2012.

Members of the Compensation Committee:

Jeff Zhou, Chairman
Karen A. Smith Bogart
Herbert Chang

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee during 2012 were Karen A. Smith Bogart, Herbert Chang, and Jeff Zhou. No Compensation Committee member was at any time during 2012, or at any other time, an officer or employee of the Company or any of its subsidiaries.  No executive officer of the Company serves on the board or compensation committee of any entity that has one or more executive officers serving on the Company’s Board or Compensation Committee.
 
  Compensation Risk Management

In 2012, the Company’s management, including members from the Company’s internal legal, accounting, finance and human resources departments, undertook a subjective review of the Company’s compensation policies and practices that applied to all of its employees, including the following: annual base salaries, the 2012 Bonus Plan, equity incentive awards under the 2004 Equity Incentive Plan and the Employee Stock Purchase Plan. This review was designed to review, consider and analyze the extent to which, if any, the Company’s compensation policies and practices might create risks for the Company, 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 none of the Company’s compensation policies and practices for its employees creates any risks that are reasonably likely to have a material adverse effect on the Company. The results of the review and management’s determination were reviewed and independently considered by the Compensation Committee, which concurred with management’s assessment.
 
 
31

 

Summary Compensation Table

             The following table sets forth the 2012 compensation and, as applicable, the 2011 and 2010 compensation for our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers, which officers together constitute our NEOs.
 
NEOs
Year
 
Salary
   
Stock Awards
(1)
   
Option Awards
   
Non-Equity Incentive Plan Compensation (2)
   
All Other Compensation
   
Total Excluding Dividend Adjustments (3)
 
Michael R. Hsing
2012
  $ 448,000     $ 2,688,000     $ ---     $ 841,260     $ ---     $ 3,977,260  
 
2011
  $ 400,000     $ 2,400,570     $ ---     $ 455,000     $ ---     $ 3,255,570  
 
2010
  $ 400,000     $ 4,575,500     $ ---     $ 650,000     $ ---     $ 5,625,500  
Meera Rao (4)
2012
  $ 260,000     $ 782,082     $ ---     $ 309,693     $ ---     $ 1,351,775  
 
2011
  $ 253,774     $ 925,710     $ ---     $ 185,000     $ ---     $ 1,364,484  
 
2010
  $ ---     $ ---     $ ---     $ ---     $ ---     $ ---  
Deming Xiao
2012
  $ 340,000     $ 1,150,558     $ ---     $ 354,138     $ 88,089 (6)   $ 1,932,785  
 
2011
  $ 320,000     $ 925,710     $ ---     $ 304,000     $ ---     $ 1,549,710  
 
2010
  $ 317,231     $ 1,381,240     $ ---     $ 360,000     $ ---     $ 2,058,471  
Maurice Sciammas
2012
  $ 300,000     $ 902,399     $ ---     $ 365,338     $ ---     $ 1,567,737  
 
2011
  $ 300,000     $ 768,810     $ ---     $ 260,000     $ ---     $ 1,328,810  
 
2010
  $ 300,000     $ 793,700     $ ---     $ 350,000     $ ---     $ 1,443,700  
Saria Tseng (5)
2012
  $ 300,000     $ 902,399     $ ---     $ 375,338     $ ---     $ 1,577,737  
 
2011
  $ ---     $ ---     $ ---     $ ---     $ ---     $ ---  
 
2010
  $ ---     $ ---     $ ---     $ ---     $ ---     $ ---  
 
(1)
The amounts reflect the aggregate fair value of the awards as of their grant date calculated in accordance with ASC Topic 718.  The value was calculated by multiplying the closing price of the Company’s stock price on the grant date by the number of shares. For more information regarding the 2012 RSU awards, see the “Grants of Plan-Based Awards During the Year Ended December 31, 2012” table below and the “Compensation Discussion and Analysis” section above. The amounts shown exclude the impact of estimated forfeitures related to service-based conditions.  Assumptions used in the calculation of these amounts are included in Note 6 to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 5, 2013.

