NOTE 9 – SHARE BASED PAYMENTS

In May 2011, the Company established and our shareholders approved the Hersha Hospitality Trust 2012 Equity Incentive Plan (the “2012 Plan”) for the purpose of attracting and retaining executive officers, employees, trustees and other persons and entities that provide services to the Company.

Executives & Employees

Annual Long Term Equity Incentive Programs

To further align the interests of the Company’s executives with those of shareholders, the Compensation Committee grants annual long term equity incentive awards that are both “performance based” and “time based.”

On April 15, 2013, the Compensation Committee adopted the 2013 Annual LTIP for the executive officers, pursuant to which the executive officers are eligible to earn equity awards in the form of stock awards or performance share awards issuable pursuant to the 2013 plan. Shares are earned under the 2013 Annual LTIP based on achieving a threshold, target or maximum level of performance and market based defined areas. The Company accounts for these grants as performance awards for which the Company assesses the probable achievement of the performance conditions at the end period. Stock based compensation of $132 and $266, was recorded for the three and nine months ended September 30, 2013, respectively, for the 2013 Annual LTIP and is included in general and administrative expense in the consolidated statements of operations. As of September 30, 2013, no common shares have been issued in accordance with the 2013 Plan to the executive officers in settlement of 2013 Annual LTIP awards.

Stock based compensation expense related to the 2012 Annual LTIP, 2011 Annual LTIP, and 2010 Annual LTIP of $550 and $581 and $2,067 and $2,095 was incurred during the three and nine months ended September 30, 2013 and 2012, respectively. Unearned compensation related to the 2012 Annual LTIP, 2011 Annual LTIP, and 2010 Annual LTIP as of September 30, 2013 and December 31, 2012 was $1,856 and $1,072, respectively. The following table is a summary of all unvested share awards issued to executives under the 2012 Annual LTIP, 2011 Annual LTIP, and 2010 Annual LTIP:



						Shares Vested		Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant	Vesting Period	Vesting Schedule	September 30, 2013	December 31, 2012		September 30, 2013		December 31, 2012
March 20, 2013
(2012 Annual LTIP)	779,045	$	5.95	3 years	25%/year ⁽¹⁾	194,759	-	$	1,388	$	-
March 26, 2012
(2011 Annual LTIP)	748,927	$	5.45	3 years	25%/year ⁽¹⁾	374,462	374,462		423		892
March 30, 2011
(2010 Annual LTIP)	440,669	$	5.98	3 years	25%/year ⁽¹⁾	330,500	330,500		45		180
						899,721	704,962	$	1,856	$	1,072

(1)25% of the issued shares vested immediately upon issuance. In general, the remaining shares vest 25% on the first through third anniversaries of the date of issuance (subject to continuous employment through the applicable vesting date).

Multi-Year LTIP

On May 7, 2010, the Compensation Committee adopted the 2010 Multi-Year LTIP. This program had a three-year performance period, which commenced on January 1, 2010 and ended on December 31, 2012. The common shares issuable under this program were based upon the Company’s achievement of a certain level of (1) absolute total shareholder return (75% of the award), and (2) relative total shareholder return as compared to the Company’s peer group (25% of the award). The Compensation Committee of the Board of Trustees concluded that the performance criteria for this program had been met and 3,051,862 common shares were issued under this program during the nine months ended September 30, 2013, of which 1,525,931 vested immediately with the remaining shares to vest on December 31, 2013. The share price on the date of grant was $5.95.

NOTE 9 – SHARE BASED PAYMENTS (CONTINUED)

On April 15, 2013, the Compensation Committee approved the 2013 Multi-Year LTIP. The common shares issuable under this program are based on the Company’s achievement of a certain level of (1) absolute total shareholder return (50% of the award),

(2) relative total shareholder return as compared to the Company’s peer group (25% of the award), and (3) relative growth in revenue per available room compared to the Company’s peer group (25% of the award). This program has a three-year performance period which commenced on January 1, 2013 and ends December 31, 2015. As of September 30, 2013 no common shares have been issued in accordance with the 2013 Plan to the executive officers in settlement of Multi-Year LTIP 2013 awards. The Company accounts for the total shareholder return components of these grants as market based awards where the Company estimates unearned compensation at the grant date fair value which is then amortized into compensation cost over the vesting period of each individual plan. The Company accounts for the RevPAR component of the grants as performance-based awards.

Stock based compensation expense of $894 and $798 and $2,587 and $2,394 was recorded for the three and nine months ended September 30, 2013 and 2012, respectively, for the Multi-Year LTIPs. Unearned compensation related to the multi-year program as of September 30, 2013 and December 31, 2012, respectively, was $2,051 and $3,192.

