NOTE 8 – SHARE BASED PAYMENTS

In May 2011, the Company established and our shareholders approved the Hersha Hospitality Trust 2012 Equity Incentive Plan (as amended through the date hereof, 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 March 18, 2015, the Compensation Committee approved the 2015 Annual Long Term Equity Incentive Program (“2015 Annual EIP”) 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 (“LTIP Units”). LTIP Units are earned under the 2015 Annual EIP based on achieving a threshold, target or maximum level of performance in the performance of RevPAR growth in certain 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 each period. As of December 31, 2015, no shares or LTIP Units have been issued in accordance with the 2012 Plan to the executive officers in settlement of 2015 Annual EIP awards.

The following table is a summary of all unvested LTIP Units issued to executives:


				Units Vested		Unearned Compensation
Issuance Date	LTIP Units Issued	Vesting Period	Vesting Schedule	December 31, 2015	December 31, 2014		December 31, 2015		December 31, 2014
March 30, 2015
(2014 Annual EIP)	128,832	3 years	25%/year (1)	64,415	-	$	758	$	-
December 23, 2014
(2013 Annual EIP) (3)	83,993	3 years	25%/year (1)	83,992	27,998		173		582
December 23, 2014
(2012 Annual EIP) (3)	97,381	3 years	25%/year (1)	194,761	48,690		-		309
December 23, 2014 (3)	258,899	5 years	33% Year 3, 4, 5 (2)	86,299	-		1,553		2,650
	569,105			429,467	76,688	$	2,484	$	3,541

(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 effective issuance (subject to continuous employment through the applicable vesting date).

(2)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 258,899 restricted common shares to the executives pursuant to the 2012 Plan, which were subsequently forfeited and replaced with LTIP Units. None of these LTIP Units will vest prior to the third anniversary of the date of issuance. Thereafter, 33.3% of each award of LTIP Units 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 employment agreements).

(3)On December 23, 2014, the 2012 Plan was amended and restated to add LTIP Units as a type of award available under the 2012 Plan. On this date, the Compensation Committee approved an aggregate of 487,081 LTIP Units to certain executive officers. These executive officers forfeited an aggregate of 487,081 Class A Common Shares, all of which were unvested as of the grant date of the LTIP Units and previously awarded to the executive officers under the 2012 Plan as restricted stock awards. These LTIP Units are subject to the same time-based vesting conditions that applied to the forfeited restricted stock awards.

Stock based compensation expense related to the Annual Long Term Equity Incentive Program of $4,490, $4,083 and $4,858 was incurred during the years ended December 31, 2015, 2014 and 2013, respectively. Unearned compensation related to the

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

Annual Long Term Equity Incentive Program as of December 31, 2015 and December 31, 2014 was $2,484 and $3,541, respectively.

Compensation related to the LTIP Units is included in Noncontrolling Interests on the Company’s Consolidated Balance Sheets and Consolidated Statements of Equity.

Multi-Year Long Term Equity Incentive Programs

On March 18, 2015, the Compensation Committee approved the 2015 Multi-Year Long Term Equity Incentive Program (“2015 Multi-Year EIP”). The shares or LTIP Units issuable under this program are based on the Company’s achievement of a certain level of (1) absolute total shareholder return (37.50% of the award), (2) relative total shareholder return as compared to the Company’s peer group (37.50% 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, 2015 and ends December 31, 2017. As of December 31, 2015, no shares or LTIP Units have been issued to the executive officers in settlement of 2015 Multi-Year EIP awards.

On April 11, 2014, the Compensation Committee approved the 2014 Multi-Year Long Term Equity Incentive Program (“2014 Multi-Year EIP”). The common shares issuable under this program are based on the Company’s achievement of a certain level of (1) absolute total shareholder return (37.50% of the award), (2) relative total shareholder return as compared to the Company’s peer group (37.50% 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, 2014 and ends December 31, 2016. As of December 31, 2015 no common shares have been issued to the executive officers in settlement of 2014 Multi-Year EIP awards.

On April 15, 2013, the Compensation Committee approved the 2013 Multi-Year Long Term Equity Incentive Program (“2013 Multi-Year EIP”). 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, 2015 no common shares have been issued to the executive officers in settlement of 2013 Multi-Year EIP 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 probable achievement of the performance conditions at the end of the reporting period.

Stock based compensation expense of $818, $598 and $3,481 was recorded for the years ended December 31, 2015, 2014 and 2013, respectively, for the Multi-Year Long Term Equity Incentive Programs. Unearned compensation related to the multi-year program as of December 31, 2015 and December 31, 2014, respectively, was $1,548 and $1,621.

