PERFORMANCE STOCK UNIT GRANT NOTICE

Exhibit 10.1

[Form of Agreement for Employees with Executive Officer Benefits Agreement]

P OWER I NTEGRATIONS , I NC .

P ERFORMANCE S TOCK U NIT G RANT N OTICE

(2007 E QUITY I NCENTIVE P LAN )

Power Integrations, Inc. (the “Company”), pursuant to its 2007 Equity Incentive Plan (the “Plan”) hereby grants to Participant the Maximum Number of Performance Stock Units as set forth below (the “PSU Grant”). This PSU Grant is subject to all of the terms and conditions as set forth herein, and in the Performance Stock Unit Agreement and the Plan, each of which is attached hereto and incorporated herein in its entirety. This PSU Grant is a “restricted stock unit” granted pursuant to Section 6(b) of the Plan and a “performance stock award” granted pursuant to Section 6(d) of the Plan. Capitalized terms not otherwise defined herein will have the meanings set forth in the Plan or the Performance Stock Unit Agreement. Except as otherwise expressly provided herein, in the event of any conflict between the terms in the PSU Grant and the Plan, the terms of the Plan will control.

Additional Terms/Acknowledgements: The undersigned Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Performance Stock Unit Agreement and the Plan. Participant also acknowledges receipt of the Power Integrations, Inc. 2007 Equity Incentive Plan Prospectus. In addition, Participant acknowledges that Attachments I and IV to this Grant Notice govern the treatment of the PSU Grant under Participant’s [Amended and Restated] Executive Officer Benefits Agreement. Participant further acknowledges that, as of the Date of Grant, this Grant Notice, the Performance Stock Unit Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the PSU Grant and supersede all prior oral and written agreements on that subject.

A TTACHMENT I

PSU V ESTING C RITERIA

Capitalized terms used herein but not defined will have the meanings set forth in the Grant Notice or the Company’s 2007 Equity Incentive Plan, as applicable. A Performance Stock Unit will vest only if the Performance Vesting Criteria with respect to such Performance Stock Unit are satisfied and if the Participant remains in Continuous Service as an Employee, Director or Consultant through the Employment Vesting Date indicated in the Grant Notice.

P ERFORMANCE V ESTING C RITERIA

The number of Performance Stock Units that will satisfy the Performance Vesting Criteria will be determined by the Company’s Compensation Committee or its designee (the “Committee”) subject to the performance conditions as determined by the Committee (the “Performance Conditions”) as set forth below:

The Performance Conditions for a target award of the Performance Stock Units will be based on “Net Revenue” and “Non-GAAP Operating Income.” Vesting is calculated independently for Net Revenue and Non-GAAP Operating Income. Vesting of [        ]% of the PSUs is based on achievement of Net Revenue Performance Conditions, and vesting of [        ]% of the PSUs is based on Non-GAAP Operating Income Performance Conditions. The following table sets forth the percentage of the Target Number of Performance Stock Units (as set forth in the Grant Notice) vested (i.e., earned) at the given Performance Condition achieved:

1.

In the event the actual Performance Condition achieved falls between two levels, the percentage vested will be determined by straight line interpolation. For the purposes of satisfaction of the Performance Conditions, the term “Net Revenue” is as set forth in the Company’s annual report f