7. STOCK-BASED COMPENSATION

2014 Equity Incentive Plan 

In  April 2013, the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company’s stockholders approved in  June 2013. In  October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on  November 13, 2014 and provided for the issuance of up to 5.5 million shares. In  April 2020, the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”), which the Company's stockholders approved in  June 2020. The Amended and Restated 2014 Plan became effective on  June 11, 2020 and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on  June 11, 2030. As of  December 31, 2022, 4.6 million shares remained available for future issuance under the Amended and Restated 2014 Plan.  

Stock-Based Compensation Expense

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

(1) Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162(m) of the IRC.

RSUs

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

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

The intrinsic value related to vested RSUs was $336.8 million, $381.2 million and $326.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the total intrinsic value of all outstanding RSUs was $939.5 million, based on the closing stock price of $353.61. As of December 31, 2022, unamortized compensation expense related to all outstanding RSUs was $218.8 million with a weighted-average remaining recognition period of approximately two years. 

Cash proceeds from vested PSUs with a purchase price totaled $5.4 million, $17.3 million and $18.8 million for the years ended  December 31, 2022, 2021 and 2020, respectively. 

Time-Based RSUs

For the years ended December 31, 2022, 2021 and 2020, the Compensation Committee granted 49,000, 46,000 and 76,000 RSUs, respectively, with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued service with the Company.

PSUs and MPSUs

2022 PSUs:

In February 2022, the Compensation Committee granted 81,000 PSUs to the executive officers, which represented a target number of shares that could be earned subject to the achievement of two sets of performance goals (“2022 Executive PSUs”). For the first goal, the executive officers could earn up to 300% of the target number of the 2022 Executive PSUs based on the achievement of the Company’s average two-year (2022 and 2023) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association. 50% of the 2022 Executive PSUs would vest in the first quarter of 2024 if the pre-determined revenue goal was met during the performance period. The remaining 2022 Executive PSUs would vest over the following two years on a quarterly basis. For the second goal, the executive officers could earn up to an additional 200% of the target number of the 2022 Executive PSUs if the Company secured additional wafer capacity during a three-year performance period. The 2022 Executive PSUs related to the second goal would fully vest in the first quarter of 2025 if the pre-determined goal was met during the performance period. In addition, all vested shares related to the second goal would be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2022 Executive PSUs would be $142.7 million. The 2022 Executive PSUs were subsequently cancelled by the Board of Directors in October 2022. See the “2022 MSUs” section for further details.

In February 2022, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned subject to the achievement of the Company’s 2023 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two-year (2022 and 2023) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2022 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2022 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2022 Non-Executive PSUs will vest in the first quarter of 2024 if the pre-determined goals are met during the performance period. The remaining 2022 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2022 Non-Executive PSUs is $12.6 million.

The 2022 Executive PSUs and the 2022 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during 2022 and 2023 is $30 higher than the grant date stock price of $393.16. This market condition was achieved in the first quarter of 2022. The Company determined the grant date fair value of the 2022 Executive PSUs for the first goal and the 2022 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $393.16, simulation term of four years, expected volatility of 44.6%, risk-free interest rate of 1.5%, and expected dividend yield of 0.8%. In addition, for the 2022 Executive PSUs related to the second goal, the fair value was determined based on the closing stock price at the end of each reporting period, adjusted for accrued dividends and an illiquidity discount of 10.3% to account for the post-vesting sales restrictions.

2021 PSUs:

In February 2021, the Compensation Committee granted 80,000 PSUs to the executive officers, which represented a target number of shares that could be earned subject to the achievement of two sets of performance goals (“2021 Executive PSUs”). For the first goal, the executive officers could earn up to 300% of the target number of the 2021 Executive PSUs based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association. Based on the actual revenue achievement at the end of the performance period, a total of 240,000 shares were awarded to the executive officers. 50% of the 2021 Executive PSUs will vest in the first quarter of 2023. The remaining 2021 Executive PSUs will vest over the following two years on a quarterly basis. For the second goal, the executive officers could earn an additional 100% of the target number of the 2021 Executive PSUs subject to the achievement of three environmental objectives under the Company’s ESG initiatives with a performance period through December 31, 2023. As of December 31, 2022, one environmental objective was achieved and a total of 20,000 shares were awarded to the executive officers. The 2021 Executive PSUs related to the ESG goal will fully vest upon achievement of the objectives, but no earlier than December 31, 2022. All vested shares related to the ESG goal will be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2021 Executive PSUs is $114.4 million.

