2016
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Our efforts
While 2015 was not without its share of challenges, Hersha Hospitality Trusthave outperformed the total returnpeer group by 430 basis points over the past 3 years.
We believe our company is very well positioned to continue to outperform in both the near and long-term. assets.
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JUNE 1, 2018
A.M. (EDT)
3100 SOUTHST. GREGORY HOTEL
20036
1.To elect four Class I Trustees to the Board of Trustees.
2.To approve on an advisory basis the compensation of the Company’s named executive officers.
3.To ratify the appointment of KPMG LLP as the Company’s independent auditors.
4.To transact such other business as may properly come before the annual meeting and any adjournment or postponement thereof.
| 1. | To elect four Class I Trustees to the Board of Trustees. |
| 2. | To approve on an advisory basis the compensation of the Company’s named executive officers. |
| 3. | To ratify the appointment of KPMG LLP as the Company’s independent auditors for the year ending December 31, 2018. |
| 4. | To transact such other business as may properly come before the annual meeting and any adjournment or postponement thereof. |
29, 2018.
Our 2015 on Form 10-K for the year ended December 31, 2017, how to vote over the Internet or how to request and return a proxy card by mail. Shareholders may request to receive a paper copy of the proxy materials and will subsequently be mailed the Proxy Statement, our annual report to shareholders accompanies, but is not part of theseaccompanying our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, or the 2017 Annual Report, and a proxy materials.
card.
By Order of the Board of Trustees,
JUNE 1, 2018:
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| PROXY SUMMARY | ||
PLEASE VOTE |
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CORPORATE GOVERNANCE |
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE - EARTHVIEW SUSTAINABLE HOSPITALITY | ||
PROPOSAL ONE: Election of Class I Trustees |
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BOARD OF TRUSTEES AND EXECUTIVE OFFICERS |
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MEETINGS OF THE BOARD OF TRUSTEES |
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TRUSTEE COMPENSATION |
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SECURITY OWNERSHIP OF MANAGEMENT |
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OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY |
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COMPENSATION COMMITTEE REPORT |
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COMPENSATION DISCUSSION AND ANALYSIS |
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EXECUTIVE COMPENSATION |
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PROPOSAL TWO: Advisory Vote on Executive Compensation |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
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AUDIT COMMITTEE REPORT |
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INFORMATION ABOUT THE COMPANY’S INDEPENDENT AUDITORS |
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PROPOSALTHREE: Ratification of Appointment of Independent Auditors |
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SHAREHOLDER PROPOSALS AND NOMINATIONS FOR THE |
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OTHER MATTERS |
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ANNUAL REPORT ON FORM 10-K |
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29, 2018.
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| Board Independence | -6 out of 8 of our trustees and trustee nominees are independent -Our Chairman and CEO are the only management trustees -Independent Lead Trustee (selected by the trustees) regularly convenes executive sessions of independent trustees to discuss certain matters without management trustees or management present |
| Board Composition and Committees | -The Nominating and Corporate Governance Committee leads the full Board in considering Board competencies and the identification and evaluation of trustee candidates -We have four Board committees and one sub-committee - Acquisition, Audit (including Risk-Sub-Committee), Nominating and Corporate Governance, and Compensation -All committees are composed entirely of independent trustees -The Board and its committees and sub-committees conduct an annual self-assessment to review effectiveness |
| Board Diversity | -4 out of 8 of our trustees are women and minority board members |
| Leadership Structure | -Chairman of the Board separate from CEO -Independent Lead Trustee, among other duties, convenes and chairs executive sessions of the independent trustees |
| Risk Oversight | -Our full Board is responsible for risk oversight, and has designated committees to have particular oversight of certain key risks -Risk Sub-Committee established to promote active and focused discussion of risk and risk oversight -Our Board oversees management as management fulfills its responsibilities for the assessment and mitigation of risks and for taking appropriate risks |
| Open Communication | -We encourage open communication and strong working relationships among the Independent Lead Trustee, Chairman, CEO and other trustees -Our trustees have access to management and employees |
| Trustee Stock Ownership | -Our independent trustees are required to own our common shares in an amount equal to five times the annual cash base retainer -Our management trustees (CEO and Chairman) are required to own common stock in an amount equal to six times and four times their annual salary, respectively -Comprehensive insider trading policy and prohibitions on hedging transactions |
| Accountability to Stockholders | -We use majority voting in uncontested director elections -Shareholders have the power to amend the Bylaws -We do not have a shareholder rights plan -We have an annual advisory vote on executive compensation as opposed to every two or three years, as approved, on an advisory basis, by our shareholders at our 2017 annual meeting. |
We are proud that fair dealing is at the foundation of all that we do. It is our goal to constantly reinforce the promotion of good citizenship and community involvement in the activities of our Company.
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Class I | ||||||||||||||||
Jay H. |
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Thomas J. Hutchison III |
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Donald J. Landry |
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Michael A. Leven |
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Class II Trustees | ||||||||||||||||
Hasu P. Shah |
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Jackson Hsieh | 57 | President and Chief Executive Officer, Spirit Realty Capital, Inc. | Acquisition Audit Compensation | Spirit Realty Capital, Inc. | ||||||||||||
| Dianna F. Morgan |
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John M. Sabin |
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| Name | Age | Title | ||||||
| Hasu P. Shah* |
| Chairman of the Board | ||||||
Jay H. Shah* |
| Chief Executive Officer | ||||||
Neil H. Shah* |
| President and Chief Operating Officer | ||||||
Ashish R. Parikh* |
| Chief Financial Officer and Assistant Secretary | ||||||
Michael R. Gillespie* |
| Chief Accounting Officer, Controller, and Assistant Secretary | ||||||
David L. Desfor |
| Treasurer and Corporate Secretary | ||||||
* Indicates the executive is a named executive officer ("NEO" or, collectively, "NEOs") of the Company. | ||||||||
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The Company ties NEO pay to performance. For | The Company has no contractual arrangements for guaranteed payouts (other than base salary which is only | |
The Company sets clear goals for company performance and differentiates certain elements of compensation based on individual NEO achievement. 100% of at-risk compensation is payable only upon the achievement of specific performance metrics and individual achievement. | The Company does not issue equity compensation that is at-risk merely due to time-based vesting. Rather 100% of at-risk compensation is dependent upon specific performance metrics and individual achievement. Once earned, equity awards are subject to time-vesting requirements to promote retention. | |
| The Company mitigates undue risk, including retention provisions, multiple performance targets, and robust Board and management processes to identify risk. The Company | The Compensation Committee does not believe the executive compensation program creates risks that are reasonably likely to pose a material adverse impact to the Company. | |
The Company has reasonable post-employment and change in control provisions. The employment agreements with the NEOs generally provide for cash payments after a change in control only if the NEO is also terminated without cause or voluntarily resigns for good reason within one year of the change in control (a double-trigger). | The Company does not have any tax gross-up provisions for any of the NEOs and maintains that it will not enter into an agreement with a new executive officer that includes a tax gross-up provision with respect to payments contingent upon a change in control. | |
The Compensation Committee benefits from its utilization of an independent compensation consulting firm. The reports prepared by the compensation consulting firm are used by the Compensation Committee to set executive compensation at levels that are intended to be competitive with the Company’s industry peers. | The Company’s compensation consulting firm does not provide any other services to the Company or management. | |
The Company has adopted share ownership guidelines for the NEOs. In addition, the Company implemented requirements for the NEOs to hold shares granted for two years beyond vesting. | The Company has not used options or share appreciation rights. If used, the Company would not reprice these securities if they were underwater. | |
Only customary perquisites, such as health and insurance benefits, are provided. Perquisites represent only a small portion of the total NEO compensation. | The Company does not have deferred compensation or pension plans and does not provide perquisites to the NEOs that would be considered significant or extraordinary. | |
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The table below highlights our share performance:
(Represents total returns from January 26, 1999 through December 31, 2015. Source: Bloomberg and SNL Financial.)
Hersha Hospitality Trust is a Hotel EBITDA margin leader in
(Source: Publicly available information and SEC filings.)
Hotel EBITDA is a commonly used measure of performance in the hotel industry for a specific hotel or group of hotels. We believe Hotel EBITDA provides a more complete understanding of the operating results of the individual hotel or group of hotels. We calculate Hotel EBITDA by utilizing the total revenues generated from hotel operations less all operating expenses, property taxes, insurance and management fees, which calculation excludes Company expenses not specific to a hotel, such as corporate overhead. Because Hotel EBITDA is specific to individual hotels or groups of hotels and not topast several years, the Company as a whole, it is not directly comparable to any
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GAAP measure and should not be relied on as a measure of performance for our portfolio of hotels taken as a whole.
Hersha Hospitality Trust maintains leading Hotel EBITDA margins while achieving RevPAR that is in line with RevPAR generated by lodging REITshas been focused on the ownership of full service hotels. The table below illustrates the Company’s RevPAR compared to the RevPAR oftransforming its peers:
(Source: Publicly available informationportfolio through strategic acquisitions and SEC filings)
The Companydispositions, improving its balance sheet and strategically accessing capital markets.
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2018.
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Proposal Number | Page Number | Proposal | Recommendation | |||||||||
| PROPOSAL 1 |
| To elect four Class I Trustees to the Board of Trustees. | FOR - All Nominees | |||||||||
PROPOSAL 2 |
| To approve on an advisory basis the compensation of the Company’s named executive officers. | FOR | |||||||||
PROPOSAL 3 |
| To ratify the appointment of KPMG LLP as the Company’s independent | FOR | |||||||||
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20, 2018.
The solicitation of proxies is being made primarily by the use of standard mail.
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Attending the Annual Meeting In Person
2018.
In
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Householding
In June of 2015,
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and from the chairs of the Audit Committee and the Compensation Committee. In addition, the Board of Trustees administers its risk oversight function through the required approval by the Board of Trustees (or a committee thereof) of significant transactions and other decisions, including, among others, acquisitions and dispositions of properties, new borrowings, significant capital expenditures, refinancing of existing indebtedness and the appointment and retention of the Company’s senior management.
The Board of Trustees met six times in 2017.
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expertise in the hospitality industry, experience as a senior executive or with corporate strategy initiatives generally, diversity and the extent to which the candidate would fill a present need on the Board of Trustees. The NCG Committee Charter describes the Committee’s responsibilities, including seeking, screening and recommending trustee candidates for nomination by the Board of Trustees.
2017.
AND EXECUTIVE OFFICERS
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The following pages include biographical information for each of our Class I Trustee Nominees and Class II Trustees, including their qualifications to serve on our board of trustees.
Jay H. Shah Chief Executive Officer and Class I Trustee Nominee
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Age: 49 Trustee since January 2006 Committees Served: None Other Public Company Boards: None | Mr. Jay Shah has been Chief Executive Officer and a trustee since 2006. Prior thereto, he had served as the Company’s President and Chief Operating Officer. Mr. Jay Shah was a principal in the law firm of Shah & Byler, LLP, which he founded in 1997. Previously he was a consultant with Coopers & Lybrand LLP, served the late Senator John Heinz on Capitol Hill, and was employed by the Philadelphia District Attorney’s office and two Philadelphia-based law firms. Mr. Jay Shah received a bachelor of science degree from the Cornell University School of Hotel Administration, a masters degree from the Temple University School of Business Management and a law degree from Temple University School of Law. Mr. Jay Shah serves on the Board of Temple University and on the Urban Land Institute’s Hospitality Development Council. Mr. Jay Shah is the son of Hasu P. Shah, the Company’s Chairman of the Board and Class II Trustee, and the brother of Neil H. Shah, the Company’s President and Chief Operating Officer. The Board of Trustees has determined that Mr. Jay Shah’s qualifications to serve on the Board of Trustees include his extensive experience in the lodging and real estate industry and his experience negotiating and structuring real estate transactions and real estate-related joint ventures, including in his role as a former practicing real estate attorney. Mr. Jay Shah has more than |
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Thomas J. Hutchison III Class I Trustee Nominee Age: 76 Trustee since September 2008 Committees Served: Compensation (Chair) Acquisition Audit Risk Sub-Committee Other Public Company Boards: Marriott Vacations Worldwide | Mr. Hutchison was the Chief Executive Officer of CNL Hotels & Resorts, Inc. (“CNL Hotels”), a real estate investment trust that owned hotels and resort properties through April 2007. During that same time period, Mr. Hutchison held various other executive officer positions with companies affiliated with CNL Hotels, including but not limited to President and Chief Executive Officer of CNL Hotel Investors, Inc. and Chief Executive Officer of CNL Income Properties, Inc. Since April 2007, Mr. Hutchison has served as a consultant with Hutchison Advisors, Inc., a real estate services company, and he has served as Chairman of Legacy Healthcare Advisors, LLC, a specialized real estate services group. Mr. Hutchison serves on the Board of Directors of Marriott Vacations Worldwide Corporation, where he is a member of that board’s Audit and Nominating and Corporate Governance committees and serves as Chair of that board’s Compensation Committee. Mr. Hutchison also serves on the Board of Directors of Target Healthcare REIT Ltd., a company traded on the London Stock Exchange. Mr. Hutchison is currently a director for KSL Capital Partners LLC, U.S. Chamber of Commerce, and The Trinity Forum Europe. Mr. Hutchison was formerly a director for ING DIRECT USA and ClubCorp, Inc. He is a member of The Real Estate Roundtable, Leadership Council for Communities in Schools, Advisory Council of the Erickson School of Aging Studies and serves on the Advisory Editorial Board of GlobalHotelNetwork.com. Additionally, he serves as a senior advisor to various service industry public companies. Mr. Hutchison attended Purdue University and the University of Maryland Business School. Mr. Hutchison’s qualifications to serve on the Board of Trustees include his substantial experience in the real estate and lodging industries combined with his extensive leadership experience as a Chief Executive Officer of several SEC reporting REITs, including CNL | ||
Donald J. Landry Lead Independent Trustee and Class I Trustee Nominee Age: 69 Trustee since April 2001 Committees Served: Acquisition Audit Risk Sub-Committee NCG Other Public Company Boards: Condor Hospitality Trust, Inc. | Mr. Landry is president and owner of Top Ten, an independent hospitality industry consulting company, a position he has held since 2002. Mr. Landry has over 45 years of lodging and hospitality experience in a variety of leadership positions. Mr. Landry was the Chief Executive Officer, President and Vice Chairman of Sunburst Hospitality Inc and has served as President of Choice Hotels International, Inc., Manor Care Hotel Division and Richfield Hotel Management. Mr. Landry serves on the Board of Directors of Condor Hospitality Trust, Inc., where he is Chair of the Investment Committee and Nominating Committee. Mr. Landry currently serves on the corporate advisory boards of Unifocus, Campo Architects, First Hospitality Group, Windsor Capital Group and numerous nonprofit boards. NYSE Governance Services honored Mr. Landry as the 2015 Independent Lead Director of the Year, for his exemplary leadership in governance, risk and compliance in serving as the Company’s Lead Independent Trustee. The honor recognizes his unwavering commitment to independence, integrity, and leadership in governance at the board level. Mr. Landry is a frequent guest lecturer and serves on the board of the University of New Orleans’ School of Hospitality, Restaurant and Tourism. Mr. Landry holds a bachelor of science degree from the University of New The Board of Trustees has determined that Mr. Landry’s qualifications to serve on the Board of Trustees include his 40 years of experience in the lodging and real estate industries, including his roles as Chief Executive Officer, President and Vice Chairman of Sunburst Hospitality Inc. and President of Choice Hotels International, Inc., Manor Care Hotel Division and Richfield Hotel Management. | ||
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Michael A. Leven Class I Trustee Nominee Age: 80 Trustee since May 2012 Committees Served: NCG (Chair) Acquisition Compensation Other Public Company Boards: None | Until his retirement in December of 2014, Mr. Leven was the President and Chief Operating Officer of the Las Vegas Sands Corp., a position he held since March 2009, and Secretary, a position held since June 2010. Mr. Leven had been a director of the Las Vegas Sands Corp. and a member of the Board of Directors of Sands China Ltd., a subsidiary of Las Vegas Sands Corp, until he retired from those boards in April of The Board of Trustees has determined that Mr. Leven’s qualifications to serve on the Board of Trustees include his extensive experience in the hospitality industry, including as an executive officer and director of the Las Vegas Sands Corp. and his past employment in leadership positions with various other hospitality companies. |
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Hasu P. Shah Chairman of the Board and Class II Trustee Age: 73 Trustee since May 1998 Committees Served: None Other Public Company Boards: None | Mr. Hasu Shah has been the Chairman of the Board and a Class II Trustee since the Company’s inception in May 1998 and was the Company’s Chief Executive Officer until his retirement in 2005. Mr. Hasu Shah began his career in lodging with the purchase of a single hotel in Harrisburg, Pennsylvania in 1984. In the last 30 years, he has developed, owned, or managed over 50 hotels across the Eastern United States and started real estate related businesses in general construction, purchasing, and hotel management. He has been recognized for both his business accomplishments and his philanthropic endeavors, including the Entrepreneur of the Year award given by Ernst & Young LLP and the Central Penn Business Journal Hall of Fame award for lifetime achievements in both business and philanthropy. Mr. Hasu Shah and his wife, Hersha, are active members of the local community and remain involved with charitable initiatives in India. In 2010, he was honorably bestowed with the National United Way Tocqueville Society award, the highest honor given for philanthropic work across the country. Mr. Hasu Shah has been an active Rotarian for nearly 25 years and continues to serve as a trustee of several community service and spiritual organizations including Vraj Hindu Temple and the India Heritage Research Foundation. He also received an honorary Doctorate of Public Service (DPS) Degree from Harrisburg Area Community College. Mr. Hasu Shah received a bachelors of science degree in chemical engineering from Tennessee Technical University and obtained a masters degree in public administration from Pennsylvania State University, which named him as a Fellow. He is an alumnus of the Owner and President’s Management program at Harvard Business School. Mr. Hasu Shah is the father of Jay H. Shah, the Company’s Chief Executive Officer and Class I Trustee Nominee, and Neil H. Shah, the Company’s President and Chief Operating Officer. The Board of Trustees has determined that Mr. Hasu Shah’s qualifications to serve on the Board of Trustees include his extensive experience in the lodging industry, including his role as our former Chief Executive Officer and his decades of experience building the Company, which he took public in 1999. Over the past | |
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Jackson Hsieh Class II Trustee Age: 57 Trustee since June 2017 Committees Served: Acquisition Audit Compensation Other Public Company Boards: Spirit Realty Capital, Inc. | Mr. Hsieh has served as Presidnet and Chief Executive Officer of Spirit Realty Capital, Inc. since May of 2017. Mr Hsieh joined Spriit Realty Capital in September of 2016, serving as its President and Chief Operating Officer. Prior to joining Spirit, Mr. Hsieh worked for Morgan Stanley, where he served as Managing Director and a Vice Chairman of Investment Banking, primarily focusing on the firm’s real estate clients. Prior to rejoining Morgan Stanley, Jackson was Vice Chairman and Sole/Co-Global Head of UBS’s Real Estate Investment Banking Group, managing a team of over 70 professionals in six offices worldwide. During his career, including a prior period at Morgan Stanley and tenures at Bankers Trust Company and Salomon Brothers, Inc., he served as senior lead banker on over $285 billion of real estate and lodging transactions. Mr. Hsieh is a graduate of the University of California at Berkeley and earned a Master’s degree from Harvard University. The Board of Trustees has determined that Ms. Hsieh’s qualifications to serve on the Board of Trustees include his substantial experience in investment banking and the real estate and lodging industries. | |
Dianna F. Morgan Class II Trustee Age: 66 Trustee since April 2010 Committees Served: Risk Sub-Committee (Chair) Audit Compensation NCG Other Public Company Boards: Chesapeake Utilities Corp. Marriott Vacations Worldwide | Ms. Morgan retired in 2001 from a long career with the Walt Disney World Company, where she served as Senior Vice President of Public Affairs and Human Resources. She also oversaw the Disney Institute The Board of Trustees has determined that Ms. Morgan’s experience serving as a board member of both private and public companies, her previous experience overseeing the Disney Institute and her prior service as a senior manager at Walt Disney World Company provide her with extensive knowledge of innovation and customer service, a solid foundation in media relations, risk management, and government relations and “best practice” expertise in human capital and the customer experience. | |
John M. Sabin Class II Trustee Age: 63 Trustee since June 2003 Committees Served: Audit (Chair) Acquisition Compensation NCG Other Public Company Boards: Condor Hospitality Trust, | Since May 2011 Mr. Sabin Mr. Sabin’s qualifications to serve on the Board of Trustees include his substantial hospitality industry experience, as well as his substantial legal, finance and accounting experience. His service as both General Counsel and Chief Financial Officer of various companies provides the Board of Trustees with valuable insights with respect to finance, accounting, legal and corporate governance matters. He also has prior public company experience as a Chief Financial Officer and finance executive, as well as a director or trustee. |
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Neil H. Shah President and Chief Operating Officer Age: | Mr. Neil H. Shah has served as the Company’s President and Chief Operating Officer since 2006. Mr. Shah has led the Company’s hotel acquisitions, development, and asset management platforms since 2000. Prior to Hersha, Mr. Shah served as a Director and Consultant with The Advisory Board Company and the Corporate Executive Board, strategy research firms based in Washington D.C. Mr. Shah has also worked with the Phipps Foundation contributing to urban renewal projects in New York City. Mr. Shah earned a Bachelor of Arts in Political Science and a Bachelor of Science in Management both with honors from the University of Pennsylvania and the Wharton School. He earned his Masters in Business Administration from the Harvard Business School. He serves on the Board of Trustees for the National Constitution Center, the Corporate Council of the Barnes Foundation, and is a research sponsor at the Wharton Real Estate Center in Philadelphia. He is also a member of the Board of Directors of the Educational Foundation Institute and the Institutional Real Estate Finance Advisory Council (IREFAC) of the American Hotel & Lodging Association. Mr. Shah is an active supporter of the United Way Worldwide and a Tocqueville Society member. Mr. Shah is the son of Hasu P. Shah, the Company’s Chairman of the Board and Class II Trustee, and brother of Jay H. Shah, the Company’s Chief Executive Officer and Class I Trustee Nominee. | |
Ashish R. Parikh Chief Financial Officer and Assistant Secretary Age: | Mr. Parikh has been the Company’s Chief Financial Officer since 1999. Prior to joining the Company, Mr. Parikh was an Assistant Vice President in the Mergers and Acquisition Group for Fleet Financial Group where he developed valuable expertise in numerous forms of capital raising activities including leveraged buyouts, bank syndications and venture financing. Mr. Parikh has also been employed by Tyco International, Ltd. and practiced as a Certified Public Accountant with Ernst & Young LLP. Mr. Parikh received his Masters in Business Administration from The Stern School of Business at New York University (NYU) and a Bachelors in Business Administration from the University of Massachusetts at Amherst. Mr. Parikh is currently a board member of the Center for Real Estate Finance at NYU’s Stern School of Business, The Committee of Seventy, Philadelphia Real Estate Council, | |
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Michael R. Gillespie Chief Accounting Officer, Controller, and Assistant Secretary Age: | Mr. Gillespie has served as the Company’s Chief Accounting Officer since 2005. Prior to joining Hersha Hospitality Trust, Mr. Gillespie was Manager of Financial Policy & Controls for Tyco Electronics Corporation, a publicly traded global manufacturer of electronic components where he played a key role in developing the company’s Sarbanes-Oxley compliance program. He has also been a Senior Manager in the Audit and Assurance Practice at KPMG LLP and Experienced Manager in the Audit and Business Advisory Practice at Arthur Andersen LLP. Mr. Gillespie received his business administration bachelors degree in accounting from Bloomsburg University of Pennsylvania. Mr. Gillespie is a licensed Certified Public Accountant. Mr. Gillespie is currently a board member and serves as an executive committee member of the United Way of the Capital Region and the Bloomsburg University Foundation. | |
David L. Desfor Treasurer and Corporate Secretary Age: | Mr. Desfor has served as the Company’s Treasurer since December 2002 and as Corporate Secretary since April 2007. Previously, Mr. Desfor gained lodging experience as a principal and comptroller of lodging organizations. Mr. Desfor previously co-founded and served as President of a hotel management company focused on conference centers and full service hotels. Mr. Desfor earned his undergraduate degree from East Stroudsburg University in Hotel Administration. | |
Meetings of the Board of Trustees
Mr. Hsieh was newly elected to the Board of Trustees on June 1, 2017 and attended 100% of the meetings of the Board of Trustees through December 31, 2017. Due to existing commitments, for which Mr. Hsieh provided advance notice, he was excused from attending four of the nine committee meetings that occurred from the date he was elected as a trustee through December 31, 2017.
