the present invention recognizes that the limiting structures to size reduction for an optical encoder were the laser diode / photo diode package and the photodetector with amplifier package . the invention includes removing the discrete components from the laser diode cover package and mounting the much smaller discrete components on a base framework . the photodetector with amplifier package of the invention have an altered photodetector / amplifier geometry including shortening the leads between them . this resulted in significant size reduction of the encoder , a reduction in required gain and resulting increase in bandwidth . the entire base framework is temperature cooled by disposing two thermo - electric coolers between the base framework and an adjacent heat sink . such positioning of the two coolers between the base framework and it &# 39 ; s adjacent heat sink stabilizes both the laser diode &# 39 ; s and the photo detector &# 39 ; s outputs . in addition this novel design stabilizes the entire footprint / base of the encoder from thermal effects , whatever their origin .