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Intrafirm Monitoring of Executive Compensation

Posted by on Tuesday, April 19, 2016 in Articles, Volume 69, Volume 69, Number 3.

Intrafirm Monitoring of Executive Compensation


This Article argues that employees should serve as intrafirm 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 performance and pay 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 from this content 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 validate 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, as seen in 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 legitimize executive compensation and income disparity at both the firm and political levels.


John H. and Marylou Dasburg Professor of Law, University of Florida Levin College of Law. This article was presented to the faculty at the University of Florida Levin College of Law and at the Midwestern Law & Economics Association held at the University of Kansas School of Law. I thank the participants for their helpful comments. I also thank my colleagues Stuart Cohn and D. Daniel Sokol for their careful read and suggestions.