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Members: John M. Sabin (Chair) Jackson Hsieh Thomas J. Hutchison III Donald J. Landry Dianna F. Morgan
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Meetings in | The Audit Committee is responsible for engaging the Company’s independent auditors, reviewing with the independent auditors the plans and results of the audit engagement, approving professional services provided by the independent auditors, reviewing the independence and qualifications of the independent auditors, considering the range of audit and non-audit fees and reviewing the adequacy of the Company’s internal accounting controls. The Board of Trustees established the Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act and has adopted a written charter for the Audit Committee, a current copy of which is available on the Company’s website, www.hersha.com. The current members of the Audit Committee all meet the NYSE’s and the SEC’s standards of independence as currently in effect. The Board of Trustees has determined that Mr. Sabin is an “audit committee financial expert” as that term is defined in the rules promulgated by the SEC pursuant to the Sarbanes-Oxley Act of 2002. The Board of Trustees has also determined that each of the members of the Audit Committee is financially literate, as such term is interpreted by the Board of Trustees. For more information, please see “The Audit Committee Report” below. |
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Members: Thomas J. Hutchison III (Chair) Jackson Hsieh Michael A. Leven Dianna F. Morgan John M. Sabin Meetings in | The Compensation Committee makes recommendations to the Board of Trustees with regard to compensation for the Company’s executive officers and administers the Company’s equity incentive plan. Subject to applicable law, the Compensation Committee may form and delegate its authority to subcommittees or executive officers when appropriate. At its meetings, the Compensation Committee discussed relevant topics regarding executive compensation and established a formal compensation plan for all officers and trustees. The Board of Trustees has adopted a written charter for the Compensation Committee, a current copy of which is available on the Company’s website, www.hersha.com. The current members of the Compensation Committee all meet the NYSE’s standards of independence as currently in effect. All of the members of the Compensation Committee are “non-employee” trustees within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and the applicable rules of the SEC and are “non-employee” trustees for the purposes of Rule 16b-3 under the Exchange Act. For more information about the Compensation Committee, please see the “Compensation Discussion and Analysis” below. | |
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Members: Michael A. Leven (Chair) Donald J. Landry Dianna F. Morgan John M. Sabin Meetings in | The NCG Committee The Board of Trustees has adopted a written charter for the NCG Committee, a current copy of which is available on the Company’s website, www.hersha.com. The current members of the NCG Committee all meet the NYSE’s standards of independence as currently in effect | |
Members: Donald J. Landry (Chair) Jackson Hsieh Thomas J. Hutchison III Michael A. Leven John M. Sabin
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Meetings in | The Acquisition Committee establishes guidelines for acquisitions and dispositions to be presented to the Board of Trustees and leads the Board in its review of potential acquisitions and dispositions presented by management. The Acquisition Committee makes recommendations to the Board and senior management regarding potential acquisitions and dispositions and reviews due diligence reports prepared by management conducted on all potential acquisitions. The Board of Trustees has adopted a written charter for the Acquisition Committee, a current copy of which is available on the Company’s website, www.hersha.com. The current members of the Acquisition Committee all meet the NYSE’s standards of independence as currently in effect. |
2017. The following table presents information relating to compensation of the non-employee trustees for the fiscal year ended December 31, Name Fees Stock Total Thomas J. Hutchison III Donald J. Landry Michael A. Leven Dianna F. Morgan John M. Sabin Shares Elected in Lieu of Cash Board Fees Name Semi-Annual Multi-Year Share Award Grant (2) Annual Lead Trustee, Committee Chair, and Committee Membership(4) Total Thomas J. Hutchison III Donald J. Landry Michael A. Leven - - Dianna F. Morgan - - John M. Sabin - - Class A Common Shares Series B & C Preferred Shares Name of Beneficial Owner Number of Percentage Number Percentage Hasu P. Shah (3) * - - Jay H. Shah (4) 2.5% - - Neil H. Shah (5) 2.3% - - Ashish R. Parikh * - - Michael R. Gillespie * - - David L. Desfor (6) * - - Thomas J. Hutchison (7) * - - Donald J. Landry * * Michael A. Leven * (8) * Dianna F. Morgan * - - John M. Sabin (9) * - - All executives officers, trustees, 7.1% * Common shares Name and Address of Beneficial Owner Number of Percent BlackRock Inc.(2) 8.3% Brookfield Investment Management Inc.(3) 8.6% Jennison Associates LLC(4) 9.0% Prudential Financial, Inc.(5) 9.3% Vanguard Group(6) 15.3% Vanguard Specialized Funds - Vanguard REIT Index Fund(7) 7.0% Vaughan Nelson Investment Management, L.P.(8) 5.5% Jackson Hsieh Dianna F. Morgan April John M. Sabin 2017. 2016. Philosophy Component The Company strives to provide a rewarding and professionally challenging work environment for its executive officers. The Company believes that executive officers who are motivated and challenged by their duties are more likely to achieve the individual and corporate performance goals designed by the Compensation Committee. The Company’s executive compensation package should reflect this work environment and performance expectations. Key executive officers should be retained The primary purpose of the Company’s executive compensation program has been, and is, to achieve the Company’s business objectives by attracting, retaining and motivating talented executive officers by providing incentives and economic security. Equity incentive compensation, Compensation should align interests of executive officers with shareholders The Company’s executive compensation is designed to reward favorable total shareholder returns, both in an absolute amount and relative to the Company’s peers, taking into consideration the Company’s competitive position within the Equity incentive compensation, Philosophy Component Performance-based pay aligns the interest of management with the Company’s shareholders. Performance-based compensation motivates and rewards individual efforts and Company success. Approximately Annual cash incentive Compensation should be competitive To attract and retain valuable executive talent but avoid the expense of excessive pay, compensation should be competitive. The Compensation Committee, with the help of its independent compensation consultant, assesses the competitiveness of the Company’s compensation program for each of its executive officers by comparison to the compensation of executive officers at other public real estate companies. The Compensation Committee has regularly retained the services of FPL, an independent human resources and compensation consulting firm which specializes in the REIT industry, to report on current market data regarding executive officer pay levels and incentive programs. In addition to its own proprietary databases, FPL obtains data for its reports from publicly-available proxy statements and other public filings with the SEC. All elements The Company has no contractual arrangements for minimum or guaranteed payouts (other than base salary which is only The Company sets clear goals for company performance and differentiates certain elements of compensation based on individual NEO achievement. 100% of at-risk compensation is payable only upon the achievement of specific performance metrics and individual achievement. The Compensation Committee does not believe the executive compensation program creates risks that are reasonably likely to pose a material adverse impact to the Company. The Company has reasonable post-employment and change in control provisions. The employment agreements with the NEOs generally provide for cash payments after a change in control only if the NEO is also terminated without cause or voluntarily resigns for good reason within one year of the change in control (a double-trigger). The Company does not have any tax gross-up provisions for any of the NEOs and maintains that it will not enter into an agreement with a new executive officer that includes a tax gross-up provision with respect to payments contingent upon a change in control. The Compensation Committee benefits from its utilization of an independent compensation consulting firm. The reports prepared by the compensation consulting firm are used by the Compensation Committee to set executive compensation at levels that are intended to be competitive with the Company’s industry peers. The Company’s compensation consulting firm does not provide any other services to the Company or management. The Company has adopted share ownership guidelines for the NEOs. In addition, the Company implemented requirements for the NEOs to hold shares granted for two years beyond vesting. The Company has not used options or share appreciation rights. If used, the Company would not reprice these securities if they were underwater. The Company does not pay dividends on unvested performance shares. Only customary perquisites, such as health and insurance benefits, are provided. Perquisites represent only a small portion of the total NEO compensation. The Company does not have deferred compensation or pension plans and does not provide perquisites to the NEOs that would be considered significant or extraordinary. is paid in equity: Compensation Committee with information on executive compensation trends, best practices and advice for potential improvements to the Company’s executive compensation program. In addition, FPL advised the Compensation Committee on the design of the compensation program for the Company’s non-employee trustees. Based on information provided to the Compensation Committee by FPL, the Compensation Committee determined that the total targeted annual compensation opportunity for each of the NEOs was competitive compared to the Executive Chairman Jay H. Shah CEO Neil H. Shah COO Ashish R. Parikh CFO Michael R. Gillespie CAO Each of the NEOs’ performance is evaluated in light of the Company’s overall performance (as described in greater detail below) and non-financial goals and strategic objectives approved by the Compensation Committee and the Board of Trustees. For achieving performance levels that management has identified and the Board of Trustees are critical to creating and sustaining long-term shareholder value. The Compensation Committee chose the performance targets described above to align the Annual CIP with the Company’s material weakness. The participating NEOs satisfied Component/Metric Weighting Threshold Target Maximum Actual 2015 Performance Absolute RevPAR growth 40% 5.0% 6.0% 7.0% 6.9% Relative RevPAR growth 40% 2015 Peer Group median 2015 Peer Group median 2015 Peer Group median >+60 basis points Subjective 20% N/A N/A N/A Met 2018. maturities until 2020. NEO Dollar Value of Possible Equity Awards Dollar Amount Number of Hasu P. Shah $350,000 to $450,000 $450,000 20,090 Jay H. Shah $1,000,000 to $1,500,000 $1,500,000 66,965 Neil H. Shah $1,000,000 to $1,500,000 $1,500,000 66,965 Ashish R. Parikh $330,000 to $470,000 $470,000 20,983 Michael R. Gillespie $136,000 to $188,000 $188,000 8,393 2019. EIPs: Metric Threshold Target Maximum Actual Absolute TSR 10.0% 12.0% 14.0% >14.0% Relative TSR Peer Group median Peer Group median Peer Group median < -150 basis points Relative RevPAR Peer Group median Peer Group median Peer Group median > +75 basis points NEO Dollar Value of Possible Equity Awards Dollar Amount Number of Distributions Hasu P. Shah $225,000 to $375,000 $281,250 14,490 $48,686 Jay H. Shah $600,000 to $1,000,000 $750,000 38,640 $129,830 Neil H. Shah $600,000 to $1,000,000 $750,000 38,640 $129,830 Ashish R. Parikh $225,000 to $375,000 $281,250 14,490 $48,686 Michael R. Gillespie $71,250 to $118,750 $89,063 4,589 $15,419 program. NEO $300,000 to $450,000 Jay H. Shah $800,000 to $1,200,000 Neil H. Shah $800,000 to $1,200,000 Ashish R. Parikh $300,000 to $450,000 Michael R. Gillespie $100,000 to $150,000 2020. Compensation-Related Risk The structure of the 2018 executive compensation program is substantially the same as the 2017 program. 2017 Name and Principal Position Year Salary Stock Awards(1) Non-Equity Incentive Plan Compensation (2) All Other Compensation (3) Total Hasu P. Shah 2015 $ 235,000 $ 623,401 $ - $ 3,613 $ 862,014 Chairman of the Board of Trustees 2014 - 2013 - Jay H. Shah 2015 $ 710,000 $ 1,945,101 $ 745,500 $ 5,196 $ 3,405,797 Chief Executive Officer 2014 2013 Neil H. Shah 2015 $ 685,000 $ 1,945,101 $ 719,250 $ 23,462 $ 3,372,813 President and Chief Operating Officer 2014 2013 Ashish R. Parikh 2015 $ 445,000 $ 642,252 $ 389,375 $ 23,462 $ 1,500,089 Chief Financial Officer 2014 2013 Michael R. Gillespie 2015 $ 300,000 $ 240,299 $ 157,500 $ 23,462 $ 721,261 Chief Accounting Officer 2014 2013 2017. 2017 2017 Stock Awards Time Vested Awards Equity Incentive Plan Awards Award Type Number of Shares That Have Not Vested Market Value of Shares Number of Unearned Shares Payout Value of Unearned Shares That Have Not Vested Time Vest $ 455,263 Annual EIP $ 437,158 2015 MYEIP $ 168,421 2014 MYEIP $ 219,355 2013 MYEIP $ 252,241 Time Vest $ 2,953,659 Annual EIP $ 1,457,158 2015 MYEIP $ 449,123 2014 MYEIP $ 584,946 2013 MYEIP $ 672,643 Time Vest $ 1,647,515 Annual EIP $ 1,457,158 2015 MYEIP $ 449,123 2014 MYEIP $ 584,946 2013 MYEIP $ 672,643 Time Vest $ 538,604 Annual EIP $ 456,590 2015 MYEIP $ 168,421 2014 MYEIP $ 219,355 2013 MYEIP $ 252,241 Time Vest $ 171,686 Annual EIP $ 182,632 2015 MYEIP $ 53,333 2014 MYEIP $ 69,462 2013 MYEIP $ 79,876 April 22, 2012 March 21, 2014 March 30, 2015 Vesting Date Contract Amendment 2013 2014 Total June 1, 2016 - - December 31, 2016 - June 1, 2017 - - December 31, 2017 - - 2017 Stock Awards Name Number of Shares Value Realized on Vesting Hasu P. Shah 21,232 $ 499,943 (2) Jay H. Shah 101,980 $ 2,484,275 (3) Neil H. Shah 71,966 $ 1,706,308 (4) Ashish R. Parikh 23,743 $ 562,429 (5) Michael R. Gillespie 8,483 $ 198,657 (6) will be subject to accelerated vesting under certain conditions (termination without cause, termination due to death or disability or in the event of a change of control, as defined in the 2012 Plan), provided the executive officer has remained in the continuous employ of the Company until the date of such termination or the date of the change in control. Hasu P. Shah $ $ N/A $ Jay H. Shah $ $ N/A $ Neil H. Shah $ $ N/A $ Ashish R. Parikh $ $ N/A $ Michael R. Gillespie $ $ N/A $ Cash Payment Continued Medical and Dental Benefits Number of Shares to Vest Upon Termination Value of Total Hasu P. Shah $ 19,583 $ - $ 1,532,438 $ 1,552,021 Jay H. Shah $ 59,167 $ - $ 6,117,529 $ 6,176,696 Neil H. Shah $ 57,083 $ - $ 4,811,385 $ 4,868,469 Ashish R. Parikh $ 37,083 $ - $ 1,635,211 $ 1,672,294 Michael R. Gillespie $ 25,000 $ - $ 556,990 $ 581,990 Cash Payment Continued Medical and Dental Benefits Number of Shares to Vest Upon Termination Value of Total Hasu P. Shah $ 235,000 $ - $ 1,532,438 $ 1,767,438 Jay H. Shah $ 710,000 $ - $ 6,117,529 $ 6,827,529 Neil H. Shah $ 685,000 $ - $ 4,811,385 $ 5,496,385 Ashish R. Parikh $ 445,000 $ - $ 1,635,211 $ 2,080,211 Michael R. Gillespie $ 300,000 $ - $ 556,990 $ 856,990 Cash Payment Continued Medical and Dental Benefits Number of Shares to Vest Upon Termination Value of Total Hasu P. Shah $ 1,344,317 $ 4,574 $ 1,095,280 $ 2,444,171 Jay H. Shah $ 9,664,154 $ 2,008 $ 4,660,371 $ 14,326,533 Neil H. Shah $ 9,477,279 $ 34,253 $ 3,354,227 $ 12,865,758 Ashish R. Parikh $ 2,915,680 $ 34,253 $ 1,178,621 $ 4,128,553 Michael R. Gillespie $ 707,632 $ 34,253 $ 374,358 $ 1,116,243 no significant debt maturities until 2020. As of December 31, Based upon the Audit Committee’s review and discussions with management and KPMG LLP referred to above, the Audit Committee recommended that the Board of Trustees include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, AUDITORS 2016.TRUSTEE COMPENSATIONCompensation of Non-Employee TrusteesThe Board of Trustees believes that competitive compensation arrangements are necessary to attract and retain qualified non-employee trustees. The Compensation Committee has determined that any executive officer who serves on the Board of Trustees will not receive any fees for service on the Board of Trustees. The key components of our current trustee compensation program are annual retainer, fees for committee membership, annual share grants and restricted share grants, and additional compensation to committee chairs and the Lead Independent Trustee.As discussed in “Compensation Discussion and Analysis—Analysis- Independent Compensation Consultant” below, the Compensation Committee engaged FPL Associates L.P. (“FPL”) as its compensation consultant to assist it in reviewing and determining, among other things, the compensation paid to non-employee trustees in 2015.2017. The Compensation Committee, based on the recommendations of FPL, approved the Company’s 20152017 compensation program for non-employee trustees, effective as of January 1, 2015. 2017.For 2015,2017, the compensation program included:Annual Retainer –- Non-employee trustees received an annual retainer of $50,000.$60,000.Lead Trustee and Committee Chair Fees –- For service in the capacity of Lead Trustee or committee chairperson, non-employee trustees received an annual fee in the following amounts:
23 Lead Trustee $ 20,000 Audit Committee Chair $ 20,000 Risk Sub-Committee Chair $ 15,000 Compensation Committee Chair $ 20,000 Nominating & Corporate Governance Chair $ 15,000 Acquisition Committee Chair $ 15,000 Committee Membership Fees– For service as a member of the Board’s committees, non-employee trustees, including committee chairpersons, received a fee in the following annual amounts:
Audit Committee $ 10,000 Risk Sub-Committee $ 7,500 Compensation Committee $ 10,000 Nominating & Corporate Governance $ 7,500 Acquisition Committee $ 10,000 Annual Share Based Compensation –- Each of the Company’s non-employee trustees received a semi-annual grant of common shares, each equal to a value of approximately $33,500.$45,000. The number of shares issued for each fully vested grant was determined based on the per share volume weighted average trading price (“VWAP”) of the Company’s common shares on the NYSE for the 20 trading days prior to the grant date.20152017 Multi-Year Share Based Compensation –- On December 30, 2014,2016, each non-employee trustee received 5001,000 restricted common shares, 33% of which vested on December 31, 2015,2017, 33% of which will vest on December 31, 2016,2018, and the remainder of which will vest on December 31, 20172019 (subject to continued service on the vesting date).Non-employee trustees may make a voluntary election to receive any portion of the annual retainer in the form of common equity valued at a 25% premium to the cash that would have been received. The number of common shares issued in lieu of cash payments for the annual retainer was determined based on the per share VWAP of the Company’s common shares on the NYSE for the 20 trading days prior to December 30, 2014,31, 2016, or $29.16$21.33 per share. An aggregate of 3,2154,395 restricted common shares were issued on December 30, 20142016 and vested during the year ended December 31, 2015. Non-employee trustees may also make a voluntary election to receive any portion of the fees received for committee membership, and service as Lead Independent Trustee or a committee or sub-committee chair in the form of common equity valued at a 25% premium to the cash that would have been received. The number of common shares issued in lieu of cashpayments was determined based on the per share VWAP of the Company’s common shares on the NYSE for the 20 trading days prior to June 1, 2015,2017, or $25.76$18.48 per share. An aggregate of 3,9425,074 common shares were issued on June 1, 20156, 2017 pursuant to the trustees’ elections.On June 1, 20156, 2017 and December 31, 2015,29, 2017, the Company’s non-employee trustees received semi-annual grants of fully vested common shares that were issued under the Company’s 2012 Equity Incentive Plan. Each grant had a value equal to approximately $33,500.$45,000. To determine the number of common shares subject to each grant, the dollar amount of the grant was divided by the VWAP for the Company’s common shares for a 20-trading day period prior to June 1, 20152017 and December 31, 20152017 and then rounded to the nearest 100 common shares. The 20-day VWAP used for the grant on June 1, 20156, 2017 was $25.76,$18.48, resulting in a grant of 1,3002,400 fully vested common shares with a grant date fair value of $33,696$45,264 to Messrs. Hutchison, Landry, Leven and Sabin and Ms. Morgan. The 20-day VWAP used for the grant on December 31, 201530, 2017 was $22.46,$17.53, resulting in a grant of 1,5002,600 fully vested common shares with a grant date fair value of $32,640$45,240 to Messrs. Hseih, Hutchison, Landry, Leven and Sabin and Ms. Morgan.The Company reimburses all trustees for their reasonable out-of-pocket expenses incurred in connection with their service on the Board of Trustees.242015:
Earned or
Paid in Cash
($)
Awards(1)
($)
($)3,520 201,927 205,447 58,570 147,273 205,843 86,119 76,891 163,010 96,119 76,891 173,010 106,119 76,891 183,010 _______________(1)See table below for additional disclosure of stock awards issued to non-employee trustees.Name FeesEarned orPaid in Cash($) StockAwards(1)($) Total($)Jackson Hsieh 45,000 — 45,000 Thomas J. Hutchison III 6,620 265,563 272,183 Donald J. Landry 100,639 157,833 258,472 Michael A. Leven 104,479 116,604 221,083 Dianna F. Morgan 111,979 116,604 228,583 John M. Sabin 119,479 116,604 236,083 (1) See table below for additional disclosure of stock awards issued to non-employee trustees. The following table presents information relating to stock awards included in the compensation of the non-management trustees for the fiscal year ended December 31, 2015:2017:
Share Grants (1)
($)
($)
Retainer(3)
($)
($)
($)66,336 10,555 62,154 62,882 201,927 66,336 10,555 31,081 39,301 147,273 66,336 10,555 76,891 66,336 10,555 76,891 66,336 10,555 76,891 (1)Represents the aggregate grant date fair value of semi-annual share grants computed in accordance with FASB ASC 718. Common shares granted pursuant to these awards are fully vested on the grant date. The grant date fair value of the common shares granted on June 1, 2015 equals the number of common shares granted (1,300 common shares) multiplied by the closing common share price of $25.92 on the NYSE on the date of the grant. The grant date fair value of the common shares granted on December 31, 2015 equals the number of common shares granted (1,500 common shares) multiplied by the closing common share price of $21.76 on the NYSE on the date of the grant.(2)Represents the aggregate grant date fair value of multi-year share awards computed in accordance with FASB ASC 718. The grant date fair value of the restricted common shares granted on March 30, 2016 equals the number of common shares granted (500 restricted common shares) multiplied by the closing common share price of $21.11 on the NYSE on the date of the grant. (3)Represents the aggregate grant date fair value of shares elected to be received in lieu of all or a portion of a trustee’s annual cash retainer, otherwise payable in cash, computed in accordance with FASB ASC 718. The grant date fair value of the restricted common shares granted on December 30, 2014 equals the number of common shares granted multiplied by the closing common share price of $29.00 on the NYSE on the date of the grant. The following trustees received shares by making this election: Mr. Hutchison (2,143 shares) and Mr. Landry (1,072 shares).(4)Represents the aggregate grant date fair value of shares elected to be received in lieu of all or a portion of a trustee’s Lead Trustee, Committee Chair and Committee Membership fees, otherwise payable in cash, computed in accordance with FASB ASC 718. The grant date fair value of the common shares granted on June 1, 2015 equals the number of common shares granted multiplied by the closing common share price of $25.92 on the NYSE on the date of the grant. The following trustees received shares by making this election: Mr. Hutchison (2,426 shares) and Mr. Landry (1,516 shares).25 Shares Elected in Lieu of Cash Board Fees Name Semi-AnnualShare Grants (1)($) Multi-Year Share Award Grant (2)($) AnnualRetainer(3)($) Lead Trustee, Committee Chair, and Committee Membership(4)($) Total($) Jackson Hsieh 45,240 26,100 Thomas J. Hutchison III 90,504 26,100 75,594 73,365 265,563 Donald J. Landry 90,504 26,100 18,899 22,330 157,833 Michael A. Leven 90,504 26,100 — — 116,604 Dianna F. Morgan 90,504 26,100 — — 116,604 John M. Sabin 90,504 26,100 — — 116,604 (1) Represents the aggregate grant date fair value of semi-annual share grants computed in accordance with FASB ASC 718. Common shares granted pursuant to these awards are fully vested on the grant date. The grant date fair value of the common shares granted on June 6, 2017 equals the number of common shares granted (2,400 common shares) multiplied by the closing common share price of $18.86 on the NYSE on the date of the grant. The grant date fair value of the common shares granted on December 29, 2017 equals the number of common shares granted (2,600 common shares) multiplied by the closing common share price of $17.40 on the NYSE on the date of the grant. (2) Represents the aggregate grant date fair value of multi-year share awards computed in accordance with FASB ASC 718. The grant date fair value of the restricted common shares granted on December 29, 2017 equals the number of common shares granted (1,500 restricted common shares) multiplied by the closing common share price of $17.40 on the NYSE on the date of the grant. (3) Represents the aggregate grant date fair value of shares elected to be received in lieu of all or a portion of a trustee’s annual cash retainer, otherwise payable in cash, computed in accordance with FASB ASC 718. The grant date fair value of the restricted common shares granted on December 30, 2016 equals the number of common shares granted multiplied by the closing common share price of $21.50 on the NYSE on the date of the grant. The following trustees received shares by making this election: Mr. Hutchison (3,516 shares) and Mr. Landry (879 shares). (4) Represents the aggregate grant date fair value of shares elected to be received in lieu of all or a portion of a trustee’s Lead Trustee, Committee Chair and Committee Membership fees, otherwise payable in cash, computed in accordance with FASB ASC 718. The grant date fair value of the common shares granted on June 6, 2017 equals the number of common shares granted multiplied by the closing common share price of $18.86 on the NYSE on the date of the grant. The following trustees received shares by making this election: Mr. Hutchison (3,890 shares) and Mr. Landry (1,184 shares). Trustee Ownership GuidelinesNon-employee trustees are required to maintain share ownership of at least five times their annual retainer and have three years from the date they are appointed to comply with share ownership guidelines.2016 For the purpose of these guidelines, a person shall be deemed to own all Company shares beneficially owned by such person within the meaning of the United States federal securities laws, including for these purposes preferred shares of the Company, common shares of the Company, operating partnership units (including LTIP Units) in Hersha Hospitality Limited Partnership and other securities issued by the Company or its subsidiaries that are exercisable for, convertible into or exchangeable for common shares of the Company.2018 Compensation of Non-Employee TrusteesThe Compensation Committee, based on the recommendations of FPL, approved the Company’s 20162018 compensation program for non-employee trustees, effective as of January 1, 2016.2018. For 2016,2018, there is no change to the lead trustee and committee chair fees, committee membership fees, and annual share based compensation program includes:Annual Retainer– Non-employee trustees will receive anfrom amounts payable under the 2017 compensation program. For annual retainer, of $60,000.Lead Trustee and Committee Chair Fees – For service in the capacity of Lead Trustee or committee chairperson, non-employee trustees will receive an annual fee in the following amounts:
Committee Membership Fees – For service as a member of the Board’s committees, non-employee trustees, including committee chairpersons, will receive a fee in the following annual amounts:
Annual Share Based Compensation– Eacheach of the Company’s non-employee trustees will receive a semi-annual grant of common shares,$65,000 and for the 2018 multi-year share based compensation, each equal to a value to approximately $42,500. 2016 Multi-Year Share Based Compensation– Each non-employee trustee will receive 5001,500 restricted common shares, 33% of will vest on December 31, 2016, 33% of which will vest on December 31, 2017,2018, 33% of which will vest on December 31, 2019, and the remainder of which will vest on December 31, 20182020 (subject to continued service on the vesting date).26Security Ownership of ManagementSECURITY OWNERSHIP OF MANAGEMENTThe following table sets forth certain information, known by the Company as of March 31, 2016,29, 2018, regarding the beneficial ownership of the Company’s common shares and the Company’s Series C preferred shares by (i) each of the Company’s trustees and trustee nominees, (ii) each of the Company’s named executive officers and (iii) the Company’s trustees and executive officers as a group.At March 31, 2016,29, 2018, there were 44,363,52439,329,445 common shares outstanding, 2,400,000 Series B preferred shares outstanding, and 3,000,000 Series C preferred shares outstanding. Except as set forth in the footnotes to the table below, each of the individuals identified in the table has sole voting and investment power over the common shares and Series C preferred shares beneficially owned by that person. No person named in the table below beneficially owns any of the Company’s Series B preferred shares. The address for each of the Company’s trustees, trustee nominees and named executive officers is c/o Hersha Hospitality Trust, 44 Hersha Drive, Harrisburg, Pennsylvania 17102.
