NOTE 8 – SHARE BASED PAYMENTS

In May 2011, the Company established and our shareholders approved the Amended and Restated 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, LTIP Units, or performance share awards issuable pursuant to the 2012 Plan. These awards 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 December 31, 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	December 31, 2016	December 31, 2015		December 31, 2016		December 31, 2015
March 30, 2016
(2015 Annual EIP)	183,396	3 years	25%/year (1)	91,696	-	$	868	$	-
March 30, 2015
(2014 Annual EIP)	128,832	3 years	25%/year (1)	96,623	64,415		225		758
December 23, 2014
(2013 Annual EIP) (3)	83,993	3 years	25%/year (1)	83,993	55,994		-		173
December 23, 2014 (3)	258,899	5 years	33% Year 3, 4, 5 (2)	172,599	86,299		457		1,553
	655,120			444,911	206,708	$	1,550	$	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 original 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.

NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)

Stock based compensation expense related to the Annual Long Term Equity Incentive Program of $4,800, $4,490 and $4,083 was incurred during the years ended December 31, 2016, 2015 and 2014, respectively. Unearned compensation related to the Annual Long Term Equity Incentive Program as of December 31, 2016 and December 31, 2015 was $1,550 and $2,484, respectively.

Unearned 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 December 31, 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	December 31, 2016	December 31, 2015		December 31, 2016		December 31, 2015
March 17, 2016
(2016 Multi-Year EIP)	-	N/A	1/1/2016 to 12/31/2018	-	-	$	888	$	-
March 18, 2015
(2015 Multi-Year EIP)	-	N/A	1/1/2015 to 12/31/2017	-	-		397		596
April 11, 2014
(2014 Multi-Year EIP)	-	N/A	1/1/2014 to 12/31/2016	-	-		283		567
April 15, 2013
(2013 Multi-Year EIP)	110,849	3/30/2016	1/1/2013 to 12/31/2015	110,849	-		-		385
	110,849			110,849	-	$	1,568	$	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 $1,869, $818 and $598 was recorded for the years ended December 31, 2016, 2015 and 2014, respectively, for the Multi-Year Long Term Equity Incentive Programs. Unearned compensation related to the multi-year program as of December 31, 2016 and December 31, 2015, respectively, was $1,568 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 $541, $455 and $399 was incurred during the years ended December 31, 2016, 2015 and 2014 respectively. Unearned compensation related to the restricted share awards as of December 31, 2016 and December 31, 2015 was $505 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	December 31, 2016	December 31, 2015		December 31, 2016		December 31, 2015
2016	30,070	$	18.02-21.11	2 years	50% /year	497	-	$	348	$	-
2015	23,492		21.76-28.09	2-4 years	25-50% /year	13,733	600		157		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	90,562					51,230	30,863	$	505	$	491

*Original share price on date of grants prior to June 22, 2015 were 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 December 30, 2016, we issued 4,395 shares which do not fully vest until December 31, 2017. Compensation expense incurred for the years ended December 31, 2016, 2015 and 2014, respectively, was $112, $93 and $220.

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, 2016		December 31, 2015
December 30, 2016	4,395	$	21.50	12 months	100%	$	94	$	-
March 30, 2016	5,289		21.11	9 months	100%		-		-

Total	9,684					$	94	$	-

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, 2016, 2015 and 2014, respectively, was $61, $59 and $71. Unearned compensation related to the multi-year long term equity incentives was $167 and $67 as of December 31, 2016 and December 31, 2015, 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, 2016	December 31, 2015		December 31, 2016		December 31, 2015
December 30, 2016	5,000	3 years	33% /year	-	-	$	108	$	-
March 30, 2016	2,500	3 years	33% /year	835	-		35		-
December 30, 2014	2,500	3 years	33% /year	1,670	835		24		48
December 27, 2013	3,000	3 years	33% /year	3,000	2,170		-		19
				5,505	3,005	$	167	$	67

Share Awards

Compensation expense related to share awards issued to the Board of Trustees of $535, $434 and $457 was incurred during the years ended December 31, 2016, 2015 and 2014, 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 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. On December 30, 2016, an aggregate of 10,000 shares were issued to the Board of Trustees at a price per share on the date of grant of $21.50.

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 $130, $174 and $200 for the years ended December 31, 2016, 2015 and 2014, respectively. Unearned compensation related to the restricted share awards as of December 31, 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 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, 2016	December 31, 2015		December 31, 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

*Original share price on date of grant 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.