Restricted Share Awards

In addition to stock based compensation expense related to awards under the Multi-Year LTIPs and Annual LTIPs stock based compensation expense related to restricted common shares issued to executives and employees of the Company of $341 and $491 and $1,270 and $1,421 was incurred during the three and nine months ended September 30, 2013 and 2012, respectively. Unearned compensation related to the restricted share awards as of September 30, 2013 and December 31, 2012 was $4,449 and $5,420, respectively. The following table is a summary of all unvested share awards issued to executives under the 2012 Plan and prior to equity incentive plans:


						Shares Vested			Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant	Vesting Period	Vesting Schedule	September 30, 2013	December 31, 2012		September 30, 2013		December 31, 2012
June 1, 2009	744,128	$	2.80	4 years	25%/year	744,128	558,305	$	-	$	217
June 1, 2010	182,308		4.63	2-3 years	25-50%/year	182,308	139,522		-		82
June 30, 2011	17,692		5.57	2-4 years	25-50%/year	9,919	4,958		33		51
April 18, 2012	1,035,595		5.47	5 years	33% Year 3, 4, 5 ⁽¹⁾	-	-		4,020		4,842
June 29, 2012	52,703		5.28	2-4 years	25-50%/year	22,480	-		139		228
June 28, 2013	48,600		5.64	2-4 years	25-50%/year	-	-		231		-
September 20, 2013	4,605		5.52	2-4 years	25-50%/year	-	-		26		-
Total	2,085,631					958,835	702,785	$	4,449	$	5,420

(1)On April 18, 2012, the Company entered into amended and restated employment agreements with the Company’s executive officers. To induce the executives to agree to the substantial reduction in benefits upon certain terminations following a change of control as described in the agreements, the Company awarded an aggregate of 1,035,595 restricted common shares to the executives pursuant to the 2012 Plan. None of these restricted common shares will vest prior to the third anniversary of the date of issuance. Thereafter, 33.3% of each award of restricted common shares will vest on each of the third, fourth and fifth anniversaries of the date of issuance. Vesting will accelerate upon a change of control or if the relevant executive’s employment with the Company were to terminate for any reason other than for cause (as defined in the agreements).

Trustees

Annual Retainer

The Compensation Committee approved a program that allows the Company’s trustees to make a voluntary election to receive any portion of the annual cash retainer in the form of common equity valued at a 25% premium to the cash that would have been received. On December 28, 2012, we issued 32,417 shares which do not fully vest until December 31,2013. Compensation expense incurred for the three and nine months ended September 30, 2013 and 2012, respectively, was $40 and $27 and $120 and $82, respectively. The following table is a summary of all unvested share awards issued to trustees in lieu of annual cash retainer:

NOTE 9 – SHARE BASED PAYMENTS (CONTINUED)



						Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant	Vesting Period	Vesting Schedule		September 30, 2013		December 31, 2012
December 28, 2012	32,417	$	4.93	1 year	100%	$	40	$	160

Multi-Year Long-Term Equity Incentives

On March 30, 2011, the Company issued an aggregate of 12,600 restricted common shares, 1,800 to each non-management trustee, one-third of which vest on each of December 31, 2011, 2012 and 2013. On June 5, 2012, the Company issued an aggregate of 12,600 restricted common shares, 1,800 to each non-management trustee, one-third of which vest on each of December 31, 2012, 2013 and 2014. On December 28, 2012, the Company issued an aggregate of 12,000 restricted common shares, 2,000 to each non-management trustee, one-third of which will vest on each of December 31, 2013, 2014 and 2015. Compensation expense for 2011 multi-year long term equity incentives, 2012 multi-year long-term equity incentives, and 2013 multi-year long-term equity incentives incurred for the three and nine months ended September 30, 2013 and 2012, respectively, was $14 and $10 and $42 and $36. Unearned compensation related to the multi-year long term equity incentives was $71 and $113 as of September 30, 2013 and December 31, 2012, respectively.

Share Awards

Compensation expense related to share awards issued to the Board of Trustees of $314 and $172 was incurred during the nine months ended September 30, 2013 and 2012, respectively and is recorded in general and administrative expense on the statement of operations. Share awards issued to the Board of Trustees are immediately vested. On June 3, 2013 an aggregate 54,422 shares were issued to the Board of Trustees at a price per share on the date of grant of $5.78.

Non-employees

The Company issues share based awards as compensation to non-employees for services provided to the Company consisting primarily of restricted common shares. The Company recorded stock based compensation expense of $21 and $16 and $153 and $122, for the three and nine months ended September 30, 2013 and 2012, respectively. Unearned compensation related to the restricted share awards as of September 30, 2013 and December 31, 2012 was $81 and $74, respectively. The following table is a summary of all unvested share awards issued to non-employees under the Company’s 2008 Equity Incentive Plan and the 2012 Plan:



						Shares Vested			Unearned Compensation
	Shares		Share Price on	Vesting	Vesting	September 30,	December 31,		September 30,		December 31,
Original Issuance Date	Issued		date of grant	Period	Schedule	2013	2012		2013		2012
February 1, 2013	30,000	$	5.41	2 years	50%/year	14,999	-	$	81	$	-
March 26, 2012	28,500	$	5.45	2 years	50%/year	28,500	15,000		-		74
Total	58,500					43,499	15,000	$	81	$	74