(2)
The Non-Equity Incentive Plan Compensation amounts for the NEOs for 2012 were based on the Company’s non-equity incentive plan, the details o f which are disclosed in the “Compensation Discussion and Analysis ― Short-Term Cash Incentive Compensation” section above. These amounts have been approved by the Compensation Committee and take into consideration each individual’s performance as well as the Company’s achievement of non-GAAP operating income for the year ended December 31, 2012.

(3)
On December 11, 2012, the Company’s Board declared a special cash dividend of $1.00 per common share, which was paid on December 28, 2012 to all stockholders of record as of the close of business on December 21, 2012.  Holders of unvested RSUs and outstanding options did not receive this special cash dividend, but the Company’s Board approved a modification of unvested RSUs whereby the number of units covered by each unvested RSU as of December 28, 2012 was increased by a ratio of 1.0471.  In addition, the Board approved a modification whereby the number of shares subject to each outstanding option as of December 28, 2012 was increased by a ratio of 1.0471 with a corresponding reduction in the exercise price. The purpose of the adjustments was to prevent dilution in the value of the awards due to the decrease in share value resulting from the dividend. The incremental fair value as a result of the modifications, computed in accordance with FASB ASC Topic 718, is as follows:
 
NEOs
Year
 
Stock
Awards
   
Option
Awards
   
Total Dividend Adjustments
 
Michael R. Hsing
2012
  $ 288,158     $ 488,582     $ 776,740  
 
2011
  $ ---     $ ---     $ ---  
 
2010
  $ ---     $ ---     $ ---  
Meera Rao
2012
  $ 81,226     $ 26,809     $ 108,035  
 
2011
  $ ---     $ ---     $ ---  
 
2010
  $ ---     $ ---     $ ---  
Deming Xiao
2012
  $ 110,274     $ 239,976     $ 350,250  
 
2011
  $ ---     $ ---     $ ---  
 
2010
  $ ---     $ ---     $ ---  
Maurice Sciammas
2012
  $ 84,269     $ 259,600     $ 343,869  
 
2011
  $ ---     $ ---     $ ---  
 
2010
  $ ---     $ ---     $ ---  
Saria Tseng
2012
  $ 80,343     $ 58,721     $ 139,064  
 
2011
  $ ---     $ ---     $ ---  
 
2010
  $ ---     $ ---     $ ---  
 
 
32

 
(4)
Ms. Rao became an NEO on her promotion to Chief Financial Officer in January 2011.

(5)
Ms. Tseng became an NEO in 2012.

(6)
This amount represents the Company’s reimbursement to Mr. Xiao’s housing expenses in Chengdu, China in connection with his extended stay in China due to his increased responsibilities.

Grants of Plan-Based Awards For the Year Ended December 31, 2012
 
         
Estimated future payouts under non-equity incentive plan awards (1)
   
Estimated future payouts under equity incentive plan awards (2)
   
All other
stock awards:
   
All other option awards:
   
Exercise
or base
   
Grant date
fair value
 
Name
 
Grant Date
   
Threshold
   
Target
   
Maximum
   
Threshold (#)
   
Target
(#)
   
Maximum
(#)
   
number of
shares of
stock or
units (#)
   
 number of securities
underlying
options (#)
   
price of
option
awards
($/sh)
   
of stock
and
option
awards
 
Michael Hsing
  -     $ 0     $ 448 000     $ 896,000       -       -       -       -       -       -       -  
   
2/14/2012
      -       -       -       0       76,450       229,350       -       -       -     $ 1,343,991  
   
2/14/2012
      -       -       -       -       -       -       76,451       -       -     $ 1,344,009  
   
12/28/2012 (3)
      -       -       -       -       -       -       2,941       -       -     $ 63,467  
   
