EXHIBIT 10.1
Analog Devices places great value in sharing our company's success with those
who make it possible--our employees. One of the ways we're able to do this is
through the Analog Devices Bonus Plan. The aim of the Bonus Plan is to encourage
all of us to participate in reaching company goals and to share the rewards of
our achievements.
President & CEO
                                                           [ANALOG DEVICES LOGO]
Analog Devices is a growth company. Given our focus on the highest growth
segments of the semiconductor industry--analog integrated circuits, digital
signal processing and micro-electro mechanical systems--we believe it is
possible and necessary to grow at rates faster than the industry moving forward.
Throughout the down cycle of the past couple of years, we have continued to
invest in R&D at rates consistent with much higher revenues in order to
strengthen our position as the cycle turns. As sales continue to grow, it is
critical to focus on those products that not only grow but achieve high profit
Therefore, we have decided to simplify the Bonus Plan for 2004 to focus on one
key metric--operating profit before taxes (OPBT), which implicitly requires high
sales growth and high return on assets to meet our goals.
With our current mix of business and an eye towards competitive profit margins,
our goal is to operate with an OPBT as a percentage of revenues at the 30% level
as we exit 2004. At this level, the bonus payout factor would be 1.5. The Plan
is designed to pay a 1.0 bonus at an OPBT of 27%.
Under our current business plan for 2004, we estimate that the payout factor for
the first bonus period, which is the first half of FY04, will be somewhat below
1, and the second bonus period factor will slightly exceed 1 by the end of the
Plan year. Of course, the actual payout will depend on the actual results, which
will likely be above or below our business plan. The Plan is designed to allow
bonus payments to accelerate substantially as operating profit, as a percentage
of sales increases, as outlined in the graph below.
The FY04 Bonus Plan is consistent with ADI's long-term business objectives of
high growth and profitability.
All ADI employees can contribute to achieving our goals by working to control
expenses, minimize waste, increase customer satisfaction, develop new products
on time, and improve process efficiency.
The bonus payout factor is determined by using the percentage of OPBT as a
percentage of sales that we achieve in a given bonus period. As indicated in the
graph below, if we achieve an OPBT of 27% for the bonus period, then the bonus
factor utilized will be 1.0. Each fiscal year, the first bonus period consists
of the first and second quarters, and the second bonus period consists of the
third and fourth quarters.
The maximum payout for the FY04 Bonus Plan is 3 X target. For any bonus period
during which our OPBT is 20% or less, there will be no bonus payout for that
bonus period.
To determine the potential individual gross bonus payment for each employee, the
bonus payout factor is multiplied by an eligible employee's accumulated earnings
for the bonus period and their individual bonus target percentage. The
percentage of earnings used in the bonus calculation varies by job grade.
<S>                                                      <C>
Accumulated eligible earnings for the bonus period       $15,000
Bonus target for your job grade                                4%
Payout factor for the bonus period                           0.8
Gross bonus (before tax) payment: $15,000 X 4% X 0.8     $   480
Earnings included in the bonus calculation:
-     Base pay
-     Holiday pay
-     Shift differential
-     Bereavement pay
-     Sick pay
-     Jury duty pay
-     Vacation pay
-     Alternative work schedule pay
-     Military leave pay
Earnings excluded from the bonus calculation:
-     Overtime pay
-     Bonus payments from a previous bonus period
-     Other payments that are taxable but not considered regular earnings
Bonus payments are not eligible for company basic or matching contributions for
the TIP program.
Bonus payments will be made on a semiannual basis in June and December,
approximately six weeks after the end of 2Q and 4Q. The Plan is effective
November 1, 2003, and covers the period from November 1, 2003, to October 31,
Most ADI employees are eligible to participate in the Bonus Plan if they are
actively employed during the applicable bonus period and remain employed on the
date bonus payments are made. New employees are eligible to participate in the
Plan during their first full quarter of employment.
The following situations shall EXCLUDE an employee from participating in the
-     Employee is already covered under a field sales, field application
      engineering, or other incentive program.
-     Employee voluntarily terminates employment at ADI before the end of the
      bonus period or before the date payouts are made.
-     Employee receives a 'Needs Improvement' or 'Marginal' performance rating
      (where applicable) during the bonus period.
-     Employee receives a final written warning during the bonus period.
-     Co-op, intern, and temporary employees are not eligible for participation
      in the Plan.
-     If your job grade and bonus target change during the bonus period:
      Your bonus target will be based on the job grade that was effective at the
      end of the bonus period.
-     If you change work shifts during the bonus period:
      Because shift differential paid during the bonus period is included as
      part of your earnings for the bonus calculation, your bonus payment
      already will take into consideration any shift differential earnings that
      you may have for the period.
-     If you transfer business units:
      If you transfer between business units, your earnings records transfer
      with you, so your bonus amount is based on the total accumulated eligible
      earnings for the bonus period.
-     If you change status between full-time and part-time working hours:
      Because your bonus amount is based on your accumulated paid earnings for
      the bonus period, your bonus calculation will take into account any change
      in status, such as part-time to full-time or full-time to part-time
      working hours.
-     If you are on leave of absence or disability for part of the bonus period:
      The bonus is paid based on your earnings while actively at work during the
      period (not on short-term disability, long-term disability, or voluntary
      leave of absence). Therefore, any pay received during your leave of
      absence will be excluded from your accumulated paid earnings for bonus
      calculation purposes.
-     If you are a new employee:
      You are eligible for a bonus payment during the first full quarter of
      employment. For example, if you were hired during 1Q, your bonus payment
      for the first half of the year would be based on eligible earnings for 2Q
      only--your first full quarter of employment.
The Bonus Plan is designed to reward all eligible employees for contributing to
company-wide business goals during each fiscal year. It also serves as an
incentive for continued employment with ADI. The Bonus Plan design, or portions
of the design, may change as the company's focus moves to different company-wide
performance goals that are determined to be critical during that fiscal year.
Below certain levels, ADI's results may not be competitive and may not meet key
business performance measures. At these low levels of business performance, no
bonus would be paid.
Unless modified or terminated earlier as provided for in this Plan, all prior
bonus plans have expired of their own terms or have been revoked and withdrawn.
This Plan supersedes all prior written or oral bonus and incentive plans,
promises, agreements, practices, understandings, negotiations, and/or incentive