EXHIBIT 10.2

MICROCHIP TECHNOLOGY INCORPORATED

EXECUTIVE MANAGEMENT INCENTIVE COMPENSATION PLAN

 
1. Purposes of the Plan. The Plan is intended to increase shareholder value and
the success of the Company by motivating key executives to: (1)  perform to the
best of their abilities, and (2) achieve the Company’s objectives. The Plan’s
goals are to be achieved by providing such executives with incentive awards
based on the achievement of goals relating to the performance of the Company or
upon the achievement of objectively determinable individual performance goals.
The Plan is intended to permit the payment of bonuses that may qualify as
performance-based compensation under Code Section 162(m).
 
2. Definitions.
 
(a) “Award” means, with respect to each Participant, the award determined
pursuant to Section 8(a) below for a Performance Period. Each Award is
determined by a Payout Formula for a Performance Period, subject to the
Committee’s authority under Section 8(a) to eliminate or reduce the Award
otherwise payable.
 
(b) “Base Salary” means as to any Performance Period, the Participant’s
annualized salary rate on the last day of the Performance Period. Such Base
Salary shall be before both (a) deductions for taxes or benefits, and
(b) deferrals of compensation pursuant to Company-sponsored plans.
 
(c) “Board” means the Board of Directors of the Company.
 
(d) “Cash Position” means the Company’s level of cash and cash equivalents.
 
(e) “Code” means the Internal Revenue Code of 1986, as amended.
 
(f) “Committee” means the Compensation Committee of the Board, or a
sub-committee of the Compensation Committee, which shall, with respect to
payments hereunder intended to qualify as performance-based compensation under
Code Section 162(m), consist solely of two or more members of the Board who are
not employees of the Company and who otherwise qualify as “outside directors”
within the meaning of Section 162(m).
 
(g) “Company” means Microchip Technology Incorporated or any of its subsidiaries
(as such term is defined in Code Section 424(f)).
 
(h) “Determination Date” means the latest possible date that will not jeopardize
a Target Award or Award’s qualification as Performance-Based Compensation.
 
(i) “Earnings Per Share” means as to any Fiscal Quarter or Fiscal Year, the
Company’s or a business unit’s Net Income, divided by a weighted average number
of common shares outstanding and dilutive common equivalent shares deemed
outstanding, determined in accordance with generally accepted accounting
principles.
 
(j) “Fiscal Quarter” means a fiscal quarter of the Company.
 
(k) “Fiscal Year” means a fiscal year of the Company.
 
(l) “Gross Margin” means the Company’s or a business unit’s net sales for the
Fiscal Quarter or Fiscal Year less the Company’s or a business unit’s, as
applicable, cost of goods sold for the Fiscal Quarter or Fiscal Year, determined
in accordance with generally accepted accounting principles.
 
(m)“Maximum Award” means as to any Participant for any Performance Period,
$2.5 million.

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(n)“Net Income” means as to any Fiscal Quarter or Fiscal Year, the income after
taxes of the Company for the Fiscal Quarter or Fiscal Year determined in
accordance with generally accepted accounting principles.
 
(o)“Operating Cash Flow” means the Company’s or a business unit’s sum of Net
Income plus depreciation and amortization less capital expenditures plus changes
in working capital comprised of accounts receivable, inventories, other current
assets, trade accounts payable, accrued expenses, product warranty, advance
payments from customers and long-term accrued expenses, determined in accordance
with generally acceptable accounting principles.
 
(p)“Operating Expenses” means the sum of the Company’s or a business unit’s
research and development expenses and selling and general and administrative
expenses during a Fiscal Quarter or Fiscal Year.
 
(q)“Operating Profit” means the Company’s or a business unit’s income from
operations determined in accordance with generally accepted accounting
principles.
 
(r)“Participant” means an executive officer of the Company participating in the
Plan for a Performance Period.
 
(s)“Payout Formula” means as to any Performance Period, the formula or payout
matrix established by the Committee pursuant to Section 7 in order to determine
the Awards (if any) to be paid to Participants. The formula or matrix may differ
from Participant to Participant.
 
(t)“Performance-Based Compensation” means compensation that is intended to
qualify as “performance-based compensation” within the meaning of Section
162(m).
 
