What are the consequences of worker private information for corporate governance? When informed workers are compensated partly in equity, they may leave the firm if they observe low managerial effort, reducing the firm value and the manager’s own compensation. Counterintuitively, granting equity to workers can thus increase managers’ effort incentives, despite crowding out managers’ ownership in the firm. Worker equity also exerts downward pressure on wages, since worker exits are more costly to the firm and manager when workers are underpaid. We therefore propose a new governance mechanism through worker departure, and provides a new explanation for the prevalence of worker equity compensation. The model generates several testable predictions on worker compensation package, labor bargaining power, capital structure, and managerial performance.