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.”

On March 17, 2016, the Compensation Committee approved the 2016 Annual Long Term Equity Incentive Program (“2016 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 2016 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 probability of achievement of the performance conditions at the end of each period. As of June 30, 2016, no shares or LTIP Units have been issued in accordance with the 2012 Plan to the executive officers in settlement of 2016 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	June 30, 2016	December 31, 2015		June 30, 2016		December 31, 2015
March 30, 2016
(2015 Annual EIP)	183,396	3 years	25%/year (1)	45,847	-	$	1,450	$	-
March 30, 2015
(2014 Annual EIP)	128,832	3 years	25%/year (1)	64,415	64,415		492		758
December 23, 2014
(2013 Annual EIP) (3)	83,993	3 years	25%/year (1)	55,994	55,994		87		173
December 23, 2014 (3)	258,899	5 years	33% Year 3, 4, 5 (2)	172,599	86,299		1,005		1,553
	655,120			338,855	206,708	$	3,034	$	2,484

(1)

25% of the issued shares or LTIP Units vested immediately upon issuance. In general, the remaining shares or LTIP Units vest 25% on the first through third anniversaries of the end of the performance period (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. One-third of each award of LTIP Units vested or 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).

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

(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 $952 and $934 and $2,362 and $2,130 was incurred during the three and six months ended June, 2016 and 2015, respectively. Unearned compensation related to the Annual Long Term Equity Incentive Program as of June 30, 2016 and December 31, 2015 was $3,034 and $2,484, respectively.

Compensation related to the grants and amortization of 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 17, 2016, the Compensation Committee approved the 2016 Multi-Year Long Term Equity Incentive Program (“2016 Multi-Year EIP”). This program has a three-year performance period which commenced on January 1, 2016 and ends December 31, 2018. As of June 30, 2016, no shares or LTIP Units have been issued to the executive officers in settlement of 2016 Multi-Year EIP awards.

The following table is a summary of the approved Multi-Year Long Term Equity Incentive Programs:


				Units Vested		Unearned Compensation
Compensation Committee Approval Date	LTIP Units Issued	LTIP Issuance Date	Performance Period	June 30, 2016	December 31, 2015		June 30, 2016		December 31, 2015
March 17, 2016
(2016 Multi-Year EIP)	-	N/A	1/1/2016 to 12/31/2018	-	-	$	1,036	$	-
March 18, 2015
(2015 Multi-Year EIP)	-	N/A	1/1/2015 to 12/31/2017	-	-		496		596
April 11, 2014
(2014 Multi-Year EIP)	-	N/A	1/1/2014 to 12/31/2016	-	-		425		567
April 15, 2013
(2013 Multi-Year EIP)	110,849	3/30/2016	1/1/2013 to 12/31/2015	55,424	-		297		385
	110,849			55,424	-	$	2,254	$	1,548

The shares or LTIP Units issuable under the Multi-Year Long Term Incentive Programs, including the 2016 Multi-Year EIP, 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 (RevPar) compared to the Company’s peer group (25% of the award).

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 $343 and $217 and $1,184 and $384 was recorded for the three and six months ended June 30, 2016 and 2015, respectively, for the Multi-Year Long Term Equity Incentive Programs. Unearned compensation related to the multi-year program as of June 30, 2016 and December 31, 2015, respectively, was $2,254 and $1,548.

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

Restricted Share Awards

In addition to share based compensation expense related to awards to executives under the Multi-Year and Annual Long Term Equity Incentive Programs, share based compensation expense related to restricted common shares issued to employees of the Company of $135 and $107 and $256 and $195 was incurred during the three and six months ended June 30, 2016 and 2015, respectively. Unearned compensation related to the restricted share awards as of June 30, 2016 and December 31, 2015 was $366 and $491, respectively. The following table is a summary of all unvested share awards issued to employees under the 2012 Plan and prior equity incentive plans:


						Shares Vested			Unearned Compensation
Original Year of Issuance Date	Original Shares Issued		Range of Share Price on Date of Grant*	Vesting Period	Vesting Schedule	June 30, 2016	December 31, 2015		June 30, 2016		December 31, 2015
2016	6,261	$	21.11	2 years	50% /year	497	-	$	97	$	-
2015	23,492		21.76-28.09	2-4 years	25-50% /year	13,636	600		269		419
2014	11,455		26.00-27.00	2 years	50% /year	11,455	6,619		-		54
2013	11,899		22.56	2-4 years	25-50% /year	11,899	11,199		-		7
2012	13,646		21.12	2-4 years	25-50% /year	13,646	12,445		-		11
Total	66,753					51,133	30,863	$	366	$	491

*Original share price on date of grants prior to June 22, 2015 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. On March 30, 2016, we issued 5,289 shares which do not fully vest until December 31, 2016. Compensation expense incurred for the three and six months ended June 30, 2016 and 2015, respectively, was $37 and $23 and $37 and $47. The following table is a summary of all unvested share awards issued to trustees in lieu of an annual cash retainer:



						Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on Date of Grant	Vesting Period	Vesting Schedule		June 30, 2016		December 31, 2015
March 30, 2016	5,289	$	21.11	9 months	100%	$	74	$	-

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

Multi-Year Long-Term Equity Incentives

Compensation expense for the Multi-Year Long Term Incentive Programs for the Company’s trustees incurred for the three and six months ended June 30, 2016 and 2015 was $15 and $30 for both periods. Unearned compensation related to the Multi-Year Long Term Equity Incentive Programs was $90 and $67 as of June 30, 2016 and December 31, 2015, respectively.

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	June 30, 2016	December 31, 2015		June 30, 2016		December 31, 2015
March 30, 2016	2,500	3 years	33% /year	-	-	$	44	$	-
December 30, 2014	2,500	3 years	33% /year	835	835		36		48
December 27, 2013	3,000	3 years	33% /year	2,170	2,170		10		19
				3,005	3,005	$	90	$	67

Share Awards

Compensation expense related to share awards issued to the Board of Trustees of $319 and $271 was incurred during the three and six months ended June 30, 2016 and 2015, respectively, and is recorded in general and administrative expense on the statement of operations. Share grants issued to the Board of Trustees are immediately vested. On June 6, 2016, an aggregate of 17,795 shares were issued to the Board of Trustees at a price per share on the date of grant of $17.96.

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 $72 and $88 and $91 and $137 for the three and six months ended June 30, 2016 and 2015, respectively. Unearned compensation related to the restricted share awards as of June 30, 2016 and December 31, 2015 was $79 and $90, respectively. The following table is a summary of all unvested share awards issued to non-employees under the 2012 Plan:



						Shares Vested			Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on Date of Grant*	Vesting Period	Vesting Schedule	June 30, 2016	December 31, 2015		June 30, 2016		December 31, 2015
March 30, 2016	7,500	$	21.11	2 years	50% /year	3,750	-	$	79	$	-
March 27, 2015	7,238	$	25.88	2 years	50% /year	7,238	3,762		-		90
Total	14,738					10,988	3,762	$	79	$	90