(u)“Performance Goals” means the goal(s) (or combined goal(s)) determined by the
Committee (in its discretion) to be applicable to a Participant with respect to
an Award. As determined by the Committee, the Performance Goals applicable to an
Award may provide for a targeted level or levels of achievement using one or
more of the following measures: (a) Cash Position, (b) Earnings Per Share, (c)
Gross Margin, (d) Net Income, (e) Operating Cash Flow, (f) Operating Expenses,
(g) Operating Profit, (h) Return on Assets, (i) Return on Equity, (j) Return on
Sales, (k) Revenue Growth, and (l) Total Stockholder Return. The Performance
Goals may differ from Participant to Participant and from Award to Award. The
Committee shall appropriately adjust any evaluation of performance under a
Performance Goal to exclude (i) any extraordinary non-recurring items as
described in Accounting Principles Board Opinion No. 30 and/or in management’s
discussion and analysis of financial conditions and results of operations
appearing in the Company’s quarterly and annual reporting with the Securities
and Exchange Commission for the applicable year, or (ii) the effect of any
changes in accounting principles affecting the Company’s or a business unit’s
reported results.
 
(v)“Performance Period” means any Fiscal Quarter or Fiscal Year, or such other
longer period but not in excess of five Fiscal Years, as determined by the
Committee in its sole discretion.
 
(w)“Plan” means this Performance Bonus Plan.
 
(x)“Plan Year” means the Company’s fiscal year.
 
(y)“Return on Assets” means the percentage equal to the Company’s or a business
unit’s Operating Income before incentive compensation, divided by average net
Company or business unit, as applicable, assets, determined in accordance with
generally accepted accounting principles.
 
(z)“Return on Equity” means the percentage equal to the Company’s Net Income
divided by average shareholder’s equity, determined in accordance with generally
accepted accounting principles.

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(aa)“Return on Sales” means the percentage equal to the Company’s or a business
unit’s Operating Income before incentive compensation, divided by the Company’s
or the business unit’s, as applicable, revenue, determined in accordance with
generally accepted accounting principles.

(bb)“Revenue Growth” means the Company’s or a business unit’s net sales for the
Fiscal Quarter or Fiscal Year, determined in accordance with generally accepted
accounting principles, compared to the net sales of the immediately preceding
quarter.
 
(cc)“Section 162(m)” means Section 162(m) of the Code, or any successor to
Section 162(m), as that Section may be interpreted from time to time by the
Internal Revenue Service, whether by regulation, notice or otherwise.
 
(dd)“Target Award” means the target award payable under the Plan to a
Participant for the Performance Period, expressed as a percentage of his or her
Base Salary or a specific dollar amount, as determined by the Committee in
accordance with Section 6.
 
(ee)“Total Stockholder Return” means the total return (change in share price
plus reinvestment of any dividends) of a share of the Company’s common stock.
 
3. Plan Administration.
 
(a) The Committee shall be responsible for the general administration and
interpre-tation of the Plan and for carrying out its provisions. Subject to the
requirements for qualifying compensation as Performance-Based Compensation, the
Committee may delegate specific administrative tasks to Company employees or
others as appropriate for proper administration of the Plan. Subject to the
limitations on Committee discretion imposed under Section 162(m), the Committee
shall have such powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following powers and duties, but
subject to the terms of the Plan:
 
i) discretionary authority to construe and interpret the terms of the Plan, and
to determine eligibility, Awards and the amount, manner and time of payment of
any Awards hereunder;
 
ii) to prescribe forms and procedures for purposes of Plan participation and
distribution of Awards; and
 
iii) to adopt rules, regulations and bylaws and to take such actions as it deems
necessary or desirable for the proper administration of the Plan.
 
(b) Any rule or decision by the Committee that is not inconsistent with the
provisions of the Plan shall be conclusive and binding on all persons, and shall
be given the maximum deference permitted by law.
 
4. Eligibility. The employees eligible to participate in the Plan for a given
Performance Period shall be executive officers of the Company who are designated
by the Committee in its sole discretion. No person shall be automatically
entitled to participate in the Plan.
 
5. Performance Goal Determination. The Committee, in its sole discretion, shall
establish the Performance Goals for each Participant for the Performance Period.
Such Performance Goals shall be set forth in writing prior to the Determination
Date.
 
6. Target Award Determination. The Committee, in its sole discretion, shall
establish a Target Award for each Participant. Each Participant’s Target Award
shall be determined by the Committee in its sole discretion, and each Target
Award shall be set forth in writing prior to the Determination Date.

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7. Determination of Payout Formula or Formulae. On or prior to the Determination
Date, the Committee, in its sole discretion, shall establish a Payout Formula or
Formulae for purposes of determining the Award (if any) payable to each
Participant. Each Payout Formula shall (a) be set forth in writing prior to the
Determination Date, (b) be based on a comparison of actual performance to the
Performance Goals, (c) provide for the payment of a Participant’s Target Award
if the Performance Goals for the Performance Period are achieved, and
(d) provide for an Award greater than or less than the Participant’s Target
Award, depending upon the extent to which actual performance exceeds or falls
below the Performance Goals. Notwithstanding the preceding, in no event shall a
Participant’s Award for any Performance Period exceed the Maximum Award.