12/28/2012 (3)
      -       -       -       -       -       -       514       -       -     $ 11,092  
   
12/28/2012 (3)
      -       -       -       -       -       -       4,050       -       -     $ 87,399  
   
12/28/2012 (3)
      -       -       -       -       -       -       3,600       -       -     $ 77,688  
   
12/28/2012 (3)
      -       -       -       -       -       -       2,248       -       -     $ 48,512  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       5,882     $ 12.40     $ 123,054  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       3,529     $ 17.92     $ 55,216  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       3,529     $ 14.89     $ 63,010  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       14,117     $ 15.03     $ 247,302  
Meera Rao
  -     $ 0     $ 208,000     $ 332,800       -       -       -       -       -       -       -  
   
2/14/2012
      -       -       -       0       22,243       66,729       -       -       -     $ 391,032  
   
2/14/2012
      -       -       -       -       -       -       22,244       -       -     $ 391,050  
   
12/28/2012 (3)
      -       -       -       -       -       -       441       -       -     $ 9,517  
   
12/28/2012 (3)
      -       -       -       -       -       -       61       -       -     $ 1,316  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,561       -       -     $ 33,686  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,047       -       -     $ 22,594  
   
12/28/2012 (3)
      -       -       -       -       -       -       654       -       -     $ 14,113  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       1,429     $ 12.92     $ 26,809  
Deming Xiao
  -     $ 0     $ 272,000     $ 435,200       -       -       -       -               -       -  
   
2/14/2012
      -       -       -       0       32,723       98,169       -       -       -     $ 575,270  
   
2/14/2012
      -       -       -       -       -       -       32,724       -       -     $ 575,288  
   
12/28/2012 (3)
      -       -       -       -       -       -       882       -       -     $ 19,034  
   
12/28/2012 (3)
      -       -       -       -       -       -       164       -       -     $ 3,539  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,561       -       -     $ 33,686  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,541       -       -     $ 33,255  
   
12/28/2012 (3)
      -       -       -       -       -       -       962       -       -     $ 20,760  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       80     $ 10.41     $ 1,660  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       2,127     $ 10.41     $ 43,934  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       3,294     $ 11.31     $ 71,046  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       1,882     $ 17.92     $ 29,448  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       1,103     $ 14.89     $ 19,698  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       4,235     $ 15.03     $ 74,190  
Maurice Sciammas
  -     $ 0     $ 240,000     $ 384,000       -       -       -       -       -       -       -  
   
2/14/2012
      -       -       -       0       25,665       76,995       -       -       -     $ 451,191  
   
2/14/2012
      -       -       -       -       -       -       25,666       -       -     $ 451,208  
   
12/28/2012 (3)
      -       -       -       -       -       -       441       -       -     $ 9,517  
   
12/28/2012 (3)
      -       -       -       -       -       -       205       -       -     $ 4,423  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,297       -       -     $ 27,989  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,208       -       -     $ 26,069  
   
12/28/2012 (3)
      -       -       -       -       -       -       754       -       -     $ 16,271  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       956     $ 8.90     $ 19,877  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       3,043     $ 8.90     $ 63,276  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       1,882     $ 11.31     $ 40,595  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       2,682     $ 17.92     $ 41,964  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       1,103     $ 14.89     $ 19,698  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       4,235     $ 15.03     $ 74,190  
Saria Tseng
  -     $ 0     $ 240,000     $ 384,000       -       -       -       -       -       -       -  
   
2/14/2012
      -       -       -       0       25,665       76,995       -       -       -     $ 451,191  
   
2/14/2012
      -       -       -       -       -       -       25,666       -       -     $ 451,208  
   
12/28/2012 (3)
      -       -       -       -       -       -       441       -       -     $ 9,517  
   
12/28/2012 (3)
      -       -       -       -       -       -       288       -       -     $ 6,215  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,032       -       -     $ 22,271  
   