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

Restricted Share Awards

In addition to stock based compensation expense related to awards under the Multi-Year and Annual Long Term Equity Incentive Programs, stock based compensation expense related to restricted common shares issued to employees of the Company of $455, $399 and $522 was incurred during the years ended December 31, 2015, 2014 and 2013 respectively. Unearned compensation related to the restricted share awards as of December 31, 2015 and December 31, 2014 was $491 and $322, respectively. The following table is a summary of all unvested share awards issued to executives under the 2012 Plan and prior equity incentive plans:


						Shares Vested			Unearned Compensation
Original Issuance Date	Original Shares Issued		Share Price on Date of Grant*	Vesting Period	Vesting Schedule	December 31, 2015	December 31, 2014		December 31, 2015		December 31, 2014
December 31, 2015	816	$	21.76	2 years	50% /year	-	-	$	13	$	-
July 14, 2015	15,817		28.09	2-4 years	25-50% /year	-	-		335		-
June 1, 2015	1,651		25.92	2 years	50% /year	-	-		30		-
March 27, 2015	5,208		25.88	2 years	50% /year	600	-		41		-
July 15, 2014	10,352		27.00	2 years	50% /year	6,069	1,532		48		177
June 23, 2014	1,103		26.00	2 years	50% /year	550	-		6		20
March 24, 2014	2,046		22.76	2 years	50% /year	2,046	1,023		-		10
February 13, 2014	462		21.76	2 years	50% /year	462	231		-		2
June 28, 2013	11,899		22.56	2-4 years	25-50% /year	11,199	5,724		7		69
June 29, 2012	13,646		21.12	2-4 years	25-50% /year	12,445	11,242		11		36
June 30, 2011	4,423		22.28	2-4 years	25-50% /year	4,423	3,451		-		8
Total	67,423					37,794	23,203	$	491	$	322

*Original share price on date of grant was multiplied by four to account for the reverse share split which occurred on June 22, 2015. See “Note 1 – Basis of Presentation” for more information.

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. Compensation expense incurred for the years ended December 31, 2015, 2014 and 2013, respectively, was $93, $220 and $160.

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, 2015		December 31, 2014
December 30, 2014	3,215	$	29.00	1 year	100%	$	-	$	93

*Original share price on date of grant was multiplied by four to account for the reverse share split which occurred on June 22, 2015. See “Note 1 – Basis of Presentation” for more information.

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, 2015, 2014 and 2013, respectively, was $59, $71 and $55. Unearned compensation related to the multi-year long term equity incentives was $67 and $127 as of December 31, 2015 and December 31, 2014, 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 equity incentive plans:


				Shares Vested		Unearned Compensation
Original Issuance Date	Shares Issued	Vesting Period	Vesting Schedule	December 31, 2015	December 31, 2014		December 31, 2015		December 31, 2014
December 30, 2014	2,500	3 years	33% /year	835	-	$	48	$	73
December 27, 2013	3,000	3 years	33% /year	2,170	1,334		19		38
December 28, 2012	3,000	3 years	33% /year	3,000	2,168		-		16
				6,005	3,502	$	67	$	127

Share Awards

Compensation expense related to share awards issued to the Board of Trustees of $434, $457 and $496 was incurred during the years ended December 31, 2015, 2014 and 2013, 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 1, 2015, an aggregate of 10,442 shares were issued to the Board of Trustees at a price per share on the date of grant of $25.92. On December 31, 2015, an aggregate 7,500 shares were issued to the Board of Trustees at a price per share on the date of grant of $21.76.

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, $200 and $174 for the years ended December 31, 2015, 2014 and 2013, respectively. Unearned compensation related to the restricted share awards as of December 31, 2015 and December 31, 2014 was $90 and $81, respectively. The following table is a summary of all unvested share awards issued to non-employees under the Company’s 2012 Plan:



						Shares Vested			Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on Date of Grant*	Vesting Period	Vesting Schedule	December 31, 2015	December 31, 2014		December 31, 2015		December 31, 2014
March 27, 2015	7,438	$	25.88	2 years	50% /year	3,762	-	$	90	$	-
March 24, 2014	7,219	$	22.76	2 years	50% /year	7,219	3,750		-		81
Total	14,657					10,981	3,750	$	90	$	81

*Original share price on date of grant was multiplied by four to account for the reverse share split which occurred on June 22, 2015. See “Note 1 – Basis of Presentation” for more information.