POWER INTEGRATIONS INC Stock Compensation Disclosure

7. STOCK PLANS AND SHARE BASED COMPENSATION:

Stock Plans

As of December 31, 2025, the Company had three stock-based compensation plans (the “Plans”) which are described below.

2025 Inducement Award Plan

The 2025 Inducement Award Plan (“Inducement Plan”) was adopted by the board of directors on November 14, 2025. The Inducement Plan provides for the grant of RSU awards, PSU awards and performance cash awards. No other forms of equity-based awards, including stock options and stock appreciation rights, may be granted. The plan is intended to be used in connection with the recruiting and inducement of senior management and employees. Each award under the Inducement Plan is intended to qualify as an employment inducement grant under the Inducement Listing Rule or to otherwise qualify under the exception relating to plans or arrangements relating to an acquisition or merger under NASDAQ Listing Rule 5635(c)(3) and the official guidance thereunder. Pursuant to Rule 5635(c)(4) of the NASDAQ Listing Rules, the Company did not seek stockholder’s approval. As of December 31, 2025, 0.1 million awards have been issued, net of forfeitures or cancellations, and approximately 0.3 million shares of common stock remain available for future grant under the Inducement Plan. On January 27, 2026, the Talent and Compensation Committee of the board of directors approved the Amended and Restated 2025 Inducement Award Plan, reserving an additional 0.5 million shares of the Company’s common stock, or 0.9 million shares of the Company’s common stock in the aggregate, for issuance pursuant to equity awards granted under the Inducement Plan.  

2016 Incentive Award Plan

The 2016 Incentive Award Plan (“2016 Plan”) was adopted by the board of directors on March 17, 2016 and approved by the stockholders on May 13, 2016. The 2016 Plan provides for the grant of RSU awards, PSU awards and PRSU awards. No other forms of equity-based awards, including stock options and stock appreciation rights, may be granted under the 2016 Plan. As of December 31, 2025, 4.4 million awards have been issued, net of forfeitures or cancellations, and approximately 2.6 million shares of common stock remain available for future grant under the 2016 Plan.

1997 Employee Stock Purchase Plan

Under the 1997 Employee Stock Purchase Plan (“Purchase Plan”), eligible employees may apply accumulated payroll deductions, which may not exceed 15% of an employee’s compensation, to the purchase of shares of the Company’s common stock at periodic intervals. The purchase price of stock under the Purchase Plan is equal to 85% of the lower of (i) the fair market value of the Company’s common stock on the first day of each offering period, or (ii) the fair market value of the Company’s common stock on the purchase date (as defined in the Purchase Plan). Each offering period consists of one purchase period of approximately six months duration. An aggregate of 7.5 million shares of common stock were reserved for issuance to employees under the Purchase Plan. As of December 31, 2025, of the shares reserved for issuance, 7.1 million shares had been purchased and 0.4 million shares were reserved for future issuance under the Purchase Plan.

Shares Reserved

As of December 31, 2025, the Company had approximately 3.5 million shares of common stock reserved for future grant under all stock plans.

Stock-Based Compensation

The Company applies the provisions of ASC 718-10, Stock Compensation. Under the provisions of ASC 718-10, the Company recognizes the fair value of stock-based compensation in its financial statements over the requisite service period of the individual grants, which generally equals a four-year vesting period. The Company uses estimates of volatility, expected term, risk-free interest rate, dividend yield and forfeitures in determining the fair value of these awards and the amount of compensation expense to recognize. The Company uses the straight-line method to amortize all stock awards granted over the requisite service period of the award.

The following table summarizes the stock-based compensation expense recognized in accordance with ASC 718-10 for the years ended December 31, 2025, 2024 and 2023:

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The following table summarizes total compensation expense related to unvested awards not yet recognized, net of expected forfeitures, and the weighted average period over which it is expected to be recognized as of December 31, 2025:

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Stock-based compensation expense in the year ended December 31, 2025, was approximately $39.7 million, comprising approximately $22.8 million related to restricted stock units, $8.4 million related to the modification of outstanding equity awards held by the Company’s former chief executive officer, $6.9 million related to performance-based awards and long-term performance-based awards and $1.6 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the year ended December 31, 2024, was approximately $35.1 million, comprising approximately $25.7 million related to restricted stock units, $7.7 million related to performance-based awards and long-term performance-based awards and $1.7 million related to the Company’s employee stock purchase plan.