Shares/Units Beneficially Owned(1)
of Class
Beneficially Owned(2)
of
Shares
Beneficially
Owned
of Class
Beneficially
Owned390,090 1,136,032 1,053,165 206,888 74,580 54,676 89,895 50,955 400 37,196 20,000 17,645 25,662
and trustee nominees as a group
(11 persons)3,136,784 20,400 *Represents less than one percent of the outstanding shares of the class of securities indicated in the table above.(1)Includes the total number of common shares issuable upon redemption of partnership units and LTIP Units in Hersha Hospitality Limited Partnership, the Company’s operating partnership subsidiary (the “Operating Partnership” or “HHLP”). Subject to certain restrictions, LTIP Units are convertible into an equivalent number of partnership units. Partnership units are redeemable by the holder for cash, or at the Company’s option, an equivalent number of common shares.(2)The total number of common shares outstanding used in calculating the percentage ownership of each person assumes that the partnership units and LTIP Units held by such person, directly or indirectly, are redeemed for common shares and none of the partnership units and LTIP Units held by other persons are redeemed for common shares, notwithstanding that not all of the LTIP Units have vested to date. (3)Includes: (i) 113,874 common shares issuable upon redemption of partnership units that are currently redeemable; and (ii) 17,283 common shares, all of which are held by Shree Associates, a family limited partnership that is controlled by Mr. Hasu Shah. Excludes: (i) 132,917 common shares issuable upon the redemption of partnership units that are currently redeemable and held by the Jay and Susie Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee; and (ii) 114,334 common shares issuable upon the redemption of partnership units that are currently redeemable and held by the Neil and Juhi Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee. Mr. Hasu Shah disclaims beneficial ownership of the common shares issuable upon the redemption of partnership units and the partnership units held by the two family trusts for which he is the trustee, and this report shall not be deemed an admission that Mr. Hasu Shah is the beneficial owner of these common shares or partnership units for purposes of Section 16 or for any other purpose.27(4)Includes: (i) 89,889 common shares issuable upon redemption of partnership units that are currently redeemable; (ii) 132,917 common shares issuable upon redemption of partnership units that are currently redeemable and held by the Jay and Susie Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee; and (iii) 182,574 common shares issuable upon redemption of partnership units that are currently redeemable and held by the Hasu and Hersha Shah 2004 Trust FBO Jay H. Shah, in which the trustee is an unaffiliated third party. The partnership units held by the Hasu and Hersha Shah 2004 Trust FBO Jay H. Shah have been pledged as security to a third party.(5)Includes: (i) 78,736 common shares issuable upon redemption of partnership units that are currently redeemable; (ii) 114,334 common shares issuable upon redemption of partnership units that are currently redeemable and held by the Neil and Juhi Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee; and (iii) 208,054 common shares issuable upon redemption of partnership units that are currently redeemable and held by the Hasu and Hersha Shah 2004 Trust FBO Neil H. Shah, in which the trustee is an unaffiliated third party. The partnership units held by the Hasu and Hersha Shah 2004 Trust FBO Neil H. Shah have been pledged as security to a third party.(6)Includes 52,976 common shares issuable upon redemption of partnership units held by Mr. Desfor.(7)Includes 20,000 common shares that are held by Mr. Hutchison’s wife and with respect to which he shares voting and investment power.(8)Includes 10,000 shares held by Mr. Leven and 10,000 shares held by the Michael and Andrea Leven Family Foundation, for which Mr. Leven is the trustee.(9)Includes 287 common shares that are held indirectly by Mr. Sabin’s wife and with respect to which he shares voting and investment power. Class A Common Shares Name of Beneficial Owner Number ofShares/Units Beneficially Owned(1) Percentageof ClassBeneficially Owned(2)Hasu P. Shah 452,023 (3) 1.1% Jay H. Shah 1,419,603 (4) 3.5% Neil H. Shah 1,354,409 (5) 3.4% Ashish R. Parikh 338,444 * Michael R. Gillespie 137,257 * David L. Desfor 54,676 (6) * Jackson Hsieh 8,735 * Thomas J. Hutchison 94,722 (7) * Donald J. Landry 69,516 * Michael A. Leven 48,996 * Dianna F. Morgan 29,445 * John M. Sabin 37,462 (8) * All executives officers, trustees,and trustee nominees as a group(12 persons) 4,045,288 10.3% * Represents less than one percent of the outstanding shares of the Class A common shares. (1) Includes the total number of common shares issuable upon redemption of partnership units and LTIP Units in Hersha Hospitality Limited Partnership, the Company’s operating partnership subsidiary (the “Operating Partnership” or “HHLP”). Subject to certain restrictions, LTIP Units are convertible into an equivalent number of partnership units. Partnership units are redeemable by the holder for cash, or, at the Company’s option, an equivalent number of common shares. (2) The total number of common shares outstanding used in calculating the percentage ownership of each person assumes that the partnership units and LTIP Units held by such person, directly or indirectly, are redeemed for common shares and none of the partnership units and LTIP Units held by other persons are redeemed for common shares, notwithstanding that not all of the LTIP Units have vested to date. (3) Includes: (i) 113,874 common shares issuable upon redemption of partnership units that are currently redeemable; and (ii) 195,084 common shares, all of which are held by Shree Associates, a family limited partnership that is controlled by Mr. Hasu Shah. Excludes: (i) 132,917 common shares issuable upon the redemption of partnership units that are currently redeemable and held by the Jay and Susie Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee; and (ii) 114,334 common shares issuable upon the redemption of partnership units that are currently redeemable and held by the Neil and Juhi Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee. Mr. Hasu Shah disclaims beneficial ownership of the common shares issuable upon the redemption of partnership units and the partnership units held by the two family trusts for which he is the trustee, and this disclosure shall not be deemed an admission that Mr. Hasu Shah is the beneficial owner of these common shares or partnership units for purposes of Section 16 or for any other purpose. (4) Includes: (i) 89,889 common shares issuable upon redemption of partnership units that are currently redeemable; (ii) 75,000 common shares and 132,917 common shares issuable upon redemption of partnership units that are currently redeemable and which are held by the Jay and Susie Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee; and (iii) 182,574 common shares issuable upon redemption of partnership units that are currently redeemable and held by the Hasu and Hersha Shah 2004 Trust FBO Jay H. Shah, in which the trustee is an unaffiliated third party. The partnership units held by the Hasu and Hersha Shah 2004 Trust FBO Jay H. Shah have been pledged as security to a third party. (5) Includes: (i) 78,736 common shares issuable upon redemption of partnership units that are currently redeemable; (ii) 75,000 common shares and 114,334 common shares issuable upon redemption of partnership units that are currently redeemable and which are held by the Neil and Juhi Shah 2008 Family Trust, in which Mr. Hasu Shah is the trustee; and (iii) 208,054 common shares issuable upon redemption of partnership units that are currently redeemable and held by the Hasu and Hersha Shah 2004 Trust FBO Neil H. Shah, in which the trustee is an unaffiliated third party. The partnership units held by the Hasu and Hersha Shah 2004 Trust FBO Neil H. Shah have been pledged as security to a third party. (6) Includes 52,976 common shares issuable upon redemption of partnership units held by Mr. Desfor. (7) Includes 15,000 common shares that are held by Mr. Hutchison’s wife and with respect to which he shares voting and investment power. (8) Includes 287 common shares that are held indirectly by Mr. Sabin’s wife and with respect to which he shares voting and investment power. OWNERSHIP OF EQUITY SECURITIES OF THE COMPANYThe following table sets forth certain information as of March 31, 2016,29, 2018, with respect to each person (including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) who is known to the Company to be the beneficial owner of more than five percent or more of the Company’s common shares.
Common Shares
Beneficially Owned
of
Class(1)
55 East 52nd Street
New York, NY 100553,662,112
Brookfield Place, 250 Vesey St., 15 Floor
New York, NY 10281-10233,816,924
466 Lexington Avenue
New York, NY 100173,988,433
751 Broad Street
Newark, New Jersey, 07102-37774,130,596
100 Vanguard Blvd.
Malvern, Pennsylvania 193556,765,760
100 Vanguard Blvd.
Malvern, Pennsylvania 193553,101,609
600 Travis Street, Suite 6300
Houston, Texas 770022,457,058 28(1)Percentages are based on 44,363,524 common shares outstanding as of March 31, 2016.(2)Information based solely on Amendment No. 6 to a Schedule 13G filed with the SEC on January 26, 2016 by Blackrock, Inc. which has reported sole voting power over 3,465,753 common shares and sole dispositive power over 3,662,112 common shares.(3)Information based solely on a Schedule 13G filed with the SEC on February 16, 2016 by Brookfield Investment Management Inc., which has reported sole voting power over 3,077,649 common shares and sole dispositive power over 3,816,924 common shares.(4)Information based solely on a Schedule 13G filed with the SEC on February 3, 2016 by Jennison Associates LLC, which has reported sole voting power and shared dispositive power over 3,988,433.(5)Information based solely on Amendment No. 1 to a Schedule 13G filed with the SEC on January 28, 2016 by Prudential Financial, Inc., which has reported sole voting and dispositive power over 157,753 common shares and shared voting and dispositive power over 3,972,843 common shares.(6)Information based solely on Amendment No. 8 to a Schedule 13G filed with the SEC on February 11, 2016 by The Vanguard Group, Inc. The Vanguard Group Inc. has disclosed that is has sole voting power over 119,215 common shares, sole dispositive power over 6,672,051 common shares, shared voting power over 33,925 and shared dispositive power over 93,709 common shares. The Vanguard Group, Inc. has reported that Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 56,950 common shares and that Vanguard Investment Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 99,024 common shares. (7)Information based solely on Amendment No. 4 to a Schedule 13G filed with the SEC on February 9, 2016 by Vanguard Specialized Funds – Vanguard REIT Index Fund.(8)Information based solely on a Schedule 13G filed with the SEC on February 11, 2016 by Vaughan Nelson Investment Management, L.P. and its general partner, Vaughan Nelson Investment Management, Inc., which has reported sole voting power over 1,769,428 common shares, sole dispositive power over 2,243,369 common shares, and shared dispositive power over 213,689 common shares. 29 Common shares Name and Address of Beneficial Owner Number ofCommon SharesBeneficially Owned PercentofClass(1) BlackRock Inc.(2)55 East 52nd StreetNew York, NY 10055 6,637,774 16.9% Jennison Associates LLC(3)466 Lexington AvenueNew York, NY 10017 3,693,171 9.4% Prudential Financial, Inc.(4)751 Broad StreetNewark, New Jersey, 07102-3777 4,289,898 10.9% The Vanguard Group, Inc.(5)100 Vanguard Blvd.Malvern, Pennsylvania 19355 6,560,443 16.7% Vanguard Specialized Funds - Vanguard REIT Index Fund(6)100 Vanguard Blvd.Malvern, Pennsylvania 19355 2,816,679 7.2% (1) Percentages are based on 39,329,445 common shares outstanding as of March 29, 2018. (2) Information based solely on Amendment No.9 to a Schedule 13G filed with the SEC on January 19, 2018 by Blackrock, Inc. which has reported sole voting power over 6,480,369 common shares and sole dispositive power over 6,637,774 common shares. (3) Information based solely on Amendment No.2 to a Schedule 13G filed with the SEC on February 6, 2018 by Jennison Associates LLC, which has reported sole voting power and shared dispositive power over 3,693,171. (4) Information based solely on Amendment No. 4 to a Schedule 13G filed with the SEC on January 26, 2018 by Prudential Financial, Inc., which has reported sole voting and dispositive power over 38,954 common shares and shared voting and dispositive power over 4,250,944 common shares. (5) Information based solely on Amendment No. 10 to a Schedule 13G filed with the SEC on February 9, 2018 by The Vanguard Group, Inc. The Vanguard Group Inc. has disclosed that is has sole voting power over 91,909 common shares, sole dispositive power over 6,467,894 common shares, shared voting power over 52,368 and shared dispositive power over 92,549 common shares. The Vanguard Group, Inc. has reported that Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 40,181 common shares and that Vanguard Investment Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 104,096 common shares. (6) Information based solely on Amendment No. 6 to a Schedule 13G filed with the SEC on February 2, 2018 by Vanguard Specialized Funds - Vanguard REIT Index Fund which has reported sole voting power over 2,816,679 common shares. COMPENSATION COMMITTEE REPORTReview of Compensation Discussion and AnalysisThe Compensation Committee has reviewed and discussed the CD&A contained in this proxy statement with management and, based on such review and discussion, the Compensation Committee recommends to the Board of Trustees that it be included in this proxy statement.Compensation Committee Interlocks and Insider ParticipationNone of the members of the Compensation Committee were an officer or employee of the Company or any of its subsidiaries during 20152017 or any prior period. No executive officer of the Company served as a member of the compensation committee or as a director of any company where an executive officer of such company is a member of the Compensation Committee or is a trustee of the Company.The Company’s regular filings with the SEC and its trustees’ and executive officers’ filings under Section 16(a) of the Exchange Act are also available on the Company’s website.COMPENSATION COMMITTEE,COMPENSATION COMMITTEE, Thomas J. Hutchison III (Chair) Michael A. Leven 22, 2016COMPENSATION DISCUSSION AND ANALYSISThis section of the proxy statement explains the type and amount of compensation provided to the Company’s NEOs in 2015,2017, as well as the principles and processes that the Compensation Committee of the Board of Trustees follows in determining such compensation. The NEOs consist of the Company’s Chief Executive Officer, the Company’s Chief Financial Officer and the Company’s three other most highly paid executive officers as of December 31, 2015.The NEOs for 20152017 are as follows:Hasu P. Shah, the Company’s Chairman of the Board;Jay H. Shah, the Company’s Chief Executive Officer;Neil H. Shah, the Company’s President and Chief Operating Officer;Ashish R. Parikh, the Company’s Chief Financial Officer; andMichael R. Gillespie, the Company’s Chief Accounting Officer.The NEOs named above were also NEOs in 20132015 and 2014.Investor OutreachAt our 20152017 annual shareholder meeting, shareholders overwhelmingly supported the Company’s executive compensation program, with approximately 95%98% of the shareholders entitledvotes cast were in favor of the advisory vote to vote at the 2015 annual shareholders meeting approving, on an advisory basis,approve the compensation earned by the NEOs in 2014.2016. The Compensation Committee viewed the advisory vote in favor of the Company’s executive compensation as a validation of its compensation philosophy, including its emphasis on pay-for-performance and equity based compensation. 30As it has done inIn light of this overwhelming investor endorsement of the past,compensation program, the Compensation Committee togetherretained all of the key elements of the 2016 program when formulating the 2017 compensation program for the NEOs.During meetings with certain members ofshareholders throughout 2017, management embarked on a shareholder outreach effort meetingwas provided with several institutional investors with significant ownership interests in the Company’s common shares. These meetings were led by Thomas J. Hutchison III, the Compensation Committee Chair. Inputinput on executive compensation issues, the results of the advisory vote on executive compensation at the 20152017 annual shareholders meeting, governance matters and Company performance was provided.performance. The feedback that the Company received through this communicative process, was beneficial and insightful. These meetingsalong with a near unanimous shareholder vote on the 2016 program, highlighted for management and the Compensation Committee that the majority of theour investors we met with strongly support the executive compensation program structure and believe it is well designed.Executive SummaryThe objectiveobjectives of the Company’s executive compensation program isare to attract, retain and motivate experienced and talented executives who can help maximize shareholder value. The Company believes that a significant portion of the compensation paid to executive officers should be closely aligned with the Company’s performance on both a short-term and long-term basis. In addition, a significant portion of compensation should be in the form of the Company’s common shares to more fully align the interests of the Company’s executives and its shareholders and to mitigate any risks associated with pay-for-performance components of our compensation program.The following table summarizes our compensation philosophy:Philosophy ComponentRationale/CommentaryPay ElementRationale/Commentary Pay Element Compensation should reinforce business objectives and Company values All elements(salary, annual cash incentive, equity incentive compensation)Salaryreal estatelodging REIT industry and each executive’s long-term career contributions to the Company.31Philosophy ComponentRationale/CommentaryPay ElementRationale/Commentary Pay Element A significant amount of compensation for top executive officers should be based on performance 81%80% of the NEOsNEO’s targeted aggregate compensation is linked to Company specific or individual performance metrics. The performance-based percentage of actual compensation increases as performance improves and decreases as performance declines. If the Company has poor absolute or relative performance, the executive officers will receive reduced incentive compensation and reduced total compensation.bonuses,and equity incentive compensationOur program consists of rigorous goals, is targeted towards outperformance, and aligns management with investors. Our short term and long term incentives are tied 100% to performance.The following table summarizes certain aspects of our pay practices:☑What We Do☒What We Do Not Do☑ WHAT WE DO☒ WHAT WE DO NOT DOThe Company ties NEO pay to performance. For 2015, 81%2017, 83% of the NEOs’ pay potential was performance-based and at-risk. The Company sets clear goals for company performance and differentiates certain elements of compensation based on individual NEO achievement.19%17% of the NEOs’ pay potential). There are no guarantees in place for any potential changes to our NEOs’ base salaries, cash incentive payments or equity awards.The Company does not issue equity compensation that is at-risk merely due to time-based vesting. Rather 100% of at-risk compensation is dependent upon specific performance metrics and individual achievement. Once earned, equity awards are subject to time-vesting requirements to promote retention. The Company mitigates undue risk, including retention provisions, multiple performance targets, and robust Board and management processes to identify risk. The Company intends towill clawback bonuses and other incentive-based and equity-based compensation when misconduct results in a financial restatement.32☑WHAT WE DO☒WHAT WE DO NOT DOThe Compensation Committee establishes rigorous metrics for the NEOs and attempts to tie pay for performance on various company specific metrics and total shareholder returnsPay-for-PerformancePay-for-performance is an important componentcornerstone of the Company’s compensation philosophy. Consistent with this focus, the Company’s executive compensation program includes annual cash incentives, annual equity incentives and multi-year equity incentives.The design of our compensation program results in almost 83% of our CEO compensation and 79% of the compensation of all other NEOs being performance based (at risk):
ANNUAL CASH INCENTIVE AWARD - Annual cash incentives are provided under the Company’s annual cash incentive program (“Annual CIP”) to all of the NEOs other than the Company’s Chairman, Mr. Hasu Shah. The purpose of the program is to reward achievement of annual goals and objectives and to provide at-risk, comprehensive opportunities to earn additional cash compensation linked primarily to company-wide and, to a lesser extent, individual NEO performance. Eighty percent (80%) of the potential cash incentive is based on the achievement of company-wide operational and financial goals, including the achievement of adjusted funds from operations (“AFFO”) targets, AFFOEarnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) multiple targets and fixed charge coverage ratio targets. The remaining 20% of the potential cash incentive is based on the achievement by each NEO of individual-specific operational and strategic goals.ANNUAL AND MULTI-YEAR EQUITY INCENTIVE PROGRAMS - Annual and multi-year equity incentives are provided under the Company’s annual long-term equity incentive program (the “Annual EIP”) and its multi-year long-term equity incentive programs (the “Multi-Year EIPs”). If earned, the awards will be settled in the form of common shares issued by the Company or LTIP Units issued by the Company’s operating partnership.The Company must achieve certain financial performance goals during the performance period in order for Annual EIP awards to be earned by the NEOs. Under the Annual EIP, performance is measured based on the Company’s achievement of absolute and relative RevPAR growth. In addition, the Compensation Committee has discretion under the Annual EIP to grant equity awards to the NEOs based on how the NEOs individually and as a group effected transactions that continued the transformation of the Company’s portfolio and continued to strengthen the Company’s financial position.Under the 2013, 20142015, 2016 and 20152017 Multi-Year EIPs, performance is measured based on the Company’s achievement of RevPAR growth relative to a predetermined peer group, absolute total shareholder return and total shareholder return relative to a predetermined peer group over a three yearthree-year period.DuringAnnual CIP Equity ElectionThe Compensation Committee has adopted a policy that allows the past several years,NEOs to elect to receive payouts, if any, under the Company2017 Annual CIP in LTIP Units or cash. For payments elected in LTIP Units, the NEO receives a 25% premium. LTIP Units issued are subject to a two-year vesting period from the date of issuance. For 2017, each NEO has been focused on transforming its portfolio through strategic acquisitions and dispositions, improving its balance sheet and strategically accessing capital markets. Accomplishments in the year ended December 31, 2015 include, among other things, the following:Returned capitalelected to receive 100% of approximately $128 million to our shareholders through a repurchase of 5.3 million shares, or approximately 10.7% of the Company’s outstanding shares, at a weighted average cost of $24.09.33Initiated transaction to enter into a joint-venture with a Chinese investor for 7 of our limited service hotels in Manhattan which will reduce the Company’s EBITDA exposure in New York City from approximately 43.0% in 2015 to 25.0% of consolidated EBITDA in 2016. Sale proceeds will enable the Company to maintain financial flexibility and continue diversification into our other six core markets, continue its share repurchase program and repay debt. The proposed transaction is expected to improve RevPAR growth while maintaining Hotel EBITDA margins that have been, on average, 800 basis points higher than the full service component of our peer set.Continued penetration into the Washington, DC central business district market with the acquisition of the 155 room St. Gregory Hotel and the 86 room Ritz-Carlton Georgetown and entered the silicon valley market with the acquisition of the 94 room TownePlace Suites in Sunnyvale, CA.Achieved Hotel EBITDA margins for the consolidated hotel portfolio that we believe, according to publicly available information, significantly exceeded the median for the 2015 Peer Group identified in “—Process for Determining Executive Compensation” below.Achieved consolidated portfolio RevPAR growth of 6.9%, which outperformed the Company’s peers by 160 basis points. RevPAR growth consisted of average daily rate (“ADR”) growth of 5.1% and occupancy growth of 143 basis points. Achieved AFFO per common share and common unit of limited partnership interest (“partnership unit”) in excess of the high amounts describedany payouts earned under “Components of Executive Compensation – Annual Cash Incentive Program.”Entered into a new $300 million unsecured term loan, increasing the Company’s unsecured borrowing capacity from $500 million to $800 million while maintaining an overall cost of debt of 3.68%, the lowest in the Company’s history.Based on these and other measures specified in the Annual CIP in LTIP Units. As a result, almost 84% of CEO potential compensation and the Annual EIP, the Company awarded the NEOs the performance-based80% of all other NEO potential compensation more fully described below under “—Annual Cash Incentive Program” and “—Annual Long-Term Incentive Program for 2015.”TOTAL COMPENSATION BEFORE Annual CIP Equity electionAFTER Annual CIP Equity election
