EXHIBIT 10.3

MICROCHIP TECHNOLOGY INCORPORATED

DISCRETIONARY 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 Company performance goals, achievement of individual
performance goals, retention-based bonuses, or nonrecurring awards for
performance beyond that expected.

2. Definitions.
 
(a) “Award” means, with respect to each Participant, the award determined by the
Committee pursuant to Section 5(a) below for a Performance Period.
 
(b)“Board” means the Board of Directors of the Company.
 
(c) “Code” means the Internal Revenue Code of 1986, as amended.
 
(d) “Committee” means the Compensation Committee of the Company’s Board, or a
sub-committee of the Compensation Committee, which shall 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) of
the Code.
 
(e) “Company” means Microchip Technology Incorporated or any of its subsidiaries
(as such term is defined in Code Section 424(f)).
 
(f)“Participant” means an executive officer of the Company participating in the
Plan for a Performance Period.
 
(g)“Performance Period” means any Company fiscal quarter or fiscal year, or such
other longer period but not in excess of five fiscal years, as determined in the
Committee’s discretion.
 
(h)“Plan” means this Discretionary Executive Management Incentive Compensation
Plan.

3. Plan Administration.
 
(a) The Committee shall be responsible for the general administration and
interpretation of the Plan and for carrying out its provisions. The Committee
may delegate specific administrative tasks to Company employees or others as
appropriate for proper administration of the Plan. 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.

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(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. Determination of Awards; Award Payment.
 
(a) Determination of Awards. The Company’s Chief Executive Officer shall provide
the Committee with recommendations as to the executive officers that should
participate in the Plan for that Performance Period, and the Award to be
allocated to each such officer other than the Chief Executive Officer. The
Committee shall have complete authority to accept, modify or reject such
recommendations, or to eliminate the Awards entirely. The Committee may in its
sole discretion determine an Awards under the Plan for the Company’s Chief
Executive Officer. Awards may be a specific dollar amount, or a percentage of
base salary.
 
(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. Unless otherwise
approved by the Committee, a Participant needs to be employed by the Company
from the beginning of the applicable Performance Period through the Award
payment date to receive an Award payout hereunder.
 
(c) Form of Distributions. All Awards shall be distributed to the Participants
in cash.
 
(d) Deferral. The Committee may defer payment of Awards, or any portion thereof,
to Participants as the Committee, in its discretion, determines to be necessary
or desirable to preserve the deductibility of such amounts under 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.

6. Term of Plan. The Plan shall become effective October 1, 2006. The Plan shall
continue until terminated under Section 7 of the Plan.

7. 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 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. To the extent necessary or advisable under applicable
law, 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.

8. Withholding. Distributions pursuant to this Plan shall be subject to all
applicable federal and state tax and withholding requirements.

9. 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 or the
Company may terminate the employment relationship at any time and for any reason
or no reason.

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10. 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.

11. 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.

12. 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.

13. 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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