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 2012 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 of the period. Stock based compensation of $1,144, was recorded for the year ended December 31, 2013 for the 2013 Annual LTIP and is included in general and administrative expense in the consolidated statements of operations. As of December 31, 2013, no common shares have been issued pursuant to the 2012 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 $2,618, $3,925, and $2,179 was incurred during the years ended December 31, 2013, 2012, and 2011, respectively. Unearned compensation related to the 2012 Annual LTIP, 2011 Annual LTIP, and 2010 Annual LTIP as of December 31, 2013 and December 31, 2012 was $1,305 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	December 31, 2013	December 31, 2012		December 31, 2013		December 31, 2012
March 20, 2013
(2012 Annual LTIP)	779,045	$	5.95	3 years	25%/year (1)	389,520	-	$	1,039	$	-
March 26, 2012
(2011 Annual LTIP)	748,927	$	5.45	3 years	25%/year (1)	561,694	374,462		266		892
March 30, 2011
(2010 Annual LTIP)	440,669	$	5.98	3 years	25%/year (1)	440,669	330,500		-		180
						1,391,883	704,962	$	1,305	$	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 year ended December 31, 2013, of which 1,525,931 vested immediately, and the remaining vested on December 31, 2013.

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 December 31, 2013, no common shares have been issued pursuant to the 2013 Plan to the executive officers in settlement of the 2013 Multi-Year LTIP 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 for which the Company assesses the probability of achievement of the performance condition at the end of each period.

Stock based compensation expense of $3,481, $3,192 and $3,192 was recorded for the years ended December 31, 2013, 2012, and 2011, respectively, for the Multi-Year LTIPs. Unearned compensation related to the multi-year program as of December 31, 2013 and December 31, 2012, respectively, was $1,157 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 $1,618, $1,911, and $1,662 was incurred during the years ended December 31, 2013, 2012, and 2011 respectively. Unearned compensation related to the restricted share awards as of December 31, 2013 and December 31, 2012 was $4,102 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	December 31, 2013	December 31, 2012		December 31, 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		28		51
April 18, 2012	1,035,595		5.47	5 years	33% Year 3, 4, 5 (1)	-	-		3,746		4,842
June 29, 2012	52,703		5.28	2-4 years	25-50%/year	22,480	-		110		228
June 28, 2013	48,600		5.64	2-4 years	25-50%/year	-	-		199		-
September 20, 2013	4,605		5.52	2-4 years	25-50%/year	-	-		19		-
Total	2,085,631					958,835	702,785	$	4,102	$	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 27, 2013, we issued 39,133 shares which do not fully vest until December 31, 2014. Compensation expense incurred for the years ended December 31, 2013, 2012, and 2011, respectively, was $160, $66, and $111, which was offset by forfeitures as of December 31, 2012 and 2011, respectively, of $40 and $33.

NOTE 9 – SHARE BASED PAYMENTS (CONTINUED)

The following table is a summary of all unvested share awards issued to trustees in lieu of annual cash retainer:



						Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant	Vesting Period	Vesting Schedule		December 31, 2013		December 31, 2012
December 27, 2013	39,133	$	5.63	1 year	100%	$	220	$	-
December 28, 2012	32,417		4.93	1 year	100%		-		160
Total	71,550					$	220	$	160

Multi-Year Long-Term Equity Incentives

Compensation expense for the multi-year long term incentive plans for the Company’s trustees incurred for the years ended December 31, 2013, 2012, and 2011, respectively, was $55, $43, and $21. Unearned compensation related to the multi-year long term equity incentives was $124 and $113 as of December 31, 2013 and December 31, 2012, respectively.

The following table is a summary of all unvested share awards issued to trustees under the 2012 Plan and prior to equity incentive plans:


				Shares Vested		Unearned Compensation
Original Issuance Date	Shares Issued	Vesting Period	Vesting Schedule	December 31, 2013	December 31, 2012		December 31, 2013		December 31, 2012
December 27, 2013	12,000	3 years	33%/year	-	-	$	67	$	-
December 28, 2012	12,000	3 years	33%/year	4,002	-		39		59
June 5, 2012	10,800	3 years	33%/year	7,200	3,600		18		36
March 30, 2011	10,800	3 years	33%/year	10,800	7,800		-		18
				22,002	11,400	$	124	$	113

Share Awards

Compensation expense related to share awards issued to the Board of Trustees of $496, $402 and $322 was incurred during the years ended December 31, 2013, 2012, and 2011, 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. On December 27, 2013, an aggregate 32,400 shares were issued to the Board of Trustees at a price per share on the date of grant of $5.63.

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 $174, $139, and $103 for the years ended December 31, 2013, 2012, and 2011, respectively. Unearned compensation related to the restricted share awards as of December 31, 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	December 31,	December 31,		December 31,		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