Shareholder Interest AlignmentWe believe that our Annual EIP and Multi-Year EIPs, as well as Annual CIP payouts elected to be paid in equity, further enhance long-term shareholder value by incentivizing long-term performance and aligning the interests of the NEOs and the shareholders. In addition, paying a significant portion of an NEO’s compensation in the form of restricted equity awards mitigates potential risks associated with pay-for-performance elements of compensation and is a helpful tool in retaining senior executives. Therefore, equity is a key component of the Company’s executive compensation program, with equity award potential (including Annual CIP awards elected in equity) accounting for 58%almost 84% of the total compensation program for our CEO and 56%80% of the total compensation program of our other NEOs. All equity awards granted to the NEOs in 20152017 were in the form of restricted equity that, once earned based on prior performance, subsequently vest over time and are required to be owned for a minimum of one year after the vesting date and therefore have a significant retention element. Before these awards are earned, as described above, significant value is at risk for the NEOs.As described under “—Stock“-Stock Ownership Guidelines” below, the Company has formal stock ownership guidelines that require:the Company’s non-employee trustees, within three years of becoming a trustee, to own Company shares equal in value to at least five times the annual cash retainer paid to non-employee trustees;the Company’s executive officers to own Company shares equal in value to a multiple of such executive’s base salary as follows: Chairman of the Board (4 times); Chief Executive Officer (6 times); President and Chief Operating Officer (6 times); Chief Financial Officer (3 times); and Chief Accounting Officer and all other executive officers (1 times); and34the Company’s executive officers to own Company shares received from vesting of share awards for a minimum of one year after the vesting date.For purposes of these guidelines, units of limited partnership interest issued by the Company’s operating partnership are considered “Company Shares.”Compensation and Corporate GovernanceThe Compensation Committee believes that solid corporate governance should be reinforced through the Company’s executive compensation programs and has adopted the following policies with regard to share ownership and compensation that are intended to promote good corporate governance:hedging of Company shares is prohibited;if the Company is required to prepare an accounting restatement due to material noncompliance, as a result of misconduct, with any financial reporting under federal securities law, the Company will “clawback” any bonus or other incentive-based or equity-based compensation received by the NEOs from the Company during the twelve month period following the first issuance or filing of the financial statements that are required to be restated and any profits realized from the sale of the Company’s securities during such twelve month period; andadditional pledges of Company shares by Trustees and NEOs are prohibited.2017 Performance HighlightsDuring the past several years, the Company has been focused on transforming its portfolio through strategic acquisitions and dispositions, improving its balance sheet and strategically accessing capital markets. The following table provides a summary of key performance highlights for 2017:Compensation PrinciplesThe Compensation Committee designs and oversees the Company’s compensation policies and approves compensation for the NEOs. Each year, the Compensation Committee’s goal is to create an executive compensation program for the NEOs that is linked to the creation of shareholder value. To accomplish this goal, the executive compensation program for the NEOs is designed to:Support the Company’s business strategy—The-The Compensation Committee seeks to align executive compensation programs for the NEOs with business strategies focused on long-term growth and sustained shareholder value. The programs are designed to motivate the NEOs to overcome challenges and exceed company goals.Pay for performance—The-The Compensation Committee places a large portion of the NEOs’ pay “at risk” and dependent upon the achievement of specific corporate and individual performance goals. The Company pays higher compensation when goals are exceeded and lower compensation when goals are not met.Pay competitively—The-The Compensation Committee sets target compensation to be competitive with its peer group. We set “maximum” objectives that if achieved may place the compensation paid to the NEOs above the median compared to the peer group.Compensation ObjectivesIn designing the executive compensation programs for the NEOs, the objectives are to:drive superior business and financial performance by designing programs that motivate the NEOs to achieve or exceed goals within their control;attract, retain and motivate the right people in the right job by rewarding NEOs that perform at a high level;align the long-term interests of the NEOs and the shareholders by building significant ownership of common shares into our annual and multi-year equity incentive programs;focus on long-term results, such as total shareholder return; andcreate a balanced executive compensation program that utilizes elements that discourage excessive risk taking.Independent Compensation ConsultantThe Compensation Committee engaged FPL during 20152017 as its independent compensation consultant. FPL advised the Compensation Committee on the design of the Company’s executive compensation program for 20152017 and the amounts the Company should pay to the Chief Executive Officer and the other NEOs. FPL also provided the35FPL does no work for management, receives no compensation from the Company other than for its work in advising the Compensation Committee and maintains no other economic relationships with the Company or any of its affiliates. From time to time, FPL receives input from the Company’s Chief Executive Officer regarding the Company’s strategic goals and the manner in which the executive compensation program should support these goals.Process for Determining Executive CompensationThe Compensation Committee structures executive compensation for the NEOs so that total targeted annual compensation opportunities are competitive with comparable positions at companies considered to be the Company’s peers. The Compensation Committee intends for the level of compensation for the NEOs to be competitive with the compensation offered by publicly held companies that are comparable to the Company with regard to size (based on total assets and market capitalization) and industry focus (publicly trading lodging companies, including REITs). The Compensation Committee believes this allows the Company to successfully attract and retain the high quality executive talent critical to the Company’s long-term success.In setting executive compensation for the NEOs in 2015,2017, the Compensation Committee considered levels of compensation paid by the following group of publicly traded lodging REIT companies (“20152017 Peer Group”):
TotalAssets(1)TotalCapitalization(1)Total RoomCount(1)Total Numberof Properties(1)Total Numberof Employees(1)Apple Hospitality REIT, Inc. $ 5.0 billion $ 5.8 billion 30,073 235 56 Ashford Hospitality Trust, Inc. $ 4.9 billion $ 5.2 billion 26,099 124 0 Chatham Lodging Trust $ 1.3 billion $ 1.4 billion 18,210 133 5 Chesapeake Lodging Trust $ 2.0 billion $ 2.4 billion 6,694 22 15 DiamondRock Hospitality Company $ 3.1 billion $ 3.2 billion 9,472 26 26 LaSalle Hotel Properties $ 3.9 billion $ 4.9 billion 11,458 46 35 Pebblebrook Hotel Trust $ 2.8 billion $ 3.4 billion 7,219 29 26 RLJ Lodging Trust $ 4.0 billion $ 4.6 billion 20,138 122 58 Summit Hotel Properties, Inc. $ 1.7 billion $ 2.4 billion 10,957 81 44 Sunstone Hotel Investors, Inc. $ 3.7 billion $ 4.5 billion 13,666 28 48 Xenia Hotels & Resorts, Inc. $ 2.9 billion $ 3.2 billion 10,911 42 49 25th Percentile $ 2.4 billion $ 2.8 billion 10,192 29 21 50th Percentile $ 3.1 billion $ 3.4 billion 11,458 46 35 75th Percentile $ 4.0 billion $ 4.8 billion 19,174 123 49 Hersha Hospitality Trust $ 2.2 billion $ 2.4 billion 8,800 55 49 (1)Information presented was derived from public filings for the year ended December 31, 2014.2016.The Compensation Committee, with input from FPL and from management, annually reviews the companies included in the peer group. Accordingly, the Compensation Committee may add or eliminate companies based on factors the Compensation Committee deems relevant. The primary criteria evaluated in the selection of the peer group include similarity of business strategy, scope of operations, total market capitalization and total assets. The Compensation Committee excluded certain lodging-focused, self-managed equity REITs with dissimilar business strategies or that were larger and smaller than the companies named above in terms of scope of operations, total assets and market capitalization, such as Host Hotels & Resorts, Inc., Summit Hotel Properties, Inc. and Condor Hospitality Trust, Inc.In order to provide competitive executive compensation, the Compensation Committee seeks to provide total targeted annual aggregate NEO compensation opportunities that approximate the 50th percentile of the peer group. Actual total compensation for any given year may be paid above or below the median for the peer group. 3620152017 Peer Group.The following table shows each element of the total annual compensation for 20142016 for each NEO compared to the same information for the 20152017 Peer Group:ExecutiveBenchmarkBase SalaryNon-Equity IncentiveEquityIncentiveTotalAnnual CompensationBenchmark Base Salary Non-Equity Incentive EquityIncentiveTotalAnnual CompensationHasu P. Shah 2nd3rd of 22nd3rd of 22nd2nd of 22nd3rd of 210th8th of 1110th5th of 119th12th of 1110th8th of 112nd1st of 82nd1st of 82nd1st of 82nd1st of 84th4th of 114th1st of 119th11th of 117th9th of 113rd2nd of 43rd2nd of 43rd4th of 43rd3rd of 4Although the Compensation Committee seeks to provide total targeted annual compensation opportunities that approximate the 50th percentile of the 20152017 Peer Group, the Compensation Committee does not rely exclusively on the 20152017 Peer Group data in establishing target levels of compensation and does not have a rigid or formulaic process with regard to using peer data to set target levels of compensation (for example, assigning specific weights or values to each member of the 20152017 Peer Group). Instead, the Compensation Committee uses the 20152017 Peer Group data as one of many tools to assist the Compensation Committee. Survey information provided by FPL to the Compensation Committee assists the Compensation Committee in confirming the validity of the market competitiveness of the Company’s executive compensation program andprovides broader context to the 20152017 Peer Group data, as well as provide data for positions where data for the 20152017 Peer Group is not available from public filings with the SEC. In setting total target annual compensation opportunities for each NEO, the Compensation Committee considers the following factors:the competitive data (2015(2017 Peer Group and survey data), focusing on the median of the data as a starting point;each NEO’s past and continuing performance;each NEO’s scope of responsibility and impact on the Company’s performance and contribution to its long-term success;internal equity (i.e., an NEO’s compensation levels relative to his or her peers, direct reports and supervisors);the Chief Executive Officer’s recommendations for the other NEOs; andthe views of the members of the Compensation Committee and the other members of the Board of Trustees on individual contribution based upon routine interaction with the NEOs on corporate and public reporting matters.In making executive compensation determinations, the Compensation Committee generally considers the results of the most recent shareholder advisory vote on executive compensation. As reported in the Company’s Current Report on Form 8-K filed with the SEC on May 22, 2015,June 1, 2017, approximately 95%98% of the votes cast on the “say-on-pay” proposal were in favor of the advisory vote to approve the NEOs’ 20142016 compensation. The Compensation Committee viewed the advisory vote in favor of the NEOs’ 20142016 compensation as a validation of its compensation philosophy, including its emphasis on pay for performance and equity based compensation. As noted above under “Compensation Committee Report,” the Compensation Committee chair met with five institutional investors that represent a significant ownership interest in our common shares to better understand their views on our compensation programs.In summary, the Compensation Committee’s process for setting total targeted annual compensation opportunities employs a flexible approach that responds to and adjusts for the evolving business environment. The Compensation Committee believes this approach permits the Company to respond to dynamics in the market for executive talent and provides the Company with flexibility in maintaining and enhancing the NEOs’ engagement, focus, motivation and enthusiasm for the Company’s long-term growth and sustained shareholder value.372015,2017, the Compensation Committee believed annual base salary and benefits when added to the potential variability of the annual cash and equity incentive programs and the multi-year equity incentive program provided an appropriate mix of financial security, risk and reward.Dual Role StructureIn establishing the compensation for Mr. Neil Shah, President and Chief Operating Officer, the Compensation Committee considers the dual roles that Mr. Neil Shah serves for the Company. Mr. Neil Shah is currently the President and Chief Operating Officer of the Company and serves as the Chief Investment Officer and Head of Asset Management. These roles are typically performed by multiple executive level individuals. The Compensation Committee has worked with FPL, our Compensation Consultant, to put together a pay structure for Mr. Neil Shah that incorporates these additional duties and the leadership role that Mr. Neil Shah serves in these dual roles. The Compensation Committee believes that the overall compensation for Mr. Neil Shah is commensurate for the dual roles that he serves within the Company.In addition, the Compensation Committee considers the compensation of Mr. Neil Shah as a part of a broader analysis of the aggregate pay level of our NEOs to ensure that, on a total pay basis across our executive team, it is appropriate when compared to our peers.Interaction with ManagementOur Compensation Committee regularly meets in executive sessions without management present. Our Chief Executive Officer, considering each of the performance factors outlined below under “-Components of Executive Compensation,” annually reviews the compensation for each NEO, other than himself, and makes recommendations to the Compensation Committee regarding any proposed adjustments. Recommendations, if any, for interim modifications to salaries are also based on the factors outlined above and are made by the Chief Executive Officer to the Compensation Committee. Final compensation decisions are ultimately made in the sole discretion of the Compensation Committee.Components of Executive CompensationIn 2015,2017, the components of executive compensation consisted of the following:base salary;annual cash incentives;long-term equity incentives (annual and multi-year); andbenefits.Base SalaryBase salary provides the NEOs with a basic level of financial security and promotes the Compensation Committee’s objectives by attracting and retaining top talent. Base salary increases for the Company’s Chief Executive Officer are determined by the Compensation Committee and approved by the Board of Trustees. Base salary increases for the other NEOs are recommended by the Company’s Chief Executive Officer and are subject to review and approval by the Compensation Committee.In 2014,To more appropriately align with the Compensation Committee maintained base salariesmarket data provided for the NEOs at 2013 levels. In order to keep 2015 target total compensation opportunities for each of the NEOs close to the median of the 20152017 Peer Group, the Compensation Committee increased base salarysalaries of the NEOs by 3.1% in the aggregate with individual increases ranging between 4.4%2.5% and 5.3%4.8%. The Compensation Committee was satisfied that each NEO’s base salary for 20152017 was reasonable and appropriate based on each NEO’s responsibilities and performance.Base salaries for the NEOs for 2015, 20142016 and 20132017 are as follows:
2016Base Salary2017Base SalaryIncrease over 2016 ($) (%) Hasu P. Shah $ 242,000 $ 250,000 $ 8,000 3.3 % Jay H. Shah $ 732,000 $ 750,000 $ 18,000 2.5 % Neil H. Shah $ 706,000 $ 725,000 $ 19,000 2.7 % Ashish R. Parikh $ 460,000 $ 475,000 $ 15,000 3.3 % Michael R. Gillespie $ 310,000 $ 325,000 $ 15,000 4.8 % Annual Cash Incentive Program (“Annual CIP”)The purpose of the Annual CIP is to reward achievement of annual goals and objectives and provide at-risk, comprehensive pay opportunities linked primarily to company-wide performance and, to a lesser extent, individual performance. Each year, management proposes and the Compensation Committee evaluates and finalizes the annual goals and objectives, which are subsequently approved by the Board of Trustees. By using goals and objectives thoroughly reviewed by the Board of Trustees, the Compensation Committee rewards participants for38The Compensation Committee believes the Annual CIP provides the NEOs other than Mr. Hasu Shah, who has not historically participated in the program, with an incentive to excel at their individual job function and area of expertise in a manner that contributes to overall Company-wide performance, and further aligns the financial interests of the participating NEOs with those of shareholders. The selected performance criteria include Company-wide performance goals and specific performance goals related to the job function of each participating NEO.Key features of the Annual CIP include the following:a primary emphasis on (1) sustained Company-wide financial growth as measured by such metrics as AFFO per share, an AFFOEBITDA multiple, (defined for the purposes of the 2015 program as the closing sale price of the Company’s common shares as reported by the NYSE on December 31, 2015 divided by as reported AFFO per share for the year ended December 31, 2015), and (2) financial flexibility and balance sheet strength as measured by a fixed charge coverage ratio;a structured approach to determine awards by measuring against pre-established metrics; andthe recognition of individual leadership achievements and contributions of participants by making a portion of the award subject to individual-specific performance goals.The Compensation Committee, in conjunction with the Chief Executive Officer, reviewed the annual cash incentive awards. Annual cash incentive awards were based on an evaluation of the performance, level of responsibility and leadership of the named executive officer in relation to overall corporate results.For 2015,2017, the Compensation Committee established the following mix of Company performance measures for the Annual CIP:Component/MetricWeightingAFFO per share30%AFFO multiple30%Fixed charge coverage ratio20%Individual-specific performance objectives20%
The Compensation Committee believes AFFO per share, an AFFOEBITDA multiple and a fixed charge coverage ratio are appropriate and effective measures of annual Company-wide performance. These performance measures were chosen because they strike a balance between maximizing AFFO per share in the short-term and driving a premium multiple for our shares while maintaining long-term value with a lower risk balance sheet. The threshold level for each performance measure was set based on a level of performance that was believed at the time to be achievable in order to motivate and retain the participating NEOs. The target level for each performance measure was set based on a level of performance that was believed at the time to be aggressive, but obtainable. The maximum level for each performance measure was set based on a level of performance that was believed to be realizable, but only as a result of exceptional performance.The following table summarizes the threshold, target and maximum levels of performance for each of the company-specific performance measures under the Annual CIP and the level of performance the Company achieved in 2015: Component/MetricThresholdTargetMaximumActual 2015 PerformanceAFFO per share(1)$2.04 per share$2.16 per share$2.28 per share>$2.28 per shareAFFO multiple(1)12.0x12.5x13.0x<12.0xFixed charge coverage ratio(2)2.00x2.10x2.25x>2.25xIndividual-specific performance objectives(3)N/AN/AN/AMet39(1)AFFO per share and the AFFO multiple are determined by calculating funds from operations (“FFO”) applicable to common shares and partnership units in accordance with the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts (“NAREIT”), which the Company refers to as the “White Paper.” The White Paper defines FFO as net income (loss) (computed in accordance with GAAP) excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated assets, plus certain non-cash items, such as loss from impairment of assets and depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Management’s interpretation of the NAREIT definition is that noncontrolling interest in net income (loss) should be added back to (deducted from) net income (loss) as part of reconciling net income (loss) to FFO. Management calculated AFFO, which reflects FFO in accordance with the NAREIT definition further adjusted by: (i) adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties; (ii) adding back amortization of deferred financing costs; (iii) making adjustments for the amortization of original issue discount/premium; (iv) adding back non-cash stock expense; (v) adding back acquisition and terminated transaction expenses, as well as accruals for contingent consideration on acquisitions ; (vi) adding back FFO attributed to the Company’s partners in consolidated joint ventures; (vii) making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment; and (viii) state and local tax expense related to the reassessment of prior period assessments.(2)Calculated as (i) consolidated adjusted earnings before income tax, depreciation and amortization (“Adjusted EBITDA”), divided by (i) the sum of (A) interest expense, plus (B) preferred share distributions. The Company’s interpretation of Adjusted EBITDA is that EBITDA derived from its investment in unconsolidated joint ventures should be added back to net income (loss) as part of reconciling net income (loss) to Adjusted EBITDA. In addition, Adjusted EBITDA is adjusted to (i) add back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties; (ii) adding back non-cash stock expense; (iii) adding back impairment related expenses; (iv) adding back acquisition and terminated transaction expenses, as well as accruals for contingent consideration on acquisitions; (v) making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment;and (vi) state and local tax expense related to the reassessment of prior period assessments.(3)For purposes of the Annual CIP, the Compensation Committee utilized the following individual-specific performance objectives, which are the same objectives used for the 2014 program:Chief Executive Officer and Chief Operating Officer:meet with each of the top ten institutional investor accounts at least once in 2015;meet with the sales force of two different broker-dealers with significant retail customer bases in an effort to increase interest in the ownership of the Company’s common shares; andcompletion of each subordinate’s position-specific performance goals outlined below.Chief Financial Officer and Chief Accounting Officer:complete all SEC filings on a timely basis and maintain full compliance with SEC rules and regulations;receive an unqualified opinion on the effectiveness of the Company’s internal controls over financial reporting in connection with KPMG LLP’s audit of the same; andhave the Chief Accounting Officer accompany the Chief Executive Officer, the Chief Operating Officer and/or the Chief Financial Officer on at least four investor or lender meetings.20152017 goals and objectives as established by management and the Board of Trustees. The Compensation Committee chose the relative weights of the performance measures based on the Compensation Committee’s desire to emphasize financial results while maintaining a focus on non-financial initiatives.AFFO per share:The Compensation Committee retains discretionCompany achieved AFFO per share of $2.16 in 2017 which was 100.5% of the target hurdle resulting in target performance.
(1) AFFO per share is determined by calculating funds from operations (“FFO”) applicable to common shares and partnership units in accordance with the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts (“NAREIT”), which the Company refers to as the “White Paper.” The White Paper defines FFO as net income (loss) (computed in accordance with GAAP) excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated assets, plus certain non-cash items, such as loss from impairment of assets and depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Management’s interpretation of the NAREIT definition is that noncontrolling interest in net income (loss) should be added back to (deducted from) net income (loss) as part of reconciling net income (loss) to FFO. Management calculated AFFO, which reflects FFO in accordance with the NAREIT definition further adjusted by: (i) adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties; (ii) adding back amortization of deferred financing costs; (iii) making adjustments for the amortization of original issue discount/premium; (iv) adding back non-cash stock expense; (v) adding back acquisition and terminated transaction expenses, as well as accruals for contingent consideration on acquisitions ; (vi) adding back FFO attributed to the Company’s partners in consolidated joint ventures; (vii) making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment; and (viii) state and local tax expense related to the reassessment of prior period assessments. EBITDA multiple: The Company achieved EBITDA multiple of 13.8x which was in excess of the high performance hurdle resulting in incentive earned at the high level.
