NOTE 8 – 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.”

Stock based compensation expense related to the Annual LTIP Plans of $535 and $968 was incurred during the three months ended March 31, 2014 and 2013, respectively. Unearned compensation related to the Annual LTIPs as of March 31, 2014 and December 31, 2013 was $2,224 and $1,305, respectively. The following table is a summary of all unvested share awards issued to executives under the Annual LTIPs:



						Shares Vested		Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant	Vesting Period	Vesting Schedule	March 31, 2014	December 31, 2013		March 31, 2014		December 31, 2013
March 21, 2014
(2013 Annual LTIP)	447,959	$	5.80	3 years	25%/year (1)	111,988	-	$	1,167	$	-
March 20, 2013
(2012 Annual LTIP)	779,045	$	5.95	3 years	25%/year (1)	389,520	389,520		857		1,039
March 26, 2012
(2011 Annual LTIP)	748,927	$	5.45	3 years	25%/year (1)	561,694	561,694		200		266
						1,063,202	951,214	$	2,224	$	1,305

(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 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 March 31, 2014 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 $96 and $798 was recorded for the three months ended March 31, 2014 and 2013, respectively, for the Multi-Year LTIPs. Unearned compensation related to the multi-year program as of March 31, 2014 and December 31, 2013, respectively, was $1,061 and $1,157.

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

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 $357 and $489 was incurred during the three months ended March 31, 2014 and 2013, respectively. Unearned compensation related to

the restricted share awards as of March 31, 2014 and December 31, 2013 was $3,801 and $4,102, 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	March 31, 2014	December 31, 2013		March 31, 2014		December 31, 2013
June 30, 2011	17,692	5.57	2-4 years	25-50%/year	9,919	9,919	$	22	$	28
April 18, 2012	1,035,595	5.47	5 years	33% Year 3, 4, 5 (1)	-	-		3,472		3,746
June 29, 2012	52,703	5.28	2-4 years	25-50%/year	22,480	22,480		81		110
June 28, 2013	48,600	5.64	2-4 years	25-50%/year	-	-		166		199
September 20, 2013	4,605	5.52	2-4 years	25-50%/year	-	-		13		19
February 13, 2014	1,846	5.44	2 years	50%/year	-	-		8		-
March 24, 2014	8,184	5.69	2 years	50%/year	-	-		39		-
Total	1,169,225				32,399	32,399	$	3,801	$	4,102

(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 three months ended March 31, 2014 and 2013, respectively, was $55 and $40. 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		March 31, 2014		December 31, 2013
December 27, 2013	39,133	$	5.63	1 year	100%	$	165	$	220

Multi-Year Long-Term Equity Incentives

Compensation expense for the multi-year long term incentive plans for the Company’s trustees incurred for the three months ended March 31, 2014 and 2013, respectively, was $15 and $14. Unearned compensation related to the multi-year long term equity incentives was $110 and $124 as of March 31, 2014 and December 31, 2013, respectively.

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

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	March 31, 2014	December 31, 2013		March 31, 2014		December 31, 2013
December 27, 2013	12,000	3 years	33%/year	-	-	$	62	$	67
December 28, 2012	12,000	3 years	33%/year	4,002	4,002		35		39
June 5, 2012	10,800	3 years	33%/year	7,200	7,200		13		18
				11,202	11,202	$	110	$	124

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 $54 and $79, for the three months ended March 31, 2014 and 2013, respectively. Unearned compensation related to the restricted share awards as of March 31, 2014 and December 31, 2013 was $252 and $81, 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
Original Issuance Date	Shares Issued		Share Price on Date of Grant	Vesting Period	Vesting Schedule	March 31, 2014	December 31, 2013		March 31, 2014		December 31, 2013
March 24, 2014	30,000	$	5.69	2 years	50%/year		-	$	171	$	-
February 1, 2013	30,000	$	5.41	2 years	50%/year	14,999	14,999		81		81
Total	60,000					14,999	14,999	$	252	$	81