12/28/2012 (3)
      -       -       -       -       -       -       1,208       -       -     $ 26,069  
   
12/28/2012 (3)
      -       -       -       -       -       -       754       -       -     $ 16,271  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       894     $ 7.64     $ 19,068  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       884     $ 15.28     $ 15,734  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       329     $ 14.93     $ 5,864  
   
12/28/2012 (3)
      -       -       -       -       -       -       -       941     $ 12.42     $ 18,055  
 
33

 
 
(1)
Amounts shown reflect the threshold, target, and maximum awards under the short-term cash incentive compensation program, which is described in detail in the “Analysis of 2012 Compensation Elements - Short-term Cash Incentive Compensation” section above.

(2)
Amounts shown reflect the threshold, target, and maximum number of shares that may be earned under the long-term equity incentive compensation program, which is described in detail in the “Analysis of 2012 Compensation Elements - Long-Term Equity Incentive Compensation” section above.

(3)
On December 11, 2012, the Company’s Board declared a special cash dividend of $1.00 per common share, which was paid on December 28, 2012 to all stockholders of record as of the close of business on December 21, 2012.  Holders of unvested RSUs and outstanding options did not receive this special cash dividend, but the Company’s Board approved a modification of unvested RSUs whereby the number of units covered by each unvested RSU as of December 28, 2012 was increased by a ratio of 1.0471.  In addition, the Board approved a modification whereby the number of shares subject to each outstanding option as of December 28, 2012 was increased by a ratio of 1.0471 with a corresponding reduction in the exercise price. The purpose of the adjustments was to prevent dilution in the value of the awards due to the decrease in share value resulting from the dividend. The grant date fair value reflects the incremental fair value as a result of the modifications, computed in accordance with FASB ASC Topic 718.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards During the Year Ended December 31, 2012

A discussion of 2012 salaries, incentive plans and awards is set forth under the “Compensation Discussion and Analysis” section above, including a discussion of the material terms and conditions of the RSUs.
 
Equity Incentive Grant Policies
 
We maintain the Monolithic Power Systems Equity Award Grant Policy, which is designed to comply with: (1) the administrative provisions of the Company’s 2004 Equity Incentive Plan and such other plans as the Company 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, including Sections 422 (incentive stock options), 409A (deferred compensation) and 162(m) (performance based compensation). Grants to our named executive officers are made pursuant to this policy, must be approved by the Board and will only be granted at specific times during the year, as described in further detail below.
 
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 named executive officers. 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 first Monday and third Monday of each month. Management submits the Company’s employee equity award recommendations to the Equity Award Committee and/or the Compensation Committee and, if such equity awards are approved by the Equity Award Committee or 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. In the event that the Compensation Committee meets on any date other than the first Monday or third Monday of the month, the awards approved at such meeting for newly hired employees who are not Executive Officers will be granted and priced effective as of the next scheduled grant date.
 
 
34

 
 
New hire grants made to “Executive Officers” (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) may not be granted by the Equity Award Committee and 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.
 
Equity Grants to Existing Employees or Incumbent Members of the Board
 
Generally, annual grants of equity awards shall be made to key performers quarterly at a regularly scheduled Board meeting for employees who are not Executive Officers. Grants of equity awards to Executive Officers shall be made up to four times per year in an open trading window by the Board or the Compensation Committee at a regularly scheduled meeting following the approval of such equity awards by the Compensation Committee to help avoid making such grants at a time when the Company’s trading market may not be in possession of material information regarding the Company.
 
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 2012 Year-End

The following table sets forth, as to the named executive officers, certain information concerning their outstanding equity awards at December 31, 2012.  The market value of the stock awards that have not vested is based on the closing market price of our common stock of $22.28 on December 31, 2012.
 
   
Options Awards
   
Stock Awards
 
NEOs
 
Stock
Options
Grant Date
   
Number of
Securities
Underlying
Unexercised
Options (#)
 Exercisable