(1) Calculated as (i) enterprise value divided by (ii) consolidated adjusted earnings before income tax, depreciation and amortization (“Adjusted EBITDA”). The Company’s interpretation of Adjusted EBITDA is that EBITDA derived from its investment in unconsolidated joint ventures should be added back to net income (loss) as part of reconciling net income (loss) to Adjusted EBITDA. In addition, Adjusted EBITDA is adjusted to (i) add back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties; (ii) adding back non-cash stock expense; (iii) adding back impairment related expenses; (iv) adding back acquisition and terminated transaction expenses, as well as accruals for contingent consideration on acquisitions; (v) making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment; and (vi) state and local tax expense related to the reassessment of prior period assessments. Fixed Charge Coverage Ratio: The Company’s Fixed Charge Coverage Ratio for 2017 was 2.5x, equal to take into account extraordinary, unusual or infrequently occurring events and transactions to adjust the high performance goals used to determine whether or nothurdle resulting in incentive earned at the componentshigh level.
(1) Calculated as (i) consolidated adjusted earnings before income tax, depreciation and amortization (“Adjusted EBITDA”), divided by (i) the sum of (A) interest expense, plus (B) preferred share distributions. The Company’s interpretation of Adjusted EBITDA is that EBITDA derived from its investment in unconsolidated joint ventures should be added back to net income (loss) as part of reconciling net income (loss) to Adjusted EBITDA. In addition, Adjusted EBITDA is adjusted to (i) add back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties; (ii) adding back non-cash stock expense; (iii) adding back impairment related expenses; (iv) adding back acquisition and terminated transaction expenses, as well as accruals for contingent consideration on acquisitions; (v) making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment;and (vi) state and local tax expense related to the reassessment of prior period assessments.Individual Specific Performance Objectives: For purposes of the Annual CIP, are met. For example, the Compensation Committee may take into account effectsutilized the individual-specific performance objectives which were similar to the objectives used for the 2016 program. These objectives related to meetings with investors; timely, accurate, and complete filing of itemsthe Company’s reports with the SEC; and maintaining internal control over financial reporting that were not foreseen or contemplated when the performance goals were set by backing out the impactis free of such events on the performance goals being measured. For 2015, no such adjustments were made to actual amounts reported by the Company.The Compensation Committee also retains the right to exercise discretion to reduce an incentive payout to ensure that payouts from the plan produce their desired result. The use of discretion was especially important at the time the performance measures were established. If the threshold is not achieved, the NEO could receive no Annual CIP payout.40each of thethese individual-specific performance objectives described above. As a result,objectives.Under the 2017 Annual CIP each of the participating NEOs was awarded the target cash payment under the AFFO per share metric and maximum cash payment under AFFO per share andthe EBITDA multiple metric, fixed charge coverage ratio metricsmetric and the individual performance-specific objectives. No amounts were awarded under the AFFO multiple metric as performance was below the threshold level of performance. The following table indicates the amounts the participating NEOs may earn for threshold, target and maximum performance and the amount of the cash bonuses that were earned:
Threshold Target Maximum Actual Bonus Earned (as a % of2017 base salary)(as a % of2017 base salary)(as a % of2017 base salary)(as a % of2017 base salary)(in dollars) Jay H. Shah 100% 150% 200% 185% $1,387,500 Neil H. Shah 100% 150% 200% 185% $1,341,250 Ashish R. Parikh 75% 125% 175% 160% $760,000 Michael R. Gillespie 50% 100% 125% 118% $381,875 The Compensation Committee has adopted a policy that allows the NEOs to elect to receive payouts, if any, under the 2017 Annual CIP in LTIP Units or cash. For payments elected in LTIP Units, the NEO receives a 25% premium. LTIP Units issued are subject to a two-year vesting period from the end of the performance period. For 2017, each NEO had elected to receive 100% of any payouts earned under the Annual CIP in LTIP Units. As a result, the Compensation Committee approved the following LTIP Units for the NEOs in March 2018: Mr. Jay H. Shah, 98,937 LTIP Units; Mr. Neil H. Shah, 95,639 LTIP Units; Mr. Parikh; 54,192 LTIP Units; and Mr. Gillespie, 27,320 LTIP Units. The LTIP Units awarded were determined by dividing the sum of the dollar amount of the award under the Annual CIP and the 25% premium by $17.53, the per share volume weighted average trading price of the Company’s common shares on the NYSE for the 20 trading days prior to and including December 31, 2017. The awards issued to the NEOs pursuant to the Annual CIP vest on December 31, 2019.Long-Term Equity Incentive ProgramsThe Compensation Committee believes it is important to provide the NEOs with equity incentives to promote retention, incent sustainable growth and long-term value creation, and to further align the interests of the NEOs with those of shareholders by exposing the NEOs to stock price changes during the performance and vesting periods. Awards under the long-term equity incentive programs are both “performance based” and “time based.” To balance annual performance with performance over a longer term, the Compensation Committee uses a mix of long-term equity incentives that include one and three year performance periods. The multi-year long-term incentive programs (“Multi-Year EIPs”) have a three-year performance period followed by a one-year vesting period for awards issued under the programs. The annual long term equity incentive programs (“Annual EIPs”) have a one-year performance period followed by a three-year vesting period for awards issued under the programs.The following illustrates the Multi-Year EIPs and Annual EIPs designed by the Compensation Committee:
(1)Awards can be earned under the Annual EIP programs based on the achievement of determined levels of Absolute RevPAR growth (40% of the potential award), RevPAR growth relative to the Company’s peers (40% of the potential award), and subjective factors determined by the Compensation Committee (20% of the potential award).
(1) Awards can be earned under the Multi-Year EIPs programs based on the achievement of determined levels of Absolute Total Shareholder Return (“TSR”) (37.5% of the potential award), TSR relative to the Company’s peers (37.5% of the potential award), and RevPAR growth relative to the Company’s peers (25.0% of the potential award). (2) Awards can be earned under the Annual EIP programs based on the achievement of determined levels of Absolute RevPAR growth (40% of the potential award), RevPAR growth relative to the Company’s peers (40% of the potential award), and subjective factors determined by the Compensation Committee (20% of the potential award). Annual Long-Term Equity Incentive Program for 20152017 (“Annual EIP”)The Compensation Committee adopted the Annual EIP for the NEOs, pursuant to which the NEOs are eligible to earn equity awards in the form of stock awards, performance share awards or beginning in December of 2014, LTIP Units. The Company must achieve certain financial performance during the performance period in order for 80% of the award to be earned. The remaining portion of the award is granted at the discretion of the Compensation Committee based on its assessment of company and individual performance without regard to pre-defined performance criteria. If awards are earned, the equity securities granted are subject to vesting over a four yearfour-year period that begins on the first day of the performance period.41The Compensation Committee determined that a maximum payout for the absolute RevPAR and the Relative RevPAR metric was warranted. The following table summarizes the threshold, target and maximum levels of performance for the Annual EIP and the Company’s actual 2015 performance in relation to the RevPAR performance goals:
+ 20 basis points
+ 40 basis points
+ 60 basis points
The Company’s actual 2017 absolute RevPAR growth was 2.3%, exceeding the maximum payout hurdle. The Company’s 2017 RevPAR growth was above the Peer Group median RevPAR growth by 220bps, exceeding the maximum payout hurdle of 60bps. In assessing the subjective, discretionary elementindividual-specific performance objectives of the Annual EIP, the Compensation Committee considered, in general, how the NEOs individually and as a group effected transactions that continued the transformation of the Company’s portfolio and continued to strengthen the Company’s financial position. The Compensation Committee believes that the NEOs performance in 20152017 transformed and positioned the Company for continued growth in 2016. The Compensation Committee also considered the following:Management’s completion of its 24-month capital recycling campaign, during which, the contributionsCompany sold approximately $870 million of mature, stabilized hotels and successfully deferred $270 million of taxable gains with $816 million of accretive acquisitions. The sales were executed efficiently for an average 15x EBITDA multiple or 6% cap rate and we were able to achieve an unlevered 14.3% internal rate of return on these assets during our hold period.Notable outperformance in a majority of our core markets on an ADR and Occupancy-driven basis in 2017 due to our strategy of clustering our portfolio. Additionally, over 14 of the NEOspast 16 quarters, our Manhattan portfolio has outperformed the market in completing the acquisition of hotels in high barrier to entry and major urban markets, including the acquisition of two hotels in the central business district of Washington, DC and one hotel in the silicon valley market of California;the contributions of the NEOs achieving EBITDA marginsRevPAR growth.Median RevPAR growth for the consolidated hotelpeer group in 2017 was 0.1% versus 2.3% for Hersha’s comparable portfolio of 38.1% which, according to publicly available information, significantly exceeded the median for the 2015 Peer Group by approximately 800 basis points;the contributions of the NEOs in obtaininghotels.Closing on a $300new $475 million unsecured term loan, expanding oursenior unsecured credit facility from $500 millionthat is expandable to $800 million$875 million. This refinancing allowed us to lower our weighted average interest rate to 3.78% while extending out the weighted average life to maturity and decreasing the Company’s overall cost ofextending our repayment profile so that we have no significant debt to 3.86%, a record low for the Company; andthe contributions of the NEOs in initiating a transaction to enter into a joint-venture with a Chinese investor for 7 of our limited service hotels in Manhattan which will reduce the Company’s EBITDA exposure in New York City from approximately 43.0% in 2015 to 25.0% of consolidated EBITDA in 2016.As a result of these contributions and the performance with respect to the absolute and relative RevPAR growth performance measure established under the Annual EIP, the Compensation Committee approved the following awards for the NEOs in March 2016:2018:
(Threshold to Maximum)
of Annual EIP Awards
(Actual Performance)
Restricted
LTIP Units
Awarded(1)(1)NEO Dollar Value of Possible Equity Awards(Threshold to Maximum)(1)Dollar Amountof Annual EIP Awards(Actual Performance)(1)Number ofRestrictedLTIP UnitsAwarded(2)Hasu P. Shah $375,000 to $500,000 $500,000 28,523 Jay H. Shah $1,312,500 to $1,687,500 $1,687,500 96,264 Neil H. Shah $1,268,750 to $1,631,250 $1,631,250 93,055 Ashish R. Parikh $475,000 to $831,250 $831,250 47,419 Michael R. Gillespie $243,750 to $406,250 $406,250 23,175 (1) Threshold amounts presented as an aggregate of the threshold amounts achievable for each component/metric. As noted, failure to achieve Absolute RevPAR growth at or above a threshold level resulted in no payout for that component of the Annual EIP awards and the dollar amount of Annual EIP awards earned was less than the aggregate threshold potential. (2) Determined by dividing the dollar amount of the award under the Annual EIP by $17.53, the per share volume weighted average trading price of the Company’s common shares on the NYSE for the 20 trading days prior to and including December 31, 2017. The awards issued to the NEOs pursuant to the Annual EIP vest as follows: 25% on the date of grant and 25% on each of December 31, 2018, 2019 and 2020. The establishing performance hurdles, the Compensation Committee considers the rigors of these hurdles by considering the current operating environment, the Company’s forecast and planned transactions, as well as past performance. While maximum performance hurdles were exceeded in the current year, performance in the past for certain hurdles have been achieved at the target, threshold or even below threshold in which the executives received no payout for that hurdle. In 2017, the CEO payout under the 2017 Annual EIP was 112.5% of the awardtarget payout which compares to a CEO payout at 62.5% of the target level under the 2016 Annual EIP.The following table compares the actual Annual EIP by $22.40, the per share volume weighted average trading price of the Company’s common shares on the NYSE for the 20 trading days prior to and including December 31, 2015. The awards issuedvalue achieved compared to the NEOs pursuant to the Annual EIP vest as follows: 25% on the date of granttarget levels for 2016 and 25% on December 31, 2016, 2017 and 2018.2017:42
Multi-Year Long-Term Equity Incentive Programs (“Multi-Year EIPs”)In 2013, 20142015, 2016 and 2015,2017, the Compensation Committee adopted multi-year long-term incentive programs (“20132015 Multi-Year EIP,” “2014“2016 Multi-Year EIP,” and “2015“2017 Multi-Year EIP,” collectively the “Multi-Year EIPs”) and granted awards pursuant to the programs to the NEOs. The awards pursuant to the Multi-Year EIPs consisted of agreements to issue equity awards where the number of awards issued is not determined until the end of a three-year performance period. The 20132015 Multi-Year EIP commenced on January 1, 20132015 and ended on December 31, 2015.2017. The 20142016 Multi-Year EIP commenced on January 1, 20142016 and ends on December 31, 2016,2018, and the 20152017 Multi-Year EIP commenced January 1, 20152017 and ends on December 31, 2017. Once the Compensation Committee determines the awards have been earned and the equity underlying the awards has been issued, one-half of the equity awards will remain subject to time-based forfeiture provisions. Common shares, LTIP Units or a combination of common shares and LTIP Units may be used to settle awards under the programs, if the awards are earned based on the metrics described above.below Any equity awards pursuant to the programs will be made under the Company’s 2012 Equity Incentive Plan or any other equity incentive plan approved by the Company’s shareholders.The following table summarizes the metrics used to determine awards to issued under the Multi-Year EIPs, including actual performance under the 2013 Multi-Year EIP:
(1)Relative TSR and Relative RevPar performance is determined by comparing the performance of the 2013 Peer Group for the 2013 Multi-Year EIP, the 2014 Peer Group for the 2014 Multi-Year EIP, and the 2015 Peer Group for the 2015 Peer Group over the same performance period. The 2013 Peer Group, 2014 Peer Group, and 2015 Peer Group are identical in composition.
(1) Relative TSR and Relative RevPar performance is determined by comparing the performance of the 2015 Peer Group for the 2015 Multi-Year EIP, the 2016 Peer Group for the 2016 Multi-Year EIP, and the 2017 Peer Group for the 2017 Peer Group over the same performance period. Actual performance under the 2013 Multi-Year EIP was as follows:
2013
Multi-Year EIP Performance
- 150 basis points
+ 50 basis points
+ 250 basis points
+ 25 basis points
+ 50 basis points
+ 75 basis pointsFor the 2013 Multi-Year EIP, the Compensation Committee determined that a maximum payout for the Absolute TSR and Relative TSR vs. Peer Group median metrics were below threshold performance and, as such, no amounts were paid for those components under the 2015 Multi-Year EIP. Actual performance for the Relative RevPAR metricvs. Peer Group median was warranted. No amounts were awarded underin excess of the Relative TSR as43performancemaximum hurdle and the Compensation Committee determined the maximum payout was belowwarranted for this component of the threshold level of performance.2015 Multi-Year EIP. As a result, the Compensation Committee approved the following awards for the NEOs in March 2016:
(Threshold to Maximum)
of Multi-Year EIP Awarded
Restricted
LTIP Units
Awarded(1)
on
LTIP Units
Awarded(2)(1)NEO Dollar Value of Possible Equity Awards(Threshold to Maximum)(1)Dollar Amountof Multi-Year EIP Awarded(1)Number ofRestrictedLTIP UnitsAwarded(2)Hasu P. Shah $225,000 to $375,000 $93,750 3,225 Jay H. Shah $600,000 to $1,000,000 $250,000 8,600 Neil H. Shah $600,000 to $1,000,000 $250,000 8,600 Ashish R. Parikh $225,000 to $375,000 $93,750 3,225 Michael R. Gillespie $71,250 to $118,750 $29,688 1,022 (1) Threshold amounts presented as an aggregate of the threshold amounts achievable for each component/metric. As noted, failure to achieve Absolute and Relative TSR at or above a threshold level resulted in no payout for that component of the Multi-Year EIP awards and the dollar amount of Multi-Year EIP awards earned was less than the aggregate threshold potential. (2) Determined by dividing the dollar amount of the award under the Multi-Year EIP by $29.07, the per share volume weighted average trading price of the Company’s common shares on the NYSE for the 20 trading days prior to and including December 31, 2014. The awards issued to the NEOs pursuant to the Multi-Year EIP vest as follows: 50% on the date of issuance and 50% on December 31, 2018. Performance under the 2015 Multi-Year EIP resulted in payout to the CEO and all other NEOs that equaled 31.25% of the award under the Multi-Year EIP by $19.41, the per share volume weighted average trading price of the Company’s common shares on the NYSEtarget compensation for the 20 trading days prior to and including December 31, 2012. The awards issued to the NEOs pursuant to the Multi-Year EIP vest as follows: 50% on the date of issuance and 50% on December 31, 2016.(2)Payments of distributions on LTIP Units awarded were paid upon issuance of the LTIP Units awarded to the NEO. Amounts to be paid are determined by multiplying the number of LTIP Units awarded under the 2013 Multi-Year EIP by $3.36, the distributions made to shareholders of record between January 1, 2013 and the date the shares were awarded.
The equity awards issuable pursuant to the 20142016 Multi-Year EIP and the 20152017 Multi-Year EIP will be determined and issued to the NEOs in the first quarter of 20172019 and 2018,2020, respectively, if earned. The number of shares or units awarded pursuant to the programs will be based on a specified dollar amount for each NEO divided 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, 20132015 and December 31, 2014,2016, respectively.The following table sets forth the potential equity awards for each of the 20142017 Multi-Year EIP and 20152016 Multi-Year EIP, in terms of dollar value, that each NEO may earn for each program:NEODollar Value of Possible Equity Awards 2017 Multi-Year EIP 2016 Multi-Year EIP Hasu P. Shah $225,000 to $375,000 $600,000 to $1,000,000 $600,000 to $1,000,000 $225,000 to $375,000 $71,250 to $118,750 Based on known results as of December 31, 2017, the following depicts actual CEO payouts under the 2014 and 2015 Multi-Year EIPs and the CEO payout amounts tracking under the 2016 and 2017 Multi-Year EIPs compared to the targets under each program:
Distributions on the common shares and/or LTIP Units issuable pursuant to the 20142016 Multi-Year EIP and the 20152017 Multi-Year EIP accumulate from the beginning of the performance period and will be paid in cash when, and to the extent that, the common shares and/or LTIP Units issuable pursuant to the program are issued. It is the Compensation Committee’s intention to make the multi-year long term incentive program a rolling program, and a similar program has been put in place in 2016,2018, with a performance period that commenced on January 1, 20162018 and will end on December 31, 2018.BenefitsBenefits are established based upon an assessment of competitive market factors and a determination of what is required to attract and retain talent, as well as provide long-term financial security to the Company’s employees and their families. The Compensation Committee periodically considers benefit levels based on competitive influences, as well as the cost of the programs to the Company relative to the value to employees. The Company’s primary benefits for executive officers include participation in the Company’s health, dental and vision plans 401(k) plan and various insurance plans, including disability and life insurance, on the same basis as any other employee. The Company does not match employee contributions to its 401(k) plan, including contributions made44by named executive officers. Except as described in this paragraph, the Company does not provide NEOs with other benefits or perquisites.Dual Role StructureIn establishing the compensation for Mr. Neil Shah, President and Chief Operating Officer, the Compensation Committee considers the dual roles that Mr. Neil Shah serves for the Company. Mr. Neil Shah is currently the President and Chief Operating Officer of the Company and serves as the Chief Investment Officer and Head of Asset Management. These roles are typically performed by multiple executive level individuals. The Compensation Committee has worked with FPL, our Compensation Consultant, to put together a pay structure for Mr. Neil Shah that incorporates these additional duties and the leadership role that Mr. Neil Shah serves in these dual roles. The Compensation Committee believes that the overall compensation for Mr. Neil Shah is commensurate for the dual roles that he serves within the Company. In addition, the Compensation Committee considers the compensation of Mr. Neil Shah as a part of a broader analysis of the aggregate pay level of our NEOs to ensure that, on a total pay basis across our team, it is appropriate when compared to our peers.Contractual ArrangementsThe Company has entered into employment agreements with Hasu P. Shah, Jay H. Shah, Neil H. Shah, Ashish R. Parikh and Michael R. Gillespie. The terms of these employment agreements include provisions related to payments to be made to the officers for events related to changes of control of the Company. These employment agreements are described under “Executive Compensation - Agreements with Executive Officers and Potential Payments Upon Termination or Change-in-Control” below. The Compensation Committee believes it is appropriate for the Company to have an employment agreement with the executive officers to support stable and highly competent management on a long-term basis.The Compensation Committee believes that the employment agreements serve the interests of the Company and its shareholders by ensuring that if a hostile or friendly change of control is ever under consideration, its executives will be able to advise the Board of Trustees about the potential transaction in the best interests of shareholders, without being unduly influenced by personal considerations, such as fear of the economic consequences of losing their jobs as a result of a change of control. The change of control provisions of the employment agreements include so-called double triggers, which mean that benefits become available to executives under the agreements only upon a change of control followed by termination of the executive without cause or resignation by the executive for good reason. The Compensation Committee believes that a double trigger appropriately protects the legitimate interests in employment security without unduly burdening the Company or shareholder value.Stock Ownership GuidelinesTo further align the interests of the Company’s trustees and executive officers with the interests of our shareholders, the Board has established minimum share ownership guidelines that apply to all non-management trustees and named executive officers. Non-employee trustees are required to own Company shares equal in value to at least five times the annual cash retainer paid to non-management trustees. In addition, the Company’s executive officers are required to own Company shares equal in value to a multiple of such executive’s base salary as follows: Chairman of the Board: 4 times; Chief Executive Officer: 6 times; President and Chief Operating Officer: 6 times; Chief Financial Officer: 3 times; and Chief Accounting Officer and all other named executive officers: 1 times.All trustees and executives are expected to achieve this minimum ownership within three years of assuming the relevant positions with the Company. For the purpose of these guidelines, a person shall be deemed to own all Company shares beneficially owned by such person within the meaning of the United States federal securities laws, including for these purposes preferred shares of the Company, common shares of the Company, operating partnership units (including LTIP Units) in Hersha Hospitality Limited Partnership and other securities issued by the Company or its subsidiaries that are exercisable for, convertible into or exchangeable for common shares of the Company.4546The Compensation Committee oversees the compensation policies and plans for all employees. The Company’s senior management, at the request of the Compensation Committee, has assessed the Company’s compensation programs and has concluded that they do not create risks that are reasonably likely to have a material adverse effect on the Company.As part of its annual risk assessment, the Company’s senior management, with oversight from Risk Sub-Committee of the Audit Committee, analyzed whether the Company’s compensation policies and practices, including non-executive officer compensation practices, could reasonably have a material adverse effect on the Company. This assessment focused primarily on the design of the Company compensation programs and practices for executive officers and employees as it relates to the business risks that the Company faces. Specifically, management considered the fact that employees, other than the NEOs who participate in the executive compensation program described in this proxy statement, receive only a small percentage of their total compensation in the form of variable, performance-based compensation. Further, performance-based compensation to executive officers is primarily in the form of equity awards, which the Company believes encourages actions for long term shareholder value, rather than short term risk-taking that could materially and adversely affect the Company’s business. The Company’s senior management also considered the active role played by the Compensation Committee and the overall design of the executive compensation program, which the Company’s senior management believes encourages an appropriate level of risk taking, creates long-term shareholder value and avoids unnecessary or excessive levels of enterprise risk.In