NOTE 9 – SHARE BASED PAYMENTS

In May 2008, the Company established and our shareholders approved the Hersha Hospitality Trust 2008 Equity Incentive Plan (the “2008 Plan”) for the purpose of attracting and retaining executive officers, employees, trustees and other persons and entities that provide services to the Company. Prior to the 2008 Plan, the Company made awards pursuant to the 2004 Equity Incentive Plan (the “2004 Plan”). Upon approval of the 2008 Plan by the Company's shareholders on May 22, 2008, the Company terminated the 2004 Plan. Termination of the 2004 Plan did not have any effect on equity awards and grants previously made under that plan.

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. The 2012 Plan provides that no awards may be granted, and no common shares may be issued in settlement of awards under the Company's 2010 Annual Long-Term Incentive Program (“2010 Annual LTIP”), 2011 Annual Long-Term Incentive Program (“2011 Annual LTIP”), or under the Multi-Year Long-Term Incentive Program “Multi-Year LTIP” prior to January 1, 2012, at which time the Company will terminate the 2008 Plan. Termination of the 2008 Plan will not have any effect on equity awards and grants previously made under that plan.

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.”

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2011 Annual LTIP - On March 16, 2011, the Compensation Committee adopted the 2011 Annual LTIP for the executive officers, pursuant to which the executive officers are eligible to earn equity awards in the form of common shares. Shares are earned under the 2011 Annual LTIP based on achieving a threshold, target or maximum level of performance in certain defined areas of performance. 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. Any common shares issued in settlement of equity awards under the 2011 Annual LTIP will be made pursuant to the 2012 Plan. Stock based compensation expense of $1,476 was recorded for the year ended December 31, 2011 for the 2011 Annual LTIP and is included in stock based compensation on the consolidated statement of operations and a corresponding liability of $1,476 was included in accounts payable, accrued expenses and other liabilities on the Company's consolidated balance sheets as of December 31, 2011 for unissued shares under this program.

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2010 Annual LTIP - On March 30, 2011, 440,669 shares were issued pursuant to the 2010 Annual LTIP of which 25% vested immediately and the remaining will vest 25% on December 31, 2011, 25% on December 31, 2012, and 25% on December 31, 2013. The grant date fair value of the shares awarded was $5.98 per share. Stock based compensation expense related to the 2010 Annual LTIP program of $703 and $1,314 was recorded for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2010, the Company determined that it was probable the performance conditions for the 2010 Annual LTIP would be satisfied and a liability of $1,314 was included in accounts payable, accrued expenses and other liabilities on the Company's consolidated balance sheet as of December 31, 2010, respectively for unissued shares under this program. Unearned compensation related to this program was $605 as of December 31, 2011.

Multi-Year LTIP

On May 7, 2010, the Compensation Committee also adopted the Multi-Year LTIP. This program has a three-year performance period, which commenced on January 1, 2010 and will end on December 31, 2012. The common shares to be issued in settlement of equity awards granted under this program are 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 Company accounts for these grants as market based awards where the Company estimated unearned compensation at the grant date fair value which is then amortized into compensation cost over the vesting period, which ends on December 31, 2013. Stock based compensation expense of $3,192 and $2,084 was recorded for the years ended December 31, 2011 and 2010, respectively for the Multi-Year LTIP. Unearned compensation related to the multi-year program as of December 31, 2011 and 2010, respectively was $6,383 and $9,575.

Performance Share Awards

Performance shares granted in the third quarter of 2009 were earned in their entirety based on the Company's common shares maintaining a closing price in excess of defined thresholds over a defined period of time and then settled in an equivalent number of common shares. The Company accounted for these grants as market based awards where the Company estimated the unearned compensation at grant date fair value which was amortized into compensation cost over the performance period, which ended on August 4, 2010. Stock based compensation expense of $725 and $140 was incurred during the years ended December 31, 2010 and 2009, respectively for the performance share awards.

Restricted Share Awards

Stock based compensation expense related to the restricted share awards, consisting of restricted common shares issued to executives and employees of the Company, of $1,662, $2,230, and $1,899 was incurred during years ended December 31, 2011, 2010, and 2009 respectively. Unearned compensation related to the restricted share awards as of December 31, 2011 and 2010 was $1,370 and $2,940, respectively. The following table is a summary of all unvested share awards issued to executives under the 2004 and 2008 Plans:

							Shares Vested				Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant		Vesting Period	Vesting Schedule	December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
June 1, 2007		214,582	$	12.32	4 years	25%/year		214,582		160,933		-		275
June 2, 2008		278,059	$	8.97	4 years	25%/year		208,542		139,028		260		883
September 30, 2008		3,616	$	7.44	1-4 years	25-100%/year		2,962		2,308		4		9
June 1, 2009		744,128	$	2.80	4 years	25%/year		372,483		186,241		737		1,258
June 1, 2010		182,308	$	4.63	2-3 years	25-50%/year		91,151		42,784		291		515
June 30, 2011		17,692	$	5.57	2-4 years	25-50%/year		-		-		78		-
Total		1,440,385						889,720		531,294	$	1,370	$	2,940

Trustees

Annual Retainer

On March 16, 2011, 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. The number of shares issued on March 31, 2011 was determined by dividing the dollar value of the award by the 20-day volume weighted average closing price of the Company's common shares on the New York Stock Exchange as of December 31, 2010. Shares issued under this program became fully vested on December 31, 2011. Compensation expense incurred for the year ended December 31, 2011 was $111, which is offset by forfeitures as of December 31, 2011 of $33.

Multi-Year Long-Term Equity Incentives

On March 30, 2011, the Company issued an aggregate of 12,600 restricted common shares, 1,800 to each non-management trustee, which will vest 33% on December 31, 2011, 33% on December 31, 2012, and 33% on December 31, 2013. Compensation expense for the multi-year long-term equity incentive incurred for the year ended December 31, 2011 was $21. Unearned compensation related to the multi-year long term equity incentives was $43 for December 31, 2011.

Share Awards

Compensation expense related to share awards issued to the Board of Trustees of $322, $264, and $104 was incurred the years ended December 31, 2011, 2010, and 2009, respectively and is recorded in stock based compensation on the statement of operations. Shares awards issued to the Board of Trustees are immediately vested. On June 1, 2011, 22,800 shares were issued to the Board of Trustees at a price on the date of grant of $5.83. On December 30, 2011, 38,782 shares were issued to the Board of Trustees at a price on the date of grant of $4.88.

Non-employees

The Company issues share based awards as compensation to non-employees for services provided to the Company and consists primarily of restricted common shares. The Company recorded stock based compensation expense of $104 and $32 for the years ended December 31, 2011 and 2010, respectively. Unearned compensation related to the restricted share awards as of December 31, 2011 and 2010 was $70 and $20, respectively. The following table is a summary of all unvested share awards issued to non-employees under the 2008 Plan:

							Shares Vested				Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant		Vesting Period	Vesting Schedule	December 31, 2011		December 31, 2010		December 31, 2011		December 31, 2010
January 6, 2011		17,035	$	6.66	1.5 years	50%/year		8,705		-		55		-
March 25, 2010		6,000	$	5.02	2 years	50%/year		3,000		-		15		20
Total		23,035						11,705		0	$	70	$	20