8. Determination of Awards; Award Payment.
 
(a) Determination and Certification. After the end of each Performance Period,
the Committee shall certify in writing (which may be by approval of the minutes
in which the certification was made) the extent to which the Performance Goals
applicable to each Participant for the Performance Period were achieved or
exceeded. The Award for each Participant shall be determined by applying the
Payout Formula to the level of actual performance that has been certified by the
Committee. Notwithstanding any contrary provision of the Plan, the Committee, in
its sole discretion, may eliminate or reduce the Award payable to any
Participant below that which otherwise would be payable under the Payout Formula
but shall not have the right to increase the Award above that which would
otherwise be payable under the Payout Formula.
 
(b) Right to Receive Payment. Each Award under the Plan shall be paid solely
from the general assets of the Company. Nothing in this Plan shall be construed
to create a trust or to establish or evidence any Participant’s claim of any
right to payment of an Award other than as an unsecured general creditor with
respect to any payment to which he or she may be entitled. A Participant needs
to be employed by the Company through the payment date in order to be eligible
to receive an Award payout hereunder.
 
(c) Form of Distributions. The Company shall distribute all Awards to the
Participant in cash.
 
(d) Timing of Distributions. Subject to Section 8(e) below, the Company shall
distribute amounts payable to Participants as soon as is practicable following
the determination and written certification of the Award for a Performance
Period.
 
(e) Deferral. The Committee may defer payment of Awards, or any portion thereof,
to Covered Employees as the Committee, in its discretion, determines to be
necessary or desirable to preserve the deductibility of such amounts under
Section 162(m). In addition, the Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash that would otherwise be
delivered to a Participant under the Plan. Any such deferral elections shall be
subject to such rules and procedures as shall be determined by the Committee in
its sole discretion.
 
9. Term of Plan. Subject to its approval at the 2006 annual meeting of the
Company’s stockholders, the Plan shall first apply to the Company’s Plan Year
commencing in the Company’s first full Fiscal Quarter following approval by the
shareholders at the August, 2006 annual meeting. Once approved by the Company’s
shareholders, the Plan shall continue until terminated under Section 10 of the
Plan.
 
10. Amendment and Termination of the Plan. The Committee may amend, modify,
suspend or terminate the Plan, in whole or in part, at any time, including the
adoption of amendments deemed necessary or desirable to correct any defect or to
supply omitted data or to reconcile any inconsistency in the Plan or in any
Award granted hereunder; provided, however, that no amendment, alteration,
suspension or discontinuation shall be made which would (i) impair any payments
to Participants made prior to such amendment, modification, suspension or
termination, unless the Committee has made a determination that such amendment
or modification is in the best interests of all persons to whom Awards have
theretofore been granted; provided further, however, that in no event may such
an amendment or modification result in an increase in the amount of compensation
payable pursuant to such Award or (ii) cause
 
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compensation that is, or may become, payable hereunder to fail to qualify as
Performance-Based Compensation. To the extent necessary or advisable under
applicable law, including Section 162(m), Plan amendments shall be subject to
shareholder approval. At no time before the actual distribution of funds to
Participants under the Plan shall any Participant accrue any vested interest or
right whatsoever under the Plan except as otherwise stated in this Plan.
 
11. Withholding. Distributions pursuant to this Plan shall be subject to all
applicable federal and state tax and withholding requirements.
 
12. At-Will Employment. No statement in this Plan should be construed to grant
any employee an employment contract of fixed duration or any other contractual
rights, nor should this Plan be interpreted as creating an implied or an
expressed contract of employment or any other contractual rights between the
Company and its employees. The employment relationship between the Company and
its employees is terminable at-will. This means that an employee of the Company
may terminate the employment relationship at any time and for any reason or no
reason.
 
13. Successors. All obligations of the Company under the Plan, with respect to
awards granted hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business or assets of the Company.
 
14. Indemnification.  Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any award, and (b) from any and all amounts
paid by him or her in settlement thereof, with the Company’s approval, or paid
by him or her in satisfaction of any judgment in any such claim, action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company’s Certificate of
Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under
any power that the Company may have to indemnify them or hold them harmless.
 
15. Nonassignment. The rights of a Participant under this Plan shall not be
assignable or transferable by the Participant except by will or the laws of
intestacy.
 
16. Governing Law. The Plan shall be governed by the laws of the State of
Arizona, without regard to conflicts of law provisions thereunder.
 
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