addition, the Company’s senior management discussed its assessment of the Company’s compensation practices and programs and whether those practices and programs create risks that could reasonably be expected to have a material adverse effect on the Company. Based on its assessment, the Company’s senior management has concluded that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. Upon completion of the risk assessment, the Company’s senior management reported its findings to the Compensation Committee and discussed with the Compensation Committee those findings in light of the disclosure requirements under applicable SEC rules.20162018 Executive Compensation ProgramThe Compensation Committee, in consultation with FPL, has conducted a comprehensive review of the Company’s executive compensation arrangements, including a comparison of compensation practices at several peer companies. As a result of that review, and in preserving the previously stated Compensation Philosophy, on March 16, 2016,9, 2018, the Compensation Committeeadopted the 20162018 executive compensation program for the NEOs as indicated below. Base SalaryThe Compensation Committee and FPL undertook a review of base salary practices at peer companies. Based on that review, in furtherance of the Committee’s philosophy of targeting the 50th percentile of compensation practices that are commensurate with those at peer companies, and taking into consideration the Company’s recent performance, the Committee increased 20162018 base salaries by 3.0% in the aggregate for the NEOs, byranging between 3.0%2.0% and 3.4% individually over 20152017 levels.The following table summarizes base salaries for 2016:NEO2016Base SalaryHasu P. Shah$ 242,000.00Jay H. Shah$ 732,000.00Neil H. Shah$ 706,000.00Ashish R. Parikh$ 460,000.00Michael R. Gillespie$ 310,000.004720162018 Annual Cash Incentive Program (“20162018 Annual CIP”)Except for Mr. Hasu Shah, who does not participate in the Company’s annual cash bonus plan, each of the NEOs is eligible to receive a cash bonus for 2016 based upon the achievement of certain Company and individual-specific performance goals. Consistent with the 20152017 Annual CIP, 80% of the 2018 Annual CIP award will be based on the achievement of Company performance goals. Performance will be measured relative to AFFO per share (30%), an EBITDA multiple (30%)Minimum, target and maximum payout as a fixed charge coverage ratio (20%). The final twenty percentpercentage of base salary under the award will be based on the achievement of individual-specific performance goals. If minimum threshold goals are not met, the NEO could receive no bonus. Minimum payouts to be made to the NEOs for achieving the performance goals range from 50% to 75% of the participating NEOs’ 2016 base salary. Maximum payouts to be made to the NEOs for achieving the maximum performance goals range from 100% to 200% of the participating NEOs’ 2016 base salary.2018 Annual CIP remain unchanged. The Compensation Committee retains discretion to determine the actual payout within the range established for each NEO if the Company and individual-specific performance goals are achieved for the 20162018 performance year.The possible ranges of cash bonus compensationCompensation Committee has adopted a policy that allows the NEOs to elect to receive payouts, if any, under the 20162018 Annual CIP are as follows:in LTIP Units or cash. For payments elected in LTIP Units, the NEO will receive a 25% premium. LTIP Units issued will be subject to a two-year vesting period from the date of issuance. Each NEO has continued to elect to receive 100% of payouts, if earned, under the 2018 Annual CIP in LTIP Units.NEORange of Possible Cash BonusJay H. Shah$549,000 to $1,464,000Neil H. Shah$529,500 to $1,412,000Ashish R. Parikh$345,000 to $690,000Michael R. Gillespie$155,000 to $310,00020162018 Annual Long-Term Equity IncentivesUnder the 2016 annual long-term equity incentive program (“20162018 Annual EIP”), the NEOs will be eligible to earn equity awards in the form of common shares, LTIP Units or a combination of common shares and LTIP Units. The equity awards for 2016, if earned, will be determined and granted to the NEOs in the first quarter of 2016. Consistent with the 20152017 Annual EIP, 40%80% of the award2018 Annual EIP will be based on RevPAR growth in 2016 on an absolute basis, 40%the achievement of the award will be based on RevPAR growth in 2016 relative to a group of peer companies,Company performance goals and the remaining 20% of the award is subject to the sole discretion of the Committee. To assess RevPAR growth relative to the peer group, the peer group for 2016 will comprise Apple Hospitality REIT, Inc., Ashford Hospitality Trust, Chatham Lodging Trust, Chesapeake Lodging Trust, DiamondRock Hospitality Co., FelCor Lodging Trust, Inc., Lasalle Hotel Properties, Inc., Pebblebrook Hotel Trust, RLJ Lodging Trust, Summit Hotel Properties, Inc., Sunstone Hotel Investors, Inc., and Xenia Hotels & Resorts, Inc. (“2016 Peer Group”). All of the common shares and/or LTIP Units subject to these equity awards will be granted subject to time-based forfeiture restrictions that will lapse over a four-year period.The equity awards for20162018 Annual EIP will be made pursuant to the Company’s 2012 Equity Incentive Plan or any other equity incentive plan approved by the Company’s shareholders. The equity awards for 2016 will be based on a specified dollar amount for each NEO divided 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, 2016. The following table sets forth the potential equity awards for the 2016 Annual EIP, in terms of dollar value, that each NEO may earn:NEODollar Value of Possible Equity AwardsHasu P. Shah$363,000 to $484,000Jay H. Shah$1,281,000 to $1,647,000Neil H. Shah$1,235,500 to $1,588,500Ashish R. Parikh$460,000 to $690,000Michael R. Gillespie$232,500 to $310,0004820162018 Multi-Year Long-Term Equity IncentivesFor 2016, (“2018 Multi-Year EIP”)Consistent with the 2017 Multi-Year EIP, the Compensation Committee adopted a multi-year long-term incentive program (“2016 Multi-Year EIP”) and granted awards pursuant to the program to the NEOs. The awards pursuant to the 2016 Multi-Year EIP consisted of agreements to award common shares and/or LTIP Units where the number of shares and/or units awarded is not determined until the end of a three-year performance period. Consistent with the 2015 Multi-Year EIP, under the 2016 Multi-Year EIP, 37.5% of the award will be based on TSR achieved over the performance period which commenced on January 1, 20162018 and ends on December 31, 2018, on an absolute basis. Another 37.5% will be based on TSR achieved over the same performance period relative to the TSR achieved by the 2016 Peer Group. The remaining 25% will be based on RevPAR growth achieved over the same performance period relative to the RevPAR growth achieved by the 2016 Peer Group.2020. Once the Compensation Committee determines the awards have been earned, which will not occur until the first quarter of 2019,2021, and the common shares and/or units underlying the awards have been issued, if any, one-half of the equity awarded will remain subject to time-based forfeiture provisions. The shares and/or units issuable pursuant toMinimum, target and maximum payout under the 20162018 Multi-Year EIP will be determined and issued to the NEOs in the first quarter of 2019, if earned. The equity awards for the 2016 Multi-Year EIP will be made pursuant to the Company’s 2012 Equity Incentive Plan or any other equity incentive plan approved by the Company’s shareholders. The number of shares and/or units awarded for 2016 Multi-Year EIP will be based on a specified dollar amount for each NEO divided 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, 2015. The following table sets forth the potential equity awards for the 2016 Multi-Year EIP (which remains consistent with 2015 amounts), in terms of dollar value, that each NEO may earn:NEODollar Value of Possible Equity AwardsHasu P. Shah$225,000 to $375,000Jay H. Shah$600,000 to $1,000,000Neil H. Shah$600,000 to $1,000,000Ashish R. Parikh$225,000 to $375,000Michael R. Gillespie$71,250 to $118,750Distributions on the common shares and/or units issuable pursuant to the 2016 Multi-Year EIP accumulate from the beginning of the performance period and will be paid in cash when the common shares issuable pursuant to the program vest.49EXECUTIVE COMPENSATIONSummary Compensation Table for 2015The following table presents information relating to total compensation of the NEOs for the fiscal year ended December 31, 2015:2017:225,000 520,701 3,516 749,217 225,000 490,067 3,668 718,735 680,000 1,586,753 1,020,000 5,146 3,291,899 680,000 1,434,826 867,000 5,315 2,987,141 655,000 1,586,753 982,500 23,462 3,247,715 655,000 1,434,826 835,125 19,961 2,944,912 425,000 544,166 531,250 23,462 1,523,878 425,000 498,802 435,625 19,961 1,379,388 285,000 204,224 213,750 23,462 726,436 285,000 185,845 171,000 19,961 661,806 (1) Stock Awards(1) Non-Equity Incentive Plan Compensation (2) All Other Compensation (3) Total Name and Principal Position Year Salary AwardAmount Premium for Share Election Hasu P. Shah 2017 $ 250,000 $ 702,905 $ — $ — $ 4,061 $ 956,966 Chairman of the Board of Trustees 2016 242,000 454,147 — — 4,040 700,187 2015 235,000 623,401 — — 3,613 862,014 Jay H. Shah 2017 $ 750,000 $ 3,616,069 $ 346,866 $ — $ 5,446 $ 4,718,381 Chief Executive Officer 2016 732,000 1,389,197 — 1,354,200 5,446 3,480,843 2015 710,000 1,945,101 — 745,500 5,196 3,405,797 Neil H. Shah 2017 $ 725,000 $ 3,513,565 $ 335,302 $ — $ 23,462 $ 4,597,329 President and Chief Operating Officer 2016 706,000 1,360,957 — 1,306,100 23,462 3,396,519 2015 685,000 1,945,101 — 719,250 23,462 3,372,813 Ashish R. Parikh 2017 $ 475,000 $ 1,794,152 $ 189,986 $ — $ 23,462 $ 2,482,600 Chief Financial Officer 2016 460,000 542,572 — 655,500 23,462 1,681,534 2015 445,000 642,252 — 389,375 23,462 1,500,089 Michael R. Gillespie 2017 $ 325,000 $ 854,837 $ 95,467 $ — $ 23,462 $ 1,298,766 Chief Accounting Officer 2016 310,000 232,189 — 286,750 23,462 852,401 2015 300,000 240,299 — 157,500 23,462 721,261 (1) The amounts in the “Stock Awards” columns for 2017 include the aggregate grant date fair value of LTIP Units, some of which are subject to time-based forfeiture restrictions, issued to the named executive officers in March 2018 pursuant to the 2017 Annual CIP and the 2017 Annual EIP following completion of the one-year performance period and pursuant to the 2015 MYEIP following completion of the three-year performance period. The Compensation Committee has adopted a policy that allows the NEOs to elect to receive payouts, if any, under the 2017 Annual CIP in LTIP Units or cash. For payments elected in LTIP Units, the NEO receives a 25% premium. For 2017, each eligible NEO had elected to receive 100% of any payouts earned under the Annual CIP in LTIP Units. The aggregate grant date fair value of these LTIP Units has been computed in accordance with FASB ASC Topic 718. These amounts are based on the performance levels determined to be achieved by the Compensation Committee for each component of the 2017 Annual CIP, 2017 Annual EIP and the relative RevPAR component of the 2015 MYEIP. The performance levels are described in “Compensation Discussion and Analysis- Components of Executive Compensation.” The aggregate grant date fair value of these awards was determined by multiplying the number of LTIP Units granted to the NEO by $17.53, the closing price of the Company’s common shares on the NYSE on March 28, 2018. The amounts in “Stock Awards” for 2015 include the aggregate grant date fair value of LTIP Units, some of which are subject to time-based forfeiture restrictions, issued to the named executive officers in March 2016 pursuant to the 2015 Annual EIP following completion of the one-year performance period and pursuant to the 2013 MYEIP following completion of the three-year performance period. The aggregate grant date fair value of these LTIP Units has been computed in accordance with FASB ASC Topic 718. These amounts are based on the performance levels determined to be achieved by the Compensation Committee for each component of the 2015 Annual EIP and the relative RevPAR component of the 2013 MYEIP. The performance levels are described in “Compensation Discussion and Analysis— Components of Executive Compensation.” The aggregate grant date fair value of these awards was determined by multiplying the number of LTIP Units granted to the NEO by $21.11, the closing price of the Company’s common shares on the NYSE on March 30, 2016.The amounts in “Stock Awards” for 20152017 also include the aggregate grant date fair value of the right to receive common shares, LTIP Units, or a combination of common shares and LTIP Units following completion of the three-year performance period under Absolute TSR and Relative TSR components of the 20152017 Multi-Year EIP. These amounts are based on the probable outcome of the performance conditions established by the Compensation Committee in March of 2015,2017, which are described in “Compensation Discussion and Analysis—Analysis- Components of Executive Compensation” above. The aggregate grant date fair value of these awards has been computed in accordance with FASB ASC Topic 718. For additional information relating to assumptions made in the valuation of the awards pursuant to the 20152017 Multi-Year EIP, please refer to footnote 8 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.(2)2017.(2) As described in “Compensation Discussion and Analysis- Components of Executive Compensation” above, The Compensation Committee has adopted a policy that allows the NEOs to elect to receive payouts, if any, under the 2017 Annual CIP in LTIP Units or cash. For 2017, each NEO had elected to receive 100% of any payouts earned under the Annual CIP in LTIP Units and, accordingly, the amounts earned under the 2017 Annual CIP are included in the “Stock Awards” column.(3) Includes insurance premiums paid by the Company for medical, dental and life insurance benefits. As described in “Compensation Discussion and Analysis— Components of Executive Compensation” above, the amounts in the “Non-Equity Incentive Plan Compensation” column for 2015 represent the actual amounts paid to the named executive officers other than Mr. Hasu Shah pursuant to the Company’s Annual CIP for 2015. A portion of these amounts were paid to the named executive officers other than Mr. Hasu Shah in January of 2016 with the remaining balance paid in March 2016 after the performance period had been completed and the actual level of performance had been determined. The estimated possible payouts under this program appear under the column “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” in the Grants of Plan-Based Awards Table.(3)Includes insurance premiums paid by the Company for medical, dental and life insurance benefits. 50As described in “Compensation Discussion and Analysis—Analysis- Components of Executive Compensation” above, the Company does not grant equity awards under the 20152017 Annual CIP, the 2017 Annual EIP or the 20152017 Multi-Year EIP until the applicable performance period has been completed and the actual level of performance achieved has been determined. The performance period under the 20152017 Annual CIP and the 2017 Annual EIP began on January 1, 20152017 and was completed on December 31, 2015.2017. In March of 2016,2018, the Compensation Committee determined that the named executive officers had achieved a certain level of performance under the 2015 Annual EIP and the Company awarded an aggregate of 183,396288,436 LTIP Units under the 2017 Annual EIP and an aggregate of 275,998 LTIP Units under the 2017 Annual CIP to the NEOs. The performance period under the 20152017 Multi-Year EIP began on January 1, 20152017 and will not be completed until December 31, 2017.2019. The Compensation Committee intends to determine the actual level of performance under the 20152017 Multi-Year EIP during the first quarter of 2018.2020. Estimated future payouts for the absolute TSR and relative TSR components under the Company’s 20152017 Multi-Year EIP appear under the column “Estimated Future Payouts Under Equity Incentive Plan Awards” in the Grants of Plan-Based Awards Table for 2015. The 2012 Equity Incentive Plan, as amended (“the 2012 Plan”), allows for LTIP Units as a type of award available. The LTIP Units granted are subject to the same time-based vesting conditions that apply to restricted stock awards. Initially, all LTIP Units will not have full parity with HHLP’s common units with respect to liquidating distributions. Upon the occurrence of certain “book-up” events described in the partnership agreement, LTIP Units can, over time, achieve full parity with our operating partnership’s common units for all purposes, and therefore accrete to an economic value equivalent to one common share. If such parity is reached, vested LTIP Units may be redeemed for cash in an amount equal to the then fair market value of an equal number of Hersha common shares or converted into an equal number of Hersha common shares, as determined by Hersha at its election.Grants of Plan-Based Awards Table for 2015The following table presents information regarding grants of plan-based awards to the named executive officers during the fiscal year ended December 31, 2015.2017. For more information regarding grants of plan-based awards, see “Compensation Discussion and Analysis” above.
51(1)Type of award:ACIP— Estimated Possible Payouts Under Estimated Future Payouts Under Grant DateFair Valueof StockAwards (4)($) Typeof Award (1) GrantDate Non-Equity Incentive Plan Awards(2) Equity Incentive Plan Awards(3) Threshold Target Maximum Threshold Target Maximum Name ($) ($) ($) ($) ($) ($) Hasu P. Shah Annual EIP 3/10/2017 375,000 437,500 500,000 500,008 2017 MYEIP 3/10/2017 225,000 281,250 337,500 146,363 2015 MYEIP 3/18/2015 56,250 75,000 93,750 56,534 Jay H. Shah Annual CIP 3/10/2017 (2) (2) (2) 937,500 1,406,250 1,875,000 1,734,366 Annual EIP 3/10/2017 1,312,500 1,500,000 1,687,500 1,687,508 2017 MYEIP 3/10/2017 600,000 750,000 900,000 390,303 2015 MYEIP 3/18/2015 150,000 200,000 250,000 150,758 Neil H. Shah Annual CIP 3/10/2017 (2) (2) (2) 906,250 1,359,375 1,812,500 1,676,552 Annual EIP 3/10/2017 1,268,750 1,450,000 1,631,250 1,631,254 2017 MYEIP 3/10/2017 600,000 750,000 900,000 390,303 2015 MYEIP 3/18/2015 150,000 200,000 250,000 150,758 Ashish R. Parikh Annual CIP 3/10/2017 (2) (2) (2) 445,313 742,188 1,039,063 949,986 Annual EIP 3/10/2017 460,000 575,000 690,000 831,255 2017 MYEIP 3/10/2017 225,000 281,250 337,500 146,363 2015 MYEIP 3/18/2015 56,250 75,000 93,750 56,534 Michael R. Gillespie Annual CIP 3/10/2017 (2) (2) (2) 203,125 406,250 507,813 477,342 Annual EIP 3/10/2017 232,500 310,000 310,000 406,258 2017 MYEIP 3/10/2017 75,000 93,750 112,500 48,788 2015 MYEIP 3/18/2015 17,813 23,750 29,688 17,916 (1) Type of award: Annual CIP-Annual CIP for 20152017Annual EIP—AnnualEIP-Annual EIP for 201520172017 MYEIP - Multi-Year EIP for 20172015 MYEIP –- Multi-Year EIP for 20152013 MYEIP – Multi-Year EIP for 2013(2)Represents(2) The Compensation Committee has adopted a policy that allows the NEOs to elect to receive payouts, if any, under the 2017 Annual CIP in LTIP Units or cash. For payments elected in LTIP Units, the NEO receives a 25% premium. For 2017, each NEO had elected to receive 100% of any payouts earned under the Annual CIP in LTIP Units and, accordingly, the amounts earned under the 2017 Annual CIP are included in the “Stock Awards” columns. The following table represents the range of potential cash payouts to be made to the named executive officers other than Mr. Hasu Shah pursuant to the Company’s Annual CIP if each NEO elected to receive 100% cash: Threshold Target Maximum Name ($) ($) ($) Jay H. Shah 750,000 1,125,000 1,500,000 Neil H. Shah 725,000 1,087,500 1,450,000 Ashish R. Parikh 356,250 �� 593,750 831,250 Michael R. Gillespie 162,500 325,000 406,250 (3) Awards pursuant to the 2017 Annual CIP and the 2017 Annual EIP are denominated in dollars, but are payable in common shares, LTIP Units, or a combination of common shares and LTIP Units based on the volume-weighted average price of the common shares for the 20 trading days prior to and including December 31, 2017, as reported by the NYSE, or $17.40 per share. On March 28, 2018, the Company issued to the NEOs an aggregate of 288,436 LTIP Units pursuant to the 2017 Annual EIP and an aggregate of 275,998 LTIP Units pursuant to the 2017 Annual CIP. The LTIP Units were issued pursuant to the Company’s 2012 Equity Incentive Plan. LTIP Units issued pursuant to the 2017 Annual CIP. Under this program, cash payments were madeEIP are subject to Messrs. Jay Shah, Neil Shah, Parikhtime-based forfeiture restrictions which lapse over the following schedule: 25% upon issuance and Gillespie in January25% on December 31, 2018, 2019 and March 2016 in2020. LTIP Units issued pursuant to the amounts shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.(3)2017 Annual CIP are subject to time-based forfeiture restrictions which lapse on December 31, 2019.Awards pursuant to the 2015 AnnualCompany’s 2017 Multi-Year EIP are denominated in dollars, but are payable in common shares, LTIP Units, or a combination of common shares and LTIP Units based on the volume-weighted average price of the common shares for the 20 trading days prior to and including December 31, 2015,2016, as reported by the NYSE, or $22.40$21.33 per share. On March 30, 2016, the Company issued an aggregate of 183,396 LTIP Units to the NEOs pursuant to the 2015 Annual EIP. The LTIP Units were issued pursuant to the Company’s 2012 Equity Incentive Plan and are subject to time-based forfeiture restrictions which lapse over the following schedule: 25% upon issuance and 25% on December 31, 2016, 2017 and 2018.Awards pursuant to the Company’s 2015 Multi-Year EIP are denominated in dollars, but are payable in common shares, LTIP Units, or a combination of common shares and LTIP Units based on the volume-weighted average price of the common shares for the 20 trading days prior to and including December 31, 2014, as reported by the NYSE, or $29.07 per share.Awards pursuant to the 2013 Multi-Year EIP are denominated in dollars, but are payable in common shares, LTIP Units, or a combination of common shares and LTIP Units based on the volume-weighted average price of the common shares for the 20 trading days prior to and including December 31, 2012, as reported by the NYSE, or $19.41 per share. On March 30, 2016,28, 2018, the Company issued an aggregate of 18,47524,672 LTIP Units to the NEOs pursuant to the Relative RevPAR performance component of the 2013 Multi-year2015 Multi-Year EIP. The LTIP Units were issued pursuant to the Company’s 2012 Equity Incentive Plan and are subject to time-based forfeiture restrictions which lapse over the following schedule: 50% upon issuance and 50% on December 31, 2016.(4)For the 2015 Annual EIP, amount represents the aggregate fair value of the common shares and restricted common shares on the date of issuance, or $21.11 per share, at the actual level of performance. For the 2015 Multi-Year EIP awards, amount represents the aggregate grant date fair value of the right to receive common shares following the three-year performance period. Fair value of these awards has been computed in accordance with FASB ASC Topic 718. For the 2013 Multi-Year EIP, amount represents the aggregate fair value of the common shares and restricted common shares on the date of issuance, or $21.11 per share, at the actual level of performance. (4) For the 2017 Annual EIP and the 2017 Annual CIP, amount represents the aggregate fair value of the common shares and restricted common shares on the date of issuance, or $17.53 per share, at the actual level of performance. For the 2017 Multi-Year EIP awards, amount represents the aggregate grant date fair value of the right to receive common shares following the three-year performance period. Fair value of these awards has been computed in accordance with FASB ASC Topic 718. For the 2015 Multi-Year EIP, amount represents the aggregate fair value of the common shares and restricted common shares on the date of issuance, or $17.53 per share, at the actual level of performance. 52Outstanding Equity Awards at Fiscal Year-End Table for 2015The following table presents information concerning outstanding equity awards as of the end of the fiscal year ended December 31, 2015:2017:
(#) (1)
That Have Not Vested
($)(2)
That Have Not Vested
(#)
($)20,922 20,090 (3) (4) 7,740 (5) (6) 10,081 (5) (6) 11,592 (5) (6) 135,738 66,965 (3) (4) 20,640 (5) (6) 26,882 (5) (6) 30,912 (5) (6) 75,713 66,965 (3) (4) 20,640 (5) (6) 26,882 (5) (6) 30,912 (5) (6) 24,752 20,983 (3) (4) 7,740 (5) (6) 10,081 (5) (6) 11,592 (5) (6) 7,890 8,393 (3) (4) 2,451 (5) (6) 3,192 (5) (6) 3,671 (5) (6) 53 Stock Awards Time Vested Awards Equity Incentive Plan Awards NEO Award Type Number of Shares That Have Not Vested (#) (1) Market Value of Shares That Have Not Vested ($)(2) Number of Unearned Shares That Have Not Vested (#) Payout Value of Unearned Shares That Have Not Vested ($) Hasu P. Shah Time Vest 11,264 $ 195,994 Annual EIP 28,523 (3) $ 496,300 (4) 2017 MYEIP 14,065 (5) $ 244,726 (6) 2016 MYEIP 10,045 (5) $ 174,777 (6) 2015 MYEIP 7,740 (5) $ 134,675 (6) Jay H. Shah Time Vest 38,191 $ 664,523 Annual CIP 98,937 (3) $ 1,721,504 (4) Annual EIP 96,264 (3) $ 1,674,994 (4) 2017 MYEIP 37,506 (5) $ 652,602 (6) 2016 MYEIP 26,786 (5) $ 466,071 (6) 2015 MYEIP 20,640 (5) $ 359,133 (6) Neil H. Shah Time Vest 37,429 $ 651,265 Annual CIP 95,639 (3) $ 1,664,119 (4) Annual EIP 93,055 (3) $ 1,619,157 (4) 2017 MYEIP 37,506 (5) $ 652,602 (6) 2016 MYEIP 26,786 (5) $ 466,071 (6) 2015 MYEIP 20,640 (5) $ 359,133 (6) Ashish R. Parikh Time Vest 13,873 $ 241,390 Annual CIP 54,192 (3) $ 942,941 (4) Annual EIP 47,419 (3) $ 825,091 (4) 2017 MYEIP 14,065 (5) $ 244,726 (6) 2016 MYEIP 10,045 (5) $ 174,777 (6) 2015 MYEIP 7,740 (5) $ 134,675 (6) Michael R. Gillespie Time Vest 6,460 $ 112,404 Annual CIP 27,230 (3) $ 473,802 (4) Annual EIP 23,175 (3) $ 403,245 (4) 2017 MYEIP 4,688 (5) $ 81,575 (6) 2016 MYEIP 3,181 (5) $ 55,346 (6) 2015 MYEIP 2,451 (5) $ 42,647 (6) (1)(1) Represents LTIP Units issued to the NEOs on April 22, 2012, March 21, 2014 and March 30, 2015 and vest as follows:
Annual EIP