Stock-based compensation expense in the year ended December 31, 2023, was approximately $28.5 million, comprising approximately $23.4 million related to restricted stock units, $3.2 million related to performance-based awards and long-term performance-based awards and $1.9 million related to the Company’s employee stock purchase plan.

In connection with his retirement in July 2025, the Company’s former chief executive officer, Balu Balakrishnan, entered into a transition agreement and a consulting agreement with the Company. Pursuant to these agreements, Mr. Balakrishnan’s outstanding equity awards continue to vest subject to his continuous service and the applicable award agreements. The vast majority of these awards are subject to performance criteria established at the time of grant and will only be earned if such criteria are met at the conclusion of the applicable performance periods. As the services to be performed by Mr. Balakrishnan under the transition agreement and the consulting agreement do not qualify as “substantive services” under ASC 718-10, the continued vesting of the outstanding equity awards represents a modification of the original awards. As a result, in the year ended December 31, 2025, the Company recognized stock-based compensation in the amount of $8.4 million in other operating expenses on the consolidated statements of income related to the accounting modification in July 2025 and subsequent changes in performance criteria measurement. Further subsequent changes in performance criteria measurement could result in an adjustment to expense in future periods.

Employee Stock Purchase Plan

The fair value of employees’ stock purchase rights under the Purchase Plan was estimated using the Black-Scholes model with the following weighted-average assumptions used during the three years ended December 31, 2025, 2024 and 2023:

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PSU Awards

Under the performance-based awards program, the Company grants awards in the performance year in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The number of shares that are released at the end of the performance year can range from zero to 200% of the target number depending on the Company’s performance. The performance metrics of this program are annual targets consisting of a combination of net revenue, non-GAAP operating income and strategic goals.

As the net revenue, non-GAAP operating income and strategic goals are considered performance conditions, expense associated with these awards, net of estimated forfeitures, is recognized over the service period based on an assessment of the expected achievement of the performance targets. The fair value of these PSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

A summary of PSU awards outstanding as of December 31, 2025, and activity during the three years then ended, is presented below:

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In February 2025, it was determined that approximately 66,000 shares subject to the PSUs granted in 2024 vested in aggregate; the shares were released to the Company’s employees and executives in the first quarter of 2025. The grant-date fair value of PSU awards released, which were fully vested, in the years ended December 31, 2025, 2024 and 2023, was approximately $4.6 million, $3.2 million and $2.7 million, respectively.

PRSU Awards (Long-term Performance Based)

The Company’s PRSU program provides for the issuance of PRSUs which will vest based on the Company’s performance measured against the PRSU program’s established performance targets. PRSUs are granted in an amount equal to twice the target number of shares to be issued if the maximum performance metrics are met. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus the Company’s performance goals, and may range from zero to 200% of the target number. The performance goals for PRSUs granted in fiscal 2023, 2024 and 2025 were based on the Company’s compound annual growth rate (“CAGR”) of revenue as measured against the revenue CAGR of the analog semiconductor industry (“Relative Measure”) or the Company’s revenue growth over as compared to defined targets (“Absolute Measure”) in each case over the respective three-year performance period. Actual vesting of the PRSUs is calculated based on higher achievement under the Relative Measure or the Absolute Measure.

Expense associated with these awards, net of estimated forfeitures, is recorded throughout the year based on an assessment of the expected achievement of the performance targets. If the performance conditions are not achieved, no compensation cost is recognized and any previously recognized compensation is reversed.

A summary of PRSU awards outstanding as of December 31, 2025, and activity during the three years then ended, is presented below:

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In February 2025, it was determined that no shares subject to the PRSUs granted in 2022 vested, thus no shares were released to the Company’s executives. In February 2024, it was determined that no shares subject to the PRSUs granted in 2021 vested, thus no shares were released to the Company’s executives. The grant-date fair value of PRSU awards released, which were fully vested, in the year ended December 31, 2023, was approximately $1.1 million.

RSU Awards

RSUs granted to employees typically vest ratably over a four-year period and are converted into shares of the Company’s common stock upon vesting on a one-for-one basis subject to the employee’s continued service to the Company over that period. The fair value of RSUs is determined using the fair value of the Company’s common stock on the date of the grant, reduced by the discounted present value of dividends expected to be declared before the awards vest. Compensation expense is recognized on a straight-line basis over the requisite service period of each grant adjusted for estimated forfeitures.

A summary of RSU awards outstanding as of December 31, 2025, and activity during the three years then ended, is presented below:

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The grant-date fair value of RSUs vested in the years ended December 31, 2025, 2024 and 2023, was approximately $21.9 million, $23.9 million and $22.2 million, respectively.