MOTORCAR PARTS OF AMERICA INC

With our compensation objectives in mind, as further described below, our executive officer compensation program consists of five primary elements:

Base Salary. Base salary is the “fixed” component of our executive compensation intended to meet the objective of attracting and retaining executive officers of superior talent that are necessary to manage and lead our Company.

Annual Cash Incentive Plan. We use a cash-based incentive plan to motivate the achievement of key short-term pre-determined financial corporate and individual performance goals meant to enhance shareholder value.

With respect to our Annual Cash Incentive Plan, the individual performance metrics employed in recent years focused on the transformation of our business including the launch of our new full line brake program, consolidation of our operations into low-cost countries, and electric vehicle and aerospace initiatives. For Fiscal 2024, our Compensation Committee removed the individual performance component from our Annual Cash Incentive Plan for executive officer participants, so that 100% of each named executive officers’ cash-based incentive compensation opportunity was based solely on corporate objectives, as further described below.

The following table includes the target cash-based incentive compensation opportunities and weightings for each named executive officer in Fiscal 2024:

Long-term, Equity-Based Incentive Plan. Equity awards are a part of our overall executive compensation program to align the interests of our executives with those of shareholders while rewarding individual performance and ensuring we offer competitive compensation levels. In Fiscal 2023, half of the value of the equity awards granted to our named executive officers (not including Mr. Joffe’s performance-based restricted stock award) were performance based and included PSUs requiring three years of performance to vest. Mr. Joffe received 67% performance-based equity awards in Fiscal 2023. In Fiscal 2024, 100% of our annual equity awards (which were granted in June 2023) are performance based and tied to stock price performance goals. Though Mr. Joffe, Mr. Lee and Mr. Shah were granted a one-time retention stock option award in September 2023. These stock options have a ten-year term and were granted with a premium exercise price. Please see below for further details.

Deferred Compensation Benefits. We offer participation in a non-qualified deferred compensation plan to selected executive officers which provides unfunded, non-tax qualified deferred compensation benefits. We believe this program helps promote the retention of our senior executives. Participants may elect to contribute a portion of their cash compensation to the plan. We made matching contributions of 100% of each participant’s elective contributions to the plan up to 3% of the participant’s cash compensation until February 5, 2023, when the Company temporarily halted the Company’s matching contributions, until it was restarted February 8, 2024.

Employee Benefits. All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans. The Company does not provide pension benefits, other than matching contributions under the Company’s 401(k) retirement plan, which were temporarily halted effective February 5, 2023, until it was restarted February 8, 2024.

We believe that a significant portion of executive officer compensation should be at-risk and dependent upon the achievement of measurable and objective performance metrics tied to increased shareholder value. In Fiscal 2024, the awards under the Annual Cash Incentive Plan for all named executive officers were based on the achievement of pre-determined objective metrics of the Company, including Gross Profit after adjustments, EBITDA after adjustments and Cash from Operating Activities, which were weighted, 25%, 25% and 50%. As described further below, our Annual Cash Incentive Plan requires the Company to meet at least 50% of the target corporate performance objectives to pay out any bonus. In Fiscal 2024, the Company met 183% of its Cash from Operating Activities goal (weighted at 50%), but did not meet threshold performance for EBITDA after adjustments or Gross Profit after adjustments (each weighted at 25%), and thus an annual short term cash based incentive bonus of 75% (50% weighting x 150% maximum goal multiplier) of the target bonus opportunity was paid to executives.

A portion of our Chief Executive Officer’s total direct Fiscal 2024 compensation is comprised of equity awards (the “Equity Component”), including PSUs. A majority of Mr. Joffe’s Equity Component consists of performance-based awards focused on achievement of goals that we believe enhance shareholder value, even better aligning his compensation with the interests of our shareholders. As discussed above, in Fiscal 2024, 100% of the equity awards granted to the named executive officers and other employees throughout the Company under our annual equity award program consisted of PSUs that are 100% dependent on increasing the value of Company common stock.

Moreover, we believe that the executive compensation program should serve the interests of shareholders. Accordingly, we have adopted various policies and practices that we believe are in shareholders’ interests, including:

As discussed above under “Governance Policies and Guidelines—Stock Ownership Guidelines,” we have also adopted stock ownership guidelines, pursuant to which each of our directors and executive officers are required to hold a certain number of shares of our common stock, within a specified timeframe.

Say on Pay Vote.

At the Annual Meeting held on September 14, 2023, 88% of the votes cast by our shareholders approved the non-binding advisory vote related to executive compensation. In Fiscal 2024, we continued to regularly engage with our shareholders to ensure we understand any thoughts or concerns with our executive compensation program, with the goal of continually enhancing our shareholder communications. Please see Engagement of Shareholders section below for further details. In Fiscal 2024, we held discussions with nearly all of our major shareholders, representing a majority of the holders of Company common stock, regarding executive compensation and other governance and business performance issues. In response to the feedback we received in these meetings, we continued to enhance our incentive compensation goals focusing on fulfilling our long-term strategic objectives and building shareholder value. The Annual Cash Incentive Plan for Fiscal 2024 employs objective corporate metrics focused on building shareholder value and return, including 50% of the Company goal being based on the generation of cash from operations, as we continue to hear that cash generation is a top priority of our shareholders. In response to the decline in the stock price, the Compensation Committee changed course for Fiscal 2024 to align management with our shareholders’ interests.

The annual equity grants for Fiscal 2024 (which were granted in June 2023) changed from 50% time-based RSU awards and 50% PSU awards with multiple performance goals granted in Fiscal 2023 to 100% PSU grants with one absolute TSR performance goal, namely to increase the Company stock price, as compared to Fiscal 2023 when the Company had a relative TSR performance goal weighting of 30% for PSU awards (and the remaining 70% weighting was comprised of financial operations goals). PSU awards granted in Fiscal 2024 were comprised of three performance-vesting tranches under which 1/3 of the target PSUs may be eligible to vest, including the (i) achievement of a $10 stock price target (49.7% increase from stock price at grant), (ii) achievement of a $15 stock price target (124.5% increase from stock price at grant), and (iii) achievement of a stock price between $17.50 and $25 (with vesting ranging between 50% and 150% of the tranche, depending on the stock price achieved between the two goals, with 100% of the tranche vesting at a $20 stock price) (199.4% increase from stock price at grant). Each performance-vesting tranche may be met over a three-year performance period, commencing June 19, 2023, and all price targets must be met for thirty consecutive trading days.