In February 2021, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned subject to the achievement of the Company’s 2022 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2021 Non-Executive PSUs”). The maximum number of shares that an employee could earn is either 200% or 300% of the target number of the 2021 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 33,000 shares were awarded to the non-executive employees. 50% of the 2021 Non-Executive PSUs will vest in the first quarter of 2023. The remaining 2021 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2021 Non-Executive PSUs is $12.2 million.

The 2021 Executive PSUs and the 2021 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time between the grant date and December 31, 2022 was $30 higher than the grant date stock price of $374.57. This market condition was achieved in the third quarter of 2021. The Company determined the grant date fair value of the 2021 Executive PSUs and the 2021 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $374.57, simulation term of 4.0 years, expected volatility of 41.4%, risk-free interest rate of 0.3%, and expected dividend yield of 0.6%. In addition, the grant date fair value for the 2021 Executive PSUs subject to the ESG goal included an illiquidity discount of 9.8% to account for the post-vesting sales restrictions.

2020 PSUs:

In  February 2020, the Compensation Committee granted 100,000 PSUs to the executive officers, which represented a target number of shares that could be earned based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2020 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number of the 2020 Executive PSUs.  Based on the actual revenue achievement at the end of the performance period, a total of 300,000 shares were awarded to the executive officers. 50% of the 2020 Executive PSUs vested in the first quarter of 2022. The remaining 2020 Executive PSUs vest over the following two years on a quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2020 Executive PSUs is $51.1 million.

In  February 2020, the Compensation Committee granted 30,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2021 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2020 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2020 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 71,000 shares were awarded to the non-executive employees. 50% of the 2020 Non-Executive PSUs vested in the first quarter of 2022. The remaining 2020 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2020 Non-Executive PSUs is $12.1 million.

The 2020 Executive PSUs and the 2020 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during the performance period was $30 higher than the grant date stock price of $182.62. This market condition was achieved in the second quarter of 2020. The Company determined the grant date fair value of the 2020 Executive PSUs and the 2020 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $182.62, simulation term of 2.0 years, expected volatility of 33.6%, risk-free interest rate of 1.4%, and expected dividend yield of 1.1%. 

2020 MPSUs:

In  July 2020, the Compensation Committee granted 43,000 MPSUs to the executive officers and 2,000 MPSUs to certain key employees, which represented a target number of shares that could be earned based on the achievement of both market and performance conditions (“2020 MPSUs”).  The maximum number of shares that an employee could earn was 500% of the target number of the 2020 MPSUs. The market conditions consisted of five stock price targets ranging from $260 to $300 with a performance period through  July 20, 2023, and the performance condition consisted of one business operating goal related to a revenue target for certain customers with a performance period through  December 31, 2021. As of December 31, 2020, the Company has achieved all five price targets and the operating goal, and a total of 221,000 shares were awarded to the employees. 75% of the 2020 MPSUs will vest on  July 20, 2023 and 25% of the 2020 MPSUs will vest on  July 20, 2024. All vested shares will be subject to a post-vesting sales restriction period of one year. Based on the actual achievement of the market and performance goals, the total stock-based compensation cost for the 2020 MPSUs is $42.1 million.

The Company determined the grant date fair value of the 2020 MPSUs using a Monte Carlo simulation model with the following assumptions: stock price of $248.71, simulation term of 4.0 years, expected volatility of 38.8%, risk-free interest rate of 0.2%, and expected dividend yield of 0.8%. In addition, the grant date fair value included an illiquidity discount of 8.9% to account for the post-vesting sales restrictions.

2019 PSUs:

In  February 2019, the Compensation Committee granted 151,000 PSUs to the executive officers, which represented a target number of shares that could be earned based on the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number of the 2019 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 454,000 shares were awarded to the executive officers. 50% of the 2019 Executive PSUs vested in the first quarter of 2021. The remaining 2019 Executive PSUs vest over the following two years on a quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2019 Executive PSUs is $46.6 million.