Annual EIP86,300 86,300 27,998 32,208 60,206 86,300 86,300 32,209 32,209 172,600 27,998 64,417 265,015 (2)Calculated by multiplying the number of unvested LTIP Units as of December 31, 2015 by $21.76, which was the closing market price of the Company’s common shares on that date.(3)Represents the number of common shares and/or LTIP Units issuable pursuant to the 2015 Annual EIP based on achieving actual performance goals established by the Compensation Committee. On March 30, 2016, and March 28, 2017 and vest as follows: March 30, 2016 March 28, 2017 Vesting Date 2015Annual EIP 2016Annual EIP Total December 31, 2018 45,852 30,680 76,532 December 31, 2019 30,685 30,685 45,852 61,365 107,217 (2) Calculated by multiplying the number of unvested LTIP Units as of December 29, 2017 by $17.40, which was the closing market price of the Company’s common shares on that date. (3) Represents the number of common shares and/or LTIP Units issuable pursuant to the 2017 Annual EIP and the 2017 Annual CIP based on achieving actual performance goals established by the Compensation Committee. On March 28, 2018, the Company granted a total of 288,436 LTIP Units to the named executive officers pursuant to 2017 Annual EIP of which 25%, or 72,106 LTIP Units, vested immediately upon issuance. The remaining LTIP Units issued are restricted and vest 25%, or 72,110, on December 31, 2018, 25%, or 72,110, on December 31, 2019, and 25%, or 72,110, on December 31, 2020. On March 28, 2018, the Company also granted a total of 275,998 LTIP Units to the named executive officers pursuant to 2017 Annual CIP. All shares issued pursuant to the 2017 Annual CIP are restricted and vest on December 31, 2019. (4) Calculated by multiplying the number of common shares and restricted common shares and/or LTIP Units issuable pursuant to the 2017 Annual EIP and the 2017 Annual CIP based on achieving actual performance goals established by the Compensation Committee by $17.40, which was the closing market price of the Company’s common shares on December 29, 2017. As discussed elsewhere in this proxy statement, the LTIP Units were issued on March 28, 2018. Actual closing market price of the Company’s common shares on March 28, 2018, the date the LTIP Units were issued under the 2017 Annual EIP and the 2017 Annual CIP, was $17.53 per share. (5) Represents the number of common shares and/or LTIP Units issuable pursuant to the 2017 Multi-Year EIP, the 2016 Multi-Year EIP, and the 2015 Multi-Year EIP based on achieving threshold performance goals established by the Compensation Committee. The common shares and/or LTIP Units will be issued, if earned, pursuant to the 2017 Multi-Year EIP, the 2016 Multi-Year EIP and the 2015 Multi-Year EIP in the first quarter of 2020, in the first quarter of 2019 and in the first quarter of 2018, respectively. On March 28, 2018, the Company granted a total of 183,39624,672 LTIP Units to the named executive officers pursuant to 2015 AnnualMulti-Year EIP program of which 25%50%, or 45,84712,335 LTIP Units, vested immediately upon issuance. The remaining LTIP Units issued are restricted and vest 25%, or 45,849, on December 31, 2016, 25%, or 45,848, on December 31, 2017, and 25%, or 45,852, on December 31, 2018.(4)Calculated by multiplying the number of common shares and restricted common shares and/or LTIP Units issuable pursuant to the 2015 Annual EIP based on achieving actual performance goals established by the Compensation Committee by $21.76, which was the closing market price of the Company’s common shares on December 31, 2015. As discussed elsewhere in this proxy statement, the LTIP Units were issued on March 30, 2016. Actual closing market price of the Company’s common shares on March 30, 2016, the date the LTIP Units were issued under the 2015 Annual EIP, was $21.11 per share.(5)Represents the number of common shares and/or LTIP Units issuable pursuant to the 2015 Multi-Year EIP, the 2014 Multi-Year EIP, and the 2013 Multi-Year EIP based on achieving threshold performance goals established by the Compensation Committee. The common shares and/or LTIP Units will be issued, if earned, pursuant to the 2015 Multi-Year EIP, the 2014 Multi-Year EIP and the 2013 Multi-Year EIP in the first quarter of 2018, in the first quarter of 2017 and in the first quarter of 2016, respectively.On March 30, 2016, the Company granted a total of 110,849 LTIP Units to the named executive officers pursuant to 2013 Multi-Year EIP program of which 50%, or 55,424 LTIP Units, vested immediately upon issuance. The remaining 55,42512,337 LTIP Units issued are restricted and vest on December 31, 2016.(6)Calculated by multiplying the number of common shares and/or LTIP Units issuable pursuant to the 2015 Multi-Year EIP, the 2014 Multi-Year EIP and the 2013 Multi-Year EIP based on achieving threshold performance goals established by the Compensation Committee by $21.76, which was the closing market price of the Company’s common shares on December 31, 2015. The aggregate grant date fair value of the right to receive equity awards under the 2015 Multi-Year EIP, calculated in accordance with FASB ASC 718, was $97,340 for Mr. Hasu Shah, $259,573 for Mr. Jay Shah, $259,573 for Mr. Neil Shah, $97,340 for Mr. Parikh and $30,825 for Mr. Gillespie. The aggregate grant date fair value of the right to receive equity awards under the 2014 Multi-Year EIP, calculated in accordance with FASB ASC 718, was $138,830 for Mr. Hasu Shah, $370,214 for Mr. Jay Shah, $370,214 for Mr. Neil Shah, $138,830 for Mr. Parikh and $43,963 for Mr. Gillespie. The aggregate grant date fair value of the right to receive equity awards under the 2013 Multi-Year EIP, calculated in accordance with FASB ASC 718, was $189,047 for Mr. Hasu Shah, $504,123 for Mr. Jay Shah, $504,123 for Mr. Neil Shah, $189,047 for Mr. Parikh and $59,863 for Mr. Gillespie. (6) Calculated by multiplying the number of common shares and/or LTIP Units issuable pursuant to the 2017 Multi-Year EIP, the 2016 Multi-Year EIP and the 2015 Multi-Year EIP based on achieving threshold performance goals established by the Compensation Committee by $17.40, which was the closing market price of the Company’s common shares on December 29, 2017. The aggregate grant date fair value of the right to receive equity awards under the 2017 Multi-Year EIP, calculated in accordance with FASB ASC 718, was $146,363 for Mr. Hasu Shah, $390,303 for Mr. Jay Shah, $390,303 for Mr. Neil Shah, $146,363 for Mr. Parikh and $48,788 for Mr. Gillespie. The aggregate grant date fair value of the right to receive equity awards under the 2016 Multi-Year EIP, calculated in accordance with FASB ASC 718, was $145,029 for Mr. Hasu Shah, $386,742 for Mr. Jay Shah, $386,742 for Mr. Neil Shah, $145,029 for Mr. Parikh and $45,926 for Mr. Gillespie. The aggregate grant date fair value of the right to receive equity awards under the 2015 Multi-Year EIP, calculated in accordance with FASB ASC 718, was $97,340 for Mr. Hasu Shah, $259,573 for Mr. Jay Shah, $259,573 for Mr. Neil Shah, $97,340 for Mr. Parikh and $30,825 for Mr. Gillespie. 54Option Exercises and Stock Vested Table for 2015The following table presents information concerning restricted common shares and performance share awards that vested or were earned for each of the named executive officers during the fiscal year ended December 31, 2015:2017:
Acquired on Vesting
(#)
($)(1)(1)Represents the aggregate dollar amount realized upon the vesting of restricted common shares and LTIP Units. This amount has been calculated by multiplying the number of vested common shares or LTIP Units, including vested common shares or LTIP Units issued upon the settlement of performance awards that have been earned, by the closing price of the Company’s common shares on the NYSE on the vesting date. (2)Represents the vesting of 3,638 LTIP Units on March 30, 2015, 5,201 LTIP Units on June 1, 2015 and 12,393 LTIP Units on December 31, 2015. (3)Represents the vesting of 11,591 LTIP Units on March 30, 2015, 51,265 LTIP Units on June 1, 2015 and 39,124 LTIP Units on December 31, 2015.(4)Represents the vesting of 11,951 LTIP Units on March 30, 2015, 21,250 LTIP Units on June 1, 2015 and 39,125 LTIP Units on December 31, 2015.(5)Represents the vesting of 3,862 LTIP Units on March 30, 2015, 6,846 LTIP Units on June 1, 2015 and 13,035 LTIP Units on December 31, 2015.(6)Represents the vesting of 1,527 LTIP Units on March 30, 2015, 1,737 LTIP Units on June 1, 2015 and 5,219 LTIP Units on December 31, 2015. Stock Awards Name Number of SharesAcquired on Vesting(#)Value Realized on Vesting ($)(1) Hasu P. Shah 28,083 $ 504,896 (2) Jay H. Shah 122,327 $ 2,233,628 (3) Neil H. Shah 91,552 $ 1,650,292 (4) Ashish R. Parikh 32,561 $ 586,759 (5) Michael R. Gillespie 12,253 $ 219,842 (6) (1) Represents the aggregate dollar amount realized upon the vesting of restricted common shares and LTIP Units. This amount has been calculated by multiplying the number of vested common shares or LTIP Units, including vested common shares or LTIP Units issued upon the settlement of performance awards that have been earned, by the closing price of the Company’s common shares on the NYSE on the vesting date. (2) Represents the vesting of 7,110 LTIP Units on March 28, 2017, 5,201 LTIP Units on June 1, 2017 and 15,772 LTIP Units on December 31, 2017. (3) Represents the vesting of 21,364 LTIP Units on March 28, 2017, 51,264 LTIP Units on June 1, 2017 and 49,699 LTIP Units on December 31, 2017. (4) Represents the vesting of 20,983 LTIP Units on March 28, 2017, 21,251 LTIP Units on June 1, 2017 and 49,318 LTIP Units on December 31, 2017. (5) Represents the vesting of 8,303 LTIP Units on March 28, 2017, 6,845 LTIP Units on June 1, 2017 and 17,413 LTIP Units on December 31, 2017. (6) Represents the vesting of 3,444 LTIP Units on March 28, 2017, 1,739 LTIP Units on June 1, 2017 and 7,070 LTIP Units on December 31, 2017. Agreements with Executive Officers and Potential Payments Upon Termination or Change-in-ControlAs described above under the heading “Compensation Discussion & Analysis - Contractual Arrangements,” the Company has entered into employment agreements with Hasu P. Shah (Chairman of the Board), Jay H. Shah (Chief Executive Officer), Neil H. Shah (President and Chief Operating Officer), Ashish R. Parikh (Chief Financial Officer) and Michael R. Gillespie (Chief Accounting Officer). Each agreement was for an initial term through December 31, 2014. The employment agreements have renewed for additional successive one-year terms, expiringthe latest of which expire on December 31, 2016.2018. The employment agreements will continue to renew for successive one year periods unless terminated by either party.Each employment agreement provides for the payment of a minimum annual base salary to the executive officer, subject to any increase approved by the Board of Trustees. In addition, each executive officer is eligible to receive other incentive compensation, which may include common shares and LTIP Units in accordance with rules and criteria established by the Compensation Committee and approved by the Board of Trustees. Each of the employment agreements also contains certain confidentiality, non-competition and non-recruitment provisions.Each of the employment agreements provides for cash payments and the provision of other benefits to the executive officer upon the occurrence of certain triggers. These triggers include the executive officer’s voluntary termination, the executive officer’s termination without cause (other than a termination without cause during the 12-month period following a change of control), the executive officer’s termination with cause, the executive officer’s death or disability and the executive officer’s termination without cause or resignation for good reason within 12 months of a change of control. In addition, unvested LTIP Units issued on or after December 23, 201455The following tables set forth the total cost that the Company would have incurred and the payments the named executive officers would have received if they were terminated as of December 31, 20152017 under the terms of the employment agreements, assuming such agreements were in place as of December 31, 2015:2017:Voluntary Termination/Termination With CauseCash Payment($) (1)Continued Medical and Dental Benefits($)Number of Shares to Vest Upon Termination(#)Value ofShares to Vest Upon Termination($)TotalCost of Termination($) -— $ -— N/A -— -— $ -— N/A -— -— $ -— N/A -— -— $ -— N/A -— -— $ -— N/A -— (1)Each employment agreement provides that if the executive officer ceases being an employee of the Company on account of the executive officer’s voluntary termination or the executive officer’s termination with cause, the executive officer will not be entitled to any compensation after the effective date of the voluntary termination or termination with cause (except base salary and vacation accrued but unpaid on the effective date of such event).(1) Each employment agreement provides that if the executive officer ceases being an employee of the Company on account of the executive officer’s voluntary termination or the executive officer’s termination with cause, the executive officer will not be entitled to any compensation after the effective date of the voluntary termination or termination with cause (except base salary and vacation accrued but unpaid on the effective date of such event). Death or Disability
($) (1)
($)
(#) (2)
Shares to Vest Upon Termination
($) (3)
Cost of Termination
($)70,425 281,136 221,111 75,148 25,597 (1)Each employment agreement provides that in the event of the death or disability of the executive officer, the Company will continue to pay the executive officer or his heirs, devisees, executors, legatees or personal representatives, as appropriate, the executive officer’s base salary then in effect through the month following the month in which such event occurs plus vacation accrued but unpaid as of the termination date.(2)Represents the sum of the number of unvested LTIP Units (including the LTIP Units granted on March 30, 2016 pursuant to the 2015 Annual EIP and the 2013 Multi-Year EIP and the common shares and/or LTIP Units issuable pursuant to the 2015 Multi-Year EIP and 2014 Multi-Year EIP). The amount presented excludes the number of common shares and/or LTIP Units issuable pursuant to the 2016 Annual EIP and the 2016 Multi-Year EIP as those programs were not in existence as of December 31, 2015. (3)Calculated by multiplying the number of shares to vest upon termination by $21.76, which was the closing market price of the Company’s common shares on December 31, 2015.56 Cash Payment($) (1) Continued Medical and Dental Benefits($) Number of Shares to Vest Upon Termination(#) (2) Value ofShares to Vest Upon Termination($) (3) TotalCost of Termination($)Hasu P. Shah $ 20,833 $ — 71,636 $ 1,246,471 $ 1,267,305 Jay H. Shah $ 62,500 $ — 318,323 $ 5,538,827 $ 5,601,327 Neil H. Shah $ 60,417 $ — 311,054 $ 5,412,347 $ 5,472,763 Ashish R. Parikh $ 39,583 $ — 147,333 $ 2,563,599 $ 2,603,182 Michael R. Gillespie $ 27,083 $ — 63,130 $ 1,098,462 $ 1,125,546 (1) Each employment agreement provides that in the event of the death or disability of the executive officer, the Company will continue to pay the executive officer or his heirs, devisees, executors, legatees or personal representatives, as appropriate, the executive officer’s base salary then in effect through the month following the month in which such event occurs plus vacation accrued but unpaid as of the termination date. (2) Represents the sum of the number of unvested LTIP Units (including the LTIP Units granted on March 28, 2018 pursuant to the 2017 Annual EIP, the 2017 Annual CIP and the 2015 Multi-Year EIP and the common shares and/or LTIP Units issuable pursuant to the 2017 Multi-Year EIP and 2016 Multi-Year EIP). The amount presented excludes the number of common shares and/or LTIP Units issuable pursuant to the 2018 Annual EIP and the 2018 Multi-Year EIP as those programs were not in existence as of December 31, 2017. (3) Calculated by multiplying the number of shares to vest upon termination by $17.40, which was the closing market price of the Company’s common shares on December 29, 2017. Termination without Cause
($) (1)
($)
(#) (2)
Shares to Vest Upon Termination
($) (3)
Cost of Termination
($)70,425 281,136 221,111 75,148 25,597 (1)Each employment agreement provides that upon a termination without cause (other than a termination without cause during the 12-month period following a change of control), the Company will make a lump sum payment to the executive officer within ten days after such termination equal to the sum of: (1) the executive officer’s accrued but unused vacation to the date of termination, plus (2) the amount of the executive officer’s monthly base salary then in effect for the lesser of 12 months or the number of months (including a fractional month) remaining in the term of the employment agreement.(2)Represents the sum of the number of unvested LTIP Units (including the LTIP Units granted on March 30, 2016 pursuant to the 2015 Annual EIP and the 2013 Multi-Year EIP and the common shares and/or LTIP Units issuable pursuant to the 2015 Multi-Year EIP and 2014 Multi-Year EIP). The amount presented excludes the number of common shares and/or LTIP Units issuable pursuant to the 2016 Annual EIP and the 2016 Multi-Year EIP as those programs were not in existence as of December 31, 2015. (3)Calculated by multiplying the number of shares to vest upon termination by $21.76, which was the closing market price of the Company’s common shares on December 31, 2015.57 Cash Payment($) (1) Continued Medical and Dental Benefits($) Number of Shares to Vest Upon Termination(#) (2) Value ofShares to Vest Upon Termination($) (3) TotalCost of Termination($)Hasu P. Shah $ 250,000 $ — 71,636 $ 1,246,471 $ 1,496,471 Jay H. Shah $ 750,000 $ — 318,323 $ 5,538,827 $ 6,288,827 Neil H. Shah $ 725,000 $ — 311,054 $ 5,412,347 $ 6,137,347 Ashish R. Parikh $ 475,000 $ — 147,333 $ 2,563,599 $ 3,038,599 Michael R. Gillespie $ 325,000 $ — 63,130 $ 1,098,462 $ 1,423,462 (1) Each employment agreement provides that upon a termination without cause (other than a termination without cause during the 12-month period following a change of control), the Company will make a lump sum payment to the executive officer within ten days after such termination equal to the sum of: (1) the executive officer’s accrued but unused vacation to the date of termination, plus (2) the amount of the executive officer’s monthly base salary then in effect for the lesser of 12 months or the number of months (including a fractional month) remaining in the term of the employment agreement. (2) Represents the sum of the number of unvested LTIP Units (including the LTIP Units granted on March 28, 2018 pursuant to the 2017 Annual EIP, the 2017 Annual CIP and the 2015 Multi-Year EIP and the common shares and/or LTIP Units issuable pursuant to the 2017 Multi-Year EIP and 2016 Multi-Year EIP). The amount presented excludes the number of common shares and/or LTIP Units issuable pursuant to the 2018 Annual EIP and the 2018 Multi-Year EIP as those programs were not in existence as of December 31, 2017. (3) Calculated by multiplying the number of shares to vest upon termination by $17.40, which was the closing market price of the Company’s common shares on December 31, 2017. Termination without Cause / Resignation for Good Reason (Following a Change in Control)
($) (1)
($) (1)
(#)(2)
Shares to Vest Upon Termination
($) (1)(3)
Cost of Termination
($)(4)50,335 214,171 154,146 54,165 17,204 (1)Each employment agreement provides that upon a termination without cause or a resignation for good reason within 12 months following a change of control, the Company will fully vest the executive officer in any outstanding awards made pursuant to the Company’s 2012 Plan or any other equity compensation plan adopted by the Company. The 2013 Multi-Year EIP, the 2014 Multi-Year EIP and the 2015 Multi-Year EIP provides for the right to receive common shares and/or LTIP Units based on the performance level achieved to date upon termination without cause or a resignation for good reason within 12 months following a change of control. In addition, the Company will pay to the executive officer, in a lump sum, the following: Cash Payment($) (1) Continued Medical and Dental Benefits($) (1) Number of Shares to Vest Upon Termination(#)(2) Value ofShares to Vest Upon Termination($) (1)(3) TotalCost of Termination($)(4)Hasu P. Shah $ 1,492,600 $ 5,246 43,113 $ 750,171 $ 2,248,018 Jay H. Shah $ 11,735,731 $ 2,008 222,059 $ 3,863,834 $ 15,601,573 Neil H. Shah $ 11,344,529 $ 34,253 217,999 $ 3,793,190 $ 15,171,972 Ashish R. Parikh $ 4,262,681 $ 34,253 99,914 $ 1,738,508 $ 6,035,442 Michael R. Gillespie $ 1,134,495 $ 34,253 44,010 $ 765,774 $ 1,934,522 (1) Each employment agreement provides that upon a termination without cause or a resignation for good reason within 12 months following a change of control, the Company will fully vest the executive officer in any outstanding awards made pursuant to the Company’s 2012 Plan or any other equity compensation plan adopted by the Company. The 2015 Multi-Year EIP, the 2016 Multi-Year EIP and the 2017 Multi-Year EIP provides for the right to receive common shares and/or LTIP Units based on the performance level achieved to date upon termination without cause or a resignation for good reason within 12 months following a change of control. In addition, the Company will pay to the executive officer, in a lump sum, the following: the executive officer’s base salary and expenses reimbursable, each through the date of the termination;a severance payment equal to a multiple of the sum of: (i) the executive officer’s then annual base salary, (ii) the maximum annual bonus that the executive officer could earn for the year that includes the date of termination (or if no maximum bonus amount has been set, the executive officer’s target bonus for that year) and (iii) the fair market value (determined as of the date of the change of control) of the share award(s) or other equity-based awards received by the executive officer for the year that includes the date of termination (or if no such awards were made in that year, the next preceding year in which the effected executive officer received such an award). For purposes of calculating the severance payment, the following multiples apply: Hasu P. Shah–2x;Shah-2x; Jay H Shah–2.99x;Shah-2.99x; Neil H. Shah–2.99x;Shah-2.99x; Ashish R. Parikh–2x;Parikh-2x; and Michael R. Gillespie–1x;Gillespie-1x; andthe premiums paid for the executive officer’s medical and dental insurance benefits for a period of 18 months after termination.The severance payment was calculated for each named executive officer by taking the sum of (i) each executive’s 20152017 annual base salary, (ii) the maximum annual cash bonus for 20152017 under the 20152017 Annual CIP, and (iii) the fair value of the maximum number of common shares and/or LTIP Units issuable under the 20152017 Annual EIP (which were issued in March 20162018 in the form of LTIP Units), and multiplying that sum by each named executive officer’s defined multiple. The fair value of the number of commonshares and/or LTIP Units issuable under the 20152017 Annual EIP was based on a per share value of $21.76,$17.40, which was the closing market price of the Company’s common shares on December 31, 2015.(2)Represents the sum of the number of unvested LTIP Units (excluding the LTIP Units granted on March 30, 201629, 2017.(2) Represents the sum of the number of unvested LTIP Units (excluding the LTIP Units granted on March 28, 2018 pursuant to the 2017 Annual EIP which are factored into the change of control cash payment described in footnote 1 to this table), the LTIP Units granted on March 28, 2018 pursuant to the 2015 Annual EIP which are factored into the change of control cash payment described in footnote 1 to this table), the LTIP Units granted on March 30, 2016 pursuant to the 2013 Multi-Year EIP, the number of common shares and/or LTIP Units issuable pursuant to the 2013 Multi-Year EIP and the number of common shares and/or LTIP Units issuable pursuant to the 2014 Multi-Year EIP. The amount presented also excludes the number of common shares and/or LTIP Units issuable pursuant to the 2016 Annual EIP and the 2016 Multi-Year EIP and the number of common shares and/or LTIP Units issuable pursuant to the 2017 Multi-Year EIP. The amount presented also excludes the number of common shares and/or LTIP Units issuable pursuant to the 2018 Annual EIP and the 2018 Multi-Year EIP as those programs were not in existence as of December 31, 2017.(3) Calculated by multiplying the number of shares to vest upon termination by $17.40, which was the closing market price of the Company’s common shares as of December 29, 20176. (4) The benefits payable to the named executive officers on account of a change in control, including on account of a termination without cause or resignation with good reason, within 12 months after a change in control, could constitute excess parachute payments under Section 280G the Code. A named executive officer who receives excess parachute payments would be liable for the 20% excise tax on a portion of the parachute payments, and the Company would not be permitted to claim a federal income tax deduction for a portion of the parachute payments. The amended and restated employment agreements between the Company and each of the named executive officers provides that the Company will not indemnify the executive for any parachute payment excise tax liability. However, the total cash amounts payable to a named executive officer may be reduced if and only to the extent that a reduction will allow the named executive officer to receive a greater net after tax amount than executive would receive absent such reduction. Pay Ratio DisclosureAs required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K promulgated by the SEC, the Company is providing the following information about the ratio of the median employee’s total annual compensation to the total annual compensation of the Company’s Chief Executive Officer for the year ended December 31, 2017:Median employee total annual compensation (excluding the Chief Executive Officer)-$94,852Chief Executive Officer total annual compensation (as reported in the “Summary Compensation Table” presented above)-$4,718,381Ratio of Chief Executive Officer to median employee total annual compensation-50:1-In determining the median employee, the Company prepared a list of all employees as of December 31, 2015.(3)Calculated by multiplying2017 and reviewed the numberamount of shares to vest upon termination by $21.76, which was the closing market pricesalary, wages and equity awards of all such employees as reflected in the Company’s common sharespayroll records reported to the Internal Revenue Service on Form W-2 for 2017. The Company had 51 employees as of December 31, 2015.(4)2017. The benefits payableCompany identified the median employee using this compensation measure, which was consistently applied to all employees included in the named executive officers on account of a changecalculation. Since all employees are located in control, including on account of a termination without cause or resignation with good reason, within 12 months after a changethe United States, the Company did not make any cost-of-living adjustments in control, could constitute excess parachute payments under Section 280Gidentifying the Code. A named executive officer who receives excess parachute payments would be liable formedian employee. Once the 20% excise tax on a portionmedian employee was identified, the Company combined all of the parachute payments, andelements of such employee’s compensation for 2017 in accordance with the Company wouldrequirements of Item 402(c)(2)(x) of Regulation S-K promulgated by the SEC, resulting in median employee total annual compensation of $94,852. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be permitted to claimused as a federal income tax deductionbasis for a portion of the parachute payments. The amended and restated employment agreementscomparison between the Company and each of the named executive officers provides that the Company will not indemnify the executive for any parachute payment excise tax liability. However, the total cash amounts payable to a named executive officer may be reduced if and only to the extent that a reduction will allow the named executive officer to receive a greater net after tax amount than executive would receive absent such reduction. 