Intra-Firm Monitoring of Executive Compensation
70 Pages Posted: 19 Oct 2015
Date Written: 2015
This Article argues that employees should serve as intra-firm monitors of executive performance and pay. Employees and shareholders, labor and capital, can monitor executive performance and pay at different levels. Diffuse, diversified, and short durational shareholders currently monitor through the market mechanism of public disclosures and share price. Employees can add an effective layer of monitoring by leveraging private information. Employees possess the corporation’s entire information content; the assessment derived there from would be relevant to the board’s assessment of executive performance and pay. Corporate employees are also a major constituent of the corporate system and our political society. Given that excessive pay has been linked to economic inequity, employee monitoring can also legitimate executive pay in the current social, economic, and political environment in which executive compensation and income disparities have touched public consciousness. The basic structure of such monitoring already exists in law, which is shareholder say-on-pay mandated by the Dodd-Frank Act. Structured properly and achieved fairly as to senior executives, a non-binding employee vote would politically legitimate executive compensation and income disparity at both the firm and political levels.
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