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

In  October 2018, the Compensation Committee granted 53,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2020 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2019 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 100,000 shares were awarded to the employees. 50% of the 2019 Non-Executive PSUs vested in the first quarter of 2021. The remaining 2019 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2019 Non-Executive PSUs is $8.1 million.

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

MSUs

2022 MSUs:

In October 2022, the Compensation Committee cancelled the 2022 Executive PSUs and granted 159,000 MSUs to the executive officers as replacement awards, which represent a target number of shares that can be earned subject to the achievement of both stock price targets and stock performance compared to the companies comprising the Philadelphia Semiconductor Sector Index (“Peer Group”) over a three-year performance period from October 25, 2022 to October 25, 2025 (“2022 Executive MSUs”). The maximum number of shares that an executive officer can earn is 500% of the target number of the 2022 Executive MSUs if: (1) the Company achieves five stock price targets ranging from $455 to $591 at any time during the performance period, and (2) the Company’s total stockholder return ranks in the 50^th percentile or above relative to the Peer Group at the end of the performance period. Upon achievement of the performance conditions, the 2022 Executive MSUs will fully vest on October 25, 2025. Under modification accounting, the total stock-based compensation cost is $119.2 million, which includes the unamortized expense of $102.8 million related to 2022 Executive PSUs on the modification date and the incremental cost of $16.4 million related to the 2022 Executive MSUs as a result of the modification.

The Company determined the grant date fair value of the 2022 Executive MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $342.16, simulation term of three years, expected volatility of 54.0%, risk-free interest rate of 4.4%, and an expected dividend yield of 0.9%. There is no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

In February 2022, the Compensation Committee granted 24,000 MSUs to certain non-executive employees, which represent a target number of shares that can be earned upon achievement of stock price targets (“2022 Non-Executive MSUs”). The maximum number of shares that an employee can earn is 500% of the target number of the 2022 Non-Executive MSUs if the Company achieves five stock price targets ranging from $472 to $590 during a performance period from February 3, 2022 to February 3, 2025. Two stock price targets were achieved during the third quarter of 2022. The 2022 Non-Executive MSUs will vest in equal amounts on each of the first, second and third anniversaries of February 3, 2025. The total stock-based compensation cost for the 2022 Non-Executive MSUs is $31.3 million.

The Company determined the grant date fair value of the 2022 Non-Executive MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $393.16, simulation term of six years, expected volatility of 39.0%, risk-free interest rate of 1.7%, and expected dividend yield of 0.8%.

2018 MSUs:

In  October 2018, the Compensation Committee granted 60,000 MSUs to the executive officers and 60,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets (“2018 MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2018 MSUs if the Company achieved five stock price targets ranging from $140 to $172 during a performance period from October 26, 2018 to December 31, 2023. As of December 31, 2019, all stock price targets have been achieved and the employees were awarded a total of 600,000 shares. The 2018 MSUs will vest on  January 1, 2024, with post-vesting sales restrictions on the vested shares for up to an additional two years. The total stock-based compensation cost for the 2018 MSUs is $39.1 million.

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

2013 MSUs:

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

The Company determined the grant date fair value of the 2013 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $31.73, expected volatility of 38.7% and a risk-free interest rate of 1.6%. There was no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

ESPP

Under the ESPP, eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six-month offering period, or purchase shares having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period in accordance with the IRC and applicable treasury regulations. The ESPP provides for an annual increase by an amount equal to the least of one million shares, 2% of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. As of December 31, 2022, 4.5 million shares were available for future issuance. The ESPP will expire in November 2024.

For the years ended December 31, 2022, 2021 and 2020, 14,000, 17,000 and 28,000 shares were issued under the ESPP, respectively. The intrinsic value of the shares issued was $1.6 million, $2.4 million and $2.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the unamortized expense was $0.4 million, which will be recognized through the first quarter of 2023. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions: 

Cash proceeds from the shares issued under the ESPP were $5.9 million, $4.7 million and $3.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.