58PROPOSAL TWO - ADVISORY VOTE ON EXECUTIVE COMPENSATIONThe Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the Company provide shareholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of the Company’s named executives officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC.At our 2017 annual meeting of shareholders, we asked our shareholders to vote, on an advisory basis, on the frequency of future advisory votes on executive compensation, as disclosed in our 2017 proxy statement, commonly referred to as a “say-when-on-pay” advisory vote. Our shareholders overwhelmingly approved holding an advisory vote on executive compensation annually, with approximately 86% of the votes cast voting in favor of an annual advisory vote on executive compensation. The Board took into consideration the results of the say-when-on-pay advisory vote and determined that advisory votes on executive compensation will be submitted to our shareholders every year until the next required advisory vote on the frequency of shareholder votes on executive compensation. However, through our ongoing engagement with shareholders, the Board will continue to consider any shareholder concerns and feedback in the future.This vote is advisory, which means that the vote on executive compensation is not binding on the Company, the Board of Trustees or any of its committees. The vote on this resolution is not intended to address any specific element of compensation, but rather relates to the overall compensation of the Company’s named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC.As described in greater detail under the heading “Compensation Discussion and Analysis,” the Company seeks to maintain an executive compensation program that is directly tied to maximizing long-term shareholder value. To achieve this goal, the three primary tenants of the Company’s executive compensation philosophy are:align compensation structure with business growth strategies;pay for performance; andpay competitively to attract, motivate and retain talented executives.To ensure that the Company’s executive compensation program was structured accordingly, at the beginning of 2015,2017, the Compensation Committee retained FPL as its independent compensation consultant to assist the committee in studying the Company’s executive compensation structure as well as those of the Company’s peer companies. To analyze the competiveness of the Company’s executive compensation program, the Compensation Committee focused on a group of the six most similar publicly traded hotel REITs. The Compensation Committee enlarged that group by adding one newly publicly traded hotel REITs. Seeking to compensate the named executive officers at approximately the median (50th percentile) of the peer group companies, and to achieve the compensation goals describe above, the Compensation Committee implemented the following:Developed a performance based cash bonus plan tied 80% to achievement of key financial metrics, tied to earnings and balance sheet strength, and 20% to each executive’s specific performance goals. Target awards under the plan were geared toward the median of the peer group companies.Developed one year and multi-year long term incentive plans that are both performance and service based with target awards tied to the median of the peer group companies.Based the awards under the one year long term incentive plan 80% on RevPAR growth (both absolute and relative to our peer).Based awards under the multi-year long term incentive plan 75% on total shareholder return (TSR): 37.5% of which is based on the Company’s absolute TSR over a three year performance period and 37.5% of which is focused on the Company’s TSR over a three year performance period relative to the peer group. The remaining 25% of the awards under the multi-year long term incentive plan is based on the Company’s growth in RevPAR over a three year performance period relative to the peer group.Set base salary for all NEOs except for one below the median salary for the comparable position in the peer group companies.At the outset of 2015,2017, the Compensation Committee believed this was the right compensation structure to incentivize the NEOs to drive performance and shareholder return for the Company.Management undertook several initiatives in 2017 to execute its strategic plan and continue the Company’s transformation. The Company continuedfollowing highlights accomplishments for 2017:RevPAR Growth Outpaces Peer Median - Median RevPAR growth for the peer group in 2017 was 0.1% versus 2.3% for Hersha’s comparable portfolio of hotels. Looking back 3 years, Hersha’s annualized RevPAR growth was 7.4%, 430 basis points higher than the peer median of 3.1%.Portfolio Cluster Strategy Outperforms Competitor Landscape - In 2017, our strategy of clustering our portfolio led to notable outperformance in a majority of our core markets on an ADR and Occupancy-driven basis. Additionally, over 14 of the past 16 quarters, our Manhattan portfolio has outperformed the market in RevPAR growth.24-Month Capital Recycling Campaign Complete - In 2017, Hersha completed its transformation in 2015 and lodging fundamentals in the markets in24-month capital recycling campaign, during which, the Company is focused continued to improve. During 2015, management took steps to better position the Company and its portfolio to take advantage of these improving conditions. Management further repositioned the59Company’s portfolio to focus more on high barrier to entry and major urban markets—Washington, D.C. and the Silicon Valley market in California in particular—which the Company believes will outperform the broader lodging market in the United States. We acquired a total of $254sold approximately $870 million of hotelmature, stabilized hotels and successfully deferred $270million of taxable gains with $816 million of accretive acquisitions. The sales were executed efficiently for an average 15x EBITDA multiple or 6% cap rate and we were able to achieve an unlevered 14.3% internal rate of return on these assets in 2015. Weduring our hold period.Strategic Refinancing Led to Lower Cost of Capital - In the third quarter of 2017, the Company closed on a new $300$475 million unsecured term loan, expanding oursenior unsecured credit facility from $500 millionthat is expandable to $800 million,$875 million. This refinancing allowed us to lower our weighted average interest rate to 3.78% while loweringextending out the weighted average life to maturity and extending our average borrowing cost to 3.68%, which is the lowest in the Company’s history. We returned approximately $128 million in capital to our shareholders, buying back approximately 10.7% of the Company’s outstanding shares.These efforts to improve the Company’s overall capitalization and reposition the Company’s portfoliorepayment profile so that we have shown results. During 2015, the Company:grew ADR by 5.1%;grew occupancy by 143 basis points to 84.1%;grew RevPAR by 6.9% across the consolidated hotel portfolio, outperforming the peer average by 160 basis points;grew AFFO by 14.8%, from approximately $102.8 million to $118.1 million, and increased AFFO per share by 18.9%; andimproved the Company’s fixed charge coverage ratio to 3.062x.As a result of these achievements, the Company achieved the highest EBITDA in its history and the highest EBITDA margins in the sector. As described in more detail under “Compensation Discussion and Analysis,” the Company achieved thecertain performance metrics set by the Compensation Committee, and each NEO achieved his personal performance objectives. As a result, more than 79%84% of the actual total compensation paid to our CEO and 73%80% of the actual total compensation paid to our other NEOs for 20152017 was performance based. Additionally, all performance based compensation, more than 54%81% of the actual total compensation paid to the NEOs for 20152017 was in the form of equity awards.For these reasons and others, the Board of Trustees believes the Company’s executive compensation program is meeting the objectives of the program—theprogram-the NEOs are driving the Company’s key performance metrics and providing outsized TRS to the Company’s shareholders.metrics. Accordingly, the Board of Trustees unanimously recommends that you vote “FOR” the following resolution on executive compensation:RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 20162018 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure.The Board of Trustees unanimously recommends a vote “FOR” the approval of the compensation of the company’s named executive officers as disclosed in this proxy statement.60CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSReview and Approval of Related Party TransactionsThe Acquisition Committee of the Board of Trustees, which was comprised of four independent trustees at December 31, 2015,2017, considers questions of possible conflicts of interest with regard to related party transactions and attempts to ensure that proper safeguards are in place and are being followed when the Company enters into related party transactions. This policy is set forth in the Acquisition Committee’s written charter, which is available on the Company’s website. A majority of the members of the Acquisition Committee must approve the terms of each acquisition from or loan to a related party; however, this requirement is not expressly set forth in the Acquisition Committee’s written charter.The Board of Trustees has a policy regarding the approval of any “related person transaction,” which is defined as any transaction or series of transactions in which the Company or any of its subsidiaries is to be a participant, the amount involved exceeds $120,000, and a “related person” (as defined in Item 404 of Regulation S-K promulgated by the SEC) has a direct or indirect material interest. Related person transactions must be approved by a majority of the Company’s independent trustees; however, if the related person transaction involves an acquisition from or development loan to a related person, the transaction will be referred to the Acquisition Committee for its approval as described above. The Board of Trustee’s policy requires any independent trustee with a direct or indirect interest in the transaction to excuse himself from any consideration of the related person transaction in which he has an interest.Transactions with Trustees and OfficersIn connection with the Company’s initial public offering, the Company entered into an option agreement with the following members of the Company’s management team: Hasu Shah, Jay Shah, Neil Shah, and David Desfor. Pursuant to this agreement, the Company had the option to purchase any hotel owned or developed by these individuals or their affiliates that was within fifteen miles of any of the Company’s hotels or any hotel subsequently acquired by the Company for two years after such acquisition or development. In September 2003, the parties to this agreement amended the option agreement so that (a) the right of first refusal now applies to all hotels owned or developed by the parties, regardless of proximity to the Company’s hotels, and (b) the right of first refusal applies to each party until one year after such party ceases to be an officer or trustee. The option agreement, as amended, terminates with respect to each of the affiliates covered by the agreement one year after each such affiliate ceases to be a trustee, officer, partner of employee of the Company. Since January 1, 2010, the Company did not acquire, or agree to acquire, hotels from entities controlled by related persons. As of the date of this proxy statement, the Company does not have any plans to acquire any hotels from affiliates of the Company pursuant to the option agreement or otherwise.Management Agreements with HHMLPThe Company’s wholly owned taxable REIT subsidiary (“TRS”), 44 New England, engages eligible independent contractors, including Hersha Hospitality Management LP (“HHMLP”), as the property managers for hotels it leases from the Company pursuant to management agreements. The Company’s management agreements with HHMLP generally provide for five-year terms and are subject to early termination upon the occurrence of defaults and certain other events described therein. As required under the REIT qualification rules, HHMLP must qualify as an “eligible independent contractor” during the term of the management agreements. Under the management agreements, HHMLP generally pays the operating expenses of the Company’s hotels from hotel revenue. All operating expenses or other expenses incurred by HHMLP in performing its authorized duties are reimbursed or borne by the Company’s TRS to the extent the operating expenses or other expenses are incurred within the limits of the applicable approved hotel operating budget. HHMLP is not obligated to advance any of its own funds for operating expenses of a hotel or to incur any liability in connection with operating a hotel. Management agreements with other unaffiliated hotel management companies have similar terms.612015,2017, HHMLP managed 4839 of the properties leased to the Company’s TRS and one hotelseven hotels that isare owned by an entity for which we hold an interest through our investment in an unconsolidated joint venture. For its services, HHMLP receives a base management fee, and if a hotel exceeds certain thresholds, an incentive management fee. The base management fee for a hotel is due monthly and is equal to 3% of gross revenues associated with each hotel managed for the related month. The incentive management fee, if any, for a hotel is due annually in arrears on the ninetieth day following the end of each fiscal year and is based upon the financial performance of the hotel. For the year ended December 31, 20152017 the Company paid no incentive management fees to HHMLP. For the year ended December 31, 2015,2017, base management fees incurred totaled $13.7$13.4 million. Hasu P. Shah, Jay H. Shah, Neil H. Shah, and David L. Desfor, executive officers and/or trustees of the Company, collectively own a 24.5%40.0% interest in HHMLP.Accounting and Information Technology Services Provided by HHMLPHHMLP provides accounting and information technology services for the Company. Monthly fees for accounting services are between $2,000 and $3,000 per wholly owned property. Monthly information technology fees are between $1,000 and $2,000 per wholly owned property and for the corporate headquarters. For the year ended December 31, 2015,2017, the Company incurred accounting fees of $1.5$1.3 million and information technology fees of $0.4 million.Capital Expenditure Services Provided by HHMLPHHMLP charges a 5% fee on all capitalized expenditures and pending renovation projects at the properties as compensation for procurement services related to capital expenditures and for project management of renovation projects. For the year ended December 31, 2015,2017, the Company incurred fees of approximately $1.0$1.1 million, which were paid to HHMLP.AUDIT COMMITTEE REPORTThe Audit Committee of the Board of Trustees is composed of fourfive trustees, all of whom are independent under the standards of the NYSE and the SEC, and the Audit Committee operates under a written charter adopted by the Board of Trustees. The Audit Committee reviews audit fees and recommends to the Board of Trustees the selection of the Company’s independent accountants. Management is responsible for the Company’s internal controls and the financial reporting process. The independent accountants are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the Public Company Accounting Oversight Board (the “PCAOB”) standards and for issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes and to report thereon to the Board of Trustees. In this context, the Audit Committee has met and held discussions with management and KPMG LLP, the Company’s independent registered public accounting firm for the 20152017 fiscal year.Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and KPMG LLP.The Audit Committee has discussed with KPMG LLP the matters required to be discussed by the requirements of the PCAOB.The Audit Committee also has received the written disclosures and the letter from KPMG LLP required by the applicable requirements of the PCAOB relating to KPMG LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP that firm’s independence.6220152017 filed with the Securities and Exchange Commission.THE AUDIT COMMITTEE,John M. Sabin (Chair)Jackson HsiehThomas J. Hutchison IIIDonald J. LandryApril 22, 2016Dianna F. MorganApril 20, 2018INFORMATION ABOUT THE COMPANY’S INDEPENDENT auditorsIn 2014, in consideration of the tenure of KPMG LLP as the Company’s Independent Auditors, the Audit Committee engaged in an extensive process to solicit competitive proposals from firms to serve as the Company’s Independent Auditors. In response to its request, the Audit Committee received written proposals from four firms. Each member of the Audit Committee had the opportunity to review the proposal submissions in advance of their discussion of the proposals. The Audit Committee met in a special meeting to discuss the proposals in-depth and, as a result of this discussion, two proposals were selected for in-person presentations. The in-person meetings allowed the members of the Audit Committee to further evaluate each firm’s proposal and to ask questions regarding each firm’s qualifications, industry experience, independence, systems to ensure audit quality and process for communication with the Audit Committee. After meeting with representatives from the two finalist firms, the Audit Committee held a meeting to conclude its process to select the Company’s Independent Auditors.The Committee also solicited proposals for the Company’s tax compliance work following a similar process as described above for the selection of the Company’s Independent Auditor. The Audit Committee received written proposals from four firms. As a result of the Audit Committee’s deliberations, two proposals were initially selected for in-person presentations. After meeting with representatives from the two finalist firms, the Audit Committee held a meeting to discuss the proposals and in-person presentations and decided to expand its process to include one additional firm for an in-person presentation. The Audit Committee chair and Chief Accounting Officer met in-person with the additional firm and the two original finalists. After these meetings, the Audit Committee met to discuss each firm’s qualifications, industry experience, impact of services to be provided on auditor independence, and systems for quality control and concluded its process to select the Company’s tax compliance service providers.KPMG LLP served as the Company’s independent auditors for the 20152017 fiscal year. The Company anticipates that two representatives from KPMG LLP will attend the annual meeting and these persons will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. Also, as a result of the process noted above, the Company engaged PricewaterhouseCoopers, LLP as its tax compliance service provider.The fiscal year 20152017 was the fifthsecond year KPMG LLP’s lead engagement partner served on the Company’s audit. Consistent with applicable regulations and the Company’s own policy, the engagement will be led by a new engagement partner in fiscal year 2016. In its role of overseeing the relationship with the Company’s independent auditor, the Audit Committee played an active role in working with KPMG LLP to select athe lead engagement partner with an appropriate level of relevant public company experience in the Company’s industry. This included interviewing potential candidates and verifying references to substantiate the partner’s relevant public company and industry experience.The Audit Committee reviews with management and KPMG LLP the results of the independent accountants’ review of the unaudited financial statements that are included in the Company’s quarterly reports on Form 10-Q. The Audit Committee also reviews the fees charged by the Company’s independent accountants.KPMG LLP was Hersha’s independent registered public accounting firm for the 20152017 and 20142016 fiscal years and billed, or expects to bill, the following fees for fiscal 20152017 and fiscal 2014:2016:63●Audit Fees. For professional services rendered by KPMG LLP for the audit of the Company’s annual financial statements, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, and other services provided in connection with statutory and regulatory filings, and an audit of internal control over financial reporting, KPMG LLP billed the Company $613,750$660,900 with respect to 20152017 and $595,000$709,000 with respect to 2014.2016. For professional services rendered by KPMG LLP provided in connection with the audit of a significant subsidiary, comfort letters and SEC registration statements, KPMG LLP billed the Company $10,000$77,500 with respect to 2014.2017 and $180,000 with respect to 2016.●Tax Fees. In 2017, KPMG LLP rendered professional services related to tax compliance, tax advice and tax planning and billed the Company $110,000. KPMG LLP did not render or charge the Company for professional services related to tax compliance, tax advice and tax planning with respect to 2015. With respect to 2014, KPMG LLP billed the Company fees in the aggregate amount of $144,125 for professional services related to tax compliance, tax advice and tax planning matters. These tax services related to the preparation of the Company’s state and federal tax returns, and tax advice on structuring loans and joint venture and review of dividend calculations.2016.●Audit Related and All Other Fees. With respect to 2015,2017 and 2016, KPMG LLP billed the Company $1,780 and $1,650, respectively, for an annual subscription to their online accounting research software. Except for this subscription, KPMG LLP did not render or charge the Company for any other services not included in audit fees or tax fees as disclosed above with respect to 20152017 or 2014.2016.Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the Audit Committee has established a policy that it must pre-approve all audit and permissible non-audit services provided by the independent auditor prior to engagement of the auditor for each such service, and all such services provided in 20152017 and 20142016 were pre-approved by the Audit Committee. Except as disclosed above, there were no other non-audit services provided by KPMG LLP in 20152017 or 2014.As a result of its process to solicit and evaluate proposals for the Company’s tax compliance service providers, the Audit Committee recommended that the Company engage PricewaterhouseCoopers LLP as its tax compliance service providers, and, effective in 2015, no longer engages KPMG LLP for these non-audit services.PROPOSAL THREE - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORSKPMG LLP currently serves as the Company’s independent registered public accounting firm, and that firm conducted the audit of the Company’s consolidated financial statements as of and for the year ended December 31, 2015.2017. The Audit Committee has appointed KPMG LLP to serve as its independent registered public accounting firm to conduct an audit of the Company’s consolidated financial statements as of and for the year ending December 31, 20162018 and the Company’s system of internal controls over financial reporting.Selection of the Company’s independent registered public accounting firm is not required to be submitted to a vote of shareholders for ratification. In addition, the Sarbanes-Oxley Act of 2002 requires the Audit Committee to be directly responsible for the appointment, compensation and oversight of the audit work of the independent auditors. However, the Board of Trustees is submitting this matter to shareholders as a matter of good corporate practice. If shareholders fail to vote on an advisory basis in favor of the selection, the Audit Committee will reconsider whether to retain KPMG LLP, and may retain that firm or another without re-submitting the matter to the Company’s shareholders. Even if shareholders vote on an advisory basis in favor of the appointment, the Audit Committee may, in its discretion, direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of the Company.Unless you direct otherwise, proxies will be voted for the proposal.The Board of Trustees unanimously recommends a vote “FOR” this proposal.64SHAREHOLDER PROPOSALS AND NOMINATIONS FOR THE 20172019 ANNUAL MEETINGUnder the regulations of the SEC, any shareholder desiring to make a proposal to be acted upon at the 20172019 annual meeting of shareholders must present such proposal to the Company at its principal office in Harrisburg, Pennsylvania not later than December 23, 2016,21, 2018, in order for the proposal to be considered for inclusion in the Company’s proxy statement. The Company will not consider proposals received after December 23, 201621, 2018 for inclusion in the Company’s proxy materials for the Company’s 20172019 annual meeting of shareholders.The Company’s Bylaws provide that, in addition to any other applicable requirements, for business to be properly brought before the annual meeting by a shareholder, but not included in the Company’s proxy statement, the shareholder must give timely notice in writing not earlier than November 23, 201621, 2018 nor later than December 23, 2016;21, 2018; provided, however, that in the event the annual meeting is advanced by more than 30 days or delayed by more than 60 days, notice must be received not earlier than the 150th day prior to the first anniversary of the date of the preceding year’s annual meeting and not later than the close of business on the later of the 120th day prior to the first anniversary of the date of the preceding year’s annual meeting and the 10th day following the day on which the Company first publicly announces the date of the annual meeting. As to each matter, the notice must contain the information specified in the Bylaws regarding the shareholder giving the notice and the business proposed to be brought before the annual meeting.The Company’s Bylaws provide that a shareholder of record, both at the time of the giving of the required notice set forth in this sentence and at the time of the 20172019 annual meeting, entitled to vote at the annual meeting may nominate persons for election to the Board of Trustees by mailing written notice to the Corporate Secretary of the Company not more than 150 days nor less than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event the annual meeting is advanced by more than 30 days or delayed by more than 60 days, notice must be received not earlier than the 150th day prior to the first anniversary of the date of the preceding year’s annual meeting and not later than the close of business on the later of the 120th day prior to the first anniversary of the date of the preceding year’s annual meeting and the 10th day following the day on which the Company first publicly announces the date of the annual meeting. The notice must contain the information specified in the Bylaws regarding the shareholder giving the notice and each person whom the shareholder wishes to nominate for election as a trustee. The notice must be accompanied by the written consent of each proposed nominee to serve as one of the Company’s trustees, if elected.OTHER MATTERSThe Board of Trustees knows of no other business to be brought before the annual meeting. If any other matters properly come before the annual meeting, the proxies will be voted on such matters in accordance with the judgment of the persons named as proxies therein, or their substitutes, present and acting at the meeting.ANNUAL REPORT ON FORM 10-KThe Company will furnish to each beneficial owner of common shares entitled to vote at the annual meeting, upon written request to Ashish Parikh, the Company’s Chief Financial Officer, at 44 Hersha Drive, Harrisburg, Pennsylvania 17102, Telephone (717) 236-4400, a copy of the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2015,2017, including the financial statements and financial statement schedules filed by the Company with the SEC.By Order of the Board of Trustees,/s/ David L. DesforDavid L. DesforCorporate SecretaryApril 22, 2016Corporate Secretar20, 201865
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