Convicted CEOs to Get Paid in Prison

By BRUCE MEYERSON
Jul 23, 2:11 PM (ET)

NEW YORK (AP) - If you were sent to jail, would your employer keep paying you
anyway? The obvious answer may not apply when it comes to the chief executive
officer.

Sidestepping the emotional debate over whether Martha Stewart's trial amounted
to prosecution or persecution, she is now a convicted felon - and still getting
paid at least $1.2 million a year despite her ample distractions from work and
her demotion from CEO to "founding editorial director." There's no indication
from Martha Stewart Living Omnimedia Inc. (MSO) that this pay might be put on
hold during her five-month sentence.

Andrew Wiederhorn, CEO of a company which runs a small fast-food chain called
"Fatburger," is to begin an 18-month sentence in August after pleading guilty to
pension law and income tax felonies at a prior company. His board of directors
at Fog Cutter Capital Group Inc. (FCCG) responded with $4.5 million in paid
leave, bonus, and reimbursement for a fine he agreed to pay.

Steve Madden, the shoe designer serving time for stock fraud and money
laundering, is being paid $700,000 in salary during his 41-month sentence,
according to his company's regulatory filings.

Though Madden's case was rather cut and dry, Stewart's and Wiederhorn's stories
come with enough caveats to generate ample debate about the uneven hand of
justice. Neither of their crimes involved misbehavior at the companies they were
running. Their illegal acts were relatively minor in the larger scheme of the
schemes in which they were implicated.

And yet, at the end of the day, these executives find themselves in a situation
where they will not be in a position to earn their salaries. They are in fact
completely forbidden to conduct any business from jail by the Federal Bureau of
Prisons even if their companies would be inclined to seek input from their
incarcerated executives.

It may nevertheless be possible to conduct business as a result of potentially
lax supervision at a white-collar facility. But while it's hardly the same as
asking a board member to sneak a hacksaw into a cake, the notion of a corporate
officer enlisting the company's help in breaking the rules isn't a comforting
thought.

It's difficult to imagine that most laborers, including those in the second tier
of management, would be treated to similar generosity. Actually, it's hard to
fathom that most people convicted of a crime might even expect, let alone
receive, any assurance that there'd be a job waiting for them at the end of
their incarceration.

But that's most people. Stewart will undoubtedly return to a role of
influence. The board of directors at Fog Cutter Capital Group Inc., which
includes Wiederhorn's father-in-law and several associates from the firm where
his transgressions were committed, plans to welcome him back as CEO after he's
paid his debt.

Both executives are adamant that they've been wronged, as are their
companies. If they were wronged, it's still not clear why that's a reason to
expect their companies to help shoulder a personal burden.

Just as Stewart and Wiederhorn stress that their troubles were not related to
activities with their current employers, their legal tangles are in fact a
personal matter. It is not appropriate for them to ask their companies to ease
the financial pain. That's not justice either.

Their gripes are with the government, and to seek or accept compensation for
their hurts from an innocent party demonstrates a lack of understanding of what
it means to be a trusted proxy for shareholder interests.

Sure, both executives could have sued if their companies took a tougher
stance. Wiederhorn threatened to do so in gaining such lavish accommodation from
the board - a show of support which may get the company's stock delisted from
the Nasdaq Stock Market well before Wiederhorn gets out of jail.

For either company, the trouble of defending against a suit might serve as
further irritant and distraction with little financial upside - though it should
be noted that Fog Cutter now faces the hassle of a shareholder suit prompted by
the Wiederhorn deal. And again, what does it say about the priorities of an
executive if he or she might sue an innocent employer to shoulder responsibility
for a personal matter?

Fog Cutter, based in Portland, Ore., has argued that Wiederhorn was made a
scapegoat in a messy scandal involving local pension funds because the central
figure in the scheme suffered a debilitating stroke.

"The board made a judgment, knowing this would be controversial, and in light of
the specific circumstances, that he deserved to be paid while incarcerated, and
that he deserved extra help, as opposed to litigating a $7 million claim under
his severance agreement," said Lanny Davis, the lawyer Fog Cutter is paying to
plead its side of the story.

In Stewart's case, the company may be holding out for the slim possibility of a
victorious appeal. It's easy to imagine, however, that with a sentence so brief,
the board may decide it's not worth the trouble to dock her pay - about $500,000
for five months.

Regardless of intent, Stewart and Wiederhorn have brought harm to their
shareholders. To reward them for these damages rendered and the services they
will be unable to render while in jail reads as another illustration of the
entitlement and special dispensation that remains so common in the upper echelon
of corporate management.

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Bruce Meyerson can be contacted at bmeyerson(at)ap.org