For a few executive felons, serving time is a lot like a paid leave of absence. They are being paid by the companies they once led while still completing their sentences. The unconventional arrangement breaks no laws but strikes some as poor corporate governance.

There's Martha Stewart, of course. The homemaking guru signed a five-year contract with Martha Stewart Living Omnimedia Inc. just before she began a five-month federal prison sentence last fall for lying to federal investigators in connection with a December 2001 sale of ImClone Systems Inc. stock. Though she hasn't received a paycheck while she has been incarcerated, her guaranteed salary and bonus of at least $1.4 million a year are set to resume Monday, when she begins five months of house arrest. She must wear a tracking bracelet but can leave her Bedford, N.Y., estate to work 48 hours a week.

Andrew Wiederhorn, the former CEO of Fog Cutter Capital Group Inc., will collect about $5.5 million from the fast-food chain in compensation and reimbursement of his restitution during his 18-month imprisonment for pension-law and income-tax felonies at a prior employer.

Steve Madden, the shoe designer who ran Steven Madden Ltd. until 2001, pockets a $700,000 annual salary during his 41-month jail stint for stock fraud and money laundering. Federal prison rules prohibit inmates from conducting business while in prison, though they can still collect a paycheck from a previous employer.

Between July 2002 and July 2004, the U.S. Justice Department's Corporate Fraud Task Force charged more than 60 top corporate officers with various types of fraud and obtained more than 500 convictions or guilty pleas, largely from individuals. Ms. Stewart and Messrs. Wiederhorn and Madden are among the few with continued financial support from the company they headed.

The three cases differ. Most notably, Ms. Stewart will be working on a number of projects, including two new TV series. But each involves a founder of a business whose board wants the former CEO to play a valuable role again after serving time. Convicted felons may rejoin a previous employer, although the Securities and Exchange Commission sometimes blocks them from being an officer or a director of a publicly held company. In May 2001, Mr. Madden settled separate civil securities-fraud allegations with the SEC by agreeing to an order barring him from such posts for seven years.

Investors at Fog Cutter and Steven Madden Ltd. have challenged their ex-leaders' unusual pay deals by filing shareholder derivative suits. Public companies shouldn't "compensate people for violating the law," says veteran shareholder activist Nell Minow, editor of the Corporate Library, a research group in Portland, Maine, that covers governance.

In contrast, there hasn't been similar shareholder outcry over Ms. Stewart's latest compensation package. Under last September's agreement, Martha Stewart Living that month paid its biggest stockholder $200,000 to cover her services "as on-air talent for television and radio programs of the company." Ms. Stewart also got $500,000 in mid-September for allowing her employer access to her various properties for TV and magazine shoots. She went to prison Oct. 8.

Martha Stewart Living gave the former chief no salary, bonus or equity awards during her prison stay. The concern says it maintained Ms. Stewart's employee benefits and home-security systems but halted her personal-security services. Upon her return to work next week, she will receive $100,000 for "an annual nonaccountable expense allowance," the contract states. She also will again enjoy first-class flights and a car and driver seven days a week.

Ms. Stewart's compensation accord reflects her unique role as a founder, highly visible TV persona and creative business talent, says Elizabeth Estroff, a Martha Stewart Living spokeswoman. "She brings enormous value to the brand, the company and its shareholders."

Like Ms. Stewart, Mr. Wiederhorn landed in prison for misdeeds unrelated to the business he used to run. The Fog Cutter chairman and chief executive pleaded guilty last June and paid $2 million in restitution for acts committed while he headed Wilshire Financial Services Group Inc., a banking concern. Fog Cutter, which Mr. Wiederhorn co-founded in 1997, owns the Fatburger chain; the company, based in Portland, Ore., also invests in mortgage-backed securities, commercial mortgage loans and real estate.

Mr. Wiederhorn's felony counts involved a pension-law provision that required no criminal intent and a personal tax-return violation without any financial impact on government tax revenue, Fog Cutter has said in regulatory filings.

In June, directors agreed to reimburse Mr. Wiederhorn's for his restitution and provide him paid leave during his incarceration. Their accord promised him his regular salary and bonus throughout his prison stay. When he began serving time last August, he kept his board seat but the company changed his title to chief strategic officer.

Fog Cutter paid Mr. Wiederhorn a $350,000 salary and $2 million bonus for 2004 and expects to award him the same amounts this year, reports Lanny J. Davis, an attorney for the company at Orrick, Herrington & Sutcliffe in Washington. Mr. Wiederhorn does nothing for his compensation and is an inactive director, according to Mr. Davis.

Fog Cutter board members believed they needed to maintain the goodwill of one of the company's biggest individual shareholders. "The only reason the board cared about paying Wiederhorn is that if he doesn't return to the company, there is no company," Mr. Davis says, adding that it wants him to become chairman and CEO again. Mr. Wiederhorn will "serve in any capacity in which the company will find him useful," predicts Marc Blackman, his lawyer.

Fog Cutter directors are paying a penalty for their generosity, however. Last October, the Nasdaq delisted Fog Cutter for paying the imprisoned executive. The company has appealed that decision-unsuccessfully so far.

And a shareholder derivative suit, brought in state court in Portland, alleges Mr. Wiederhorn's pay "constitutes a gross waste of company assets." The board acted "in what it believed to be the best interests of the company and the shareholders," Mr. Davis replies.

Mr. Madden, the third member of this select group, is a former shoe salesman who built his Long Island City, N.Y., business into one of the nation's best known shoe brands. Accused of participating in illegal penny-stock manipulation schemes, he pleaded guilty to four charges in May 2001 and relinquished the No. 1 spot a month later. (He already had dropped his board seat.)

He then became the company's "creative and design chief," a nonexecutive position. Joel Winograd, his attorney, said at the time that Mr. Madden would no longer be designing shoes once he entered prison in August 2002. But his paychecks keep rolling in. Under a 10-year employment contract signed just before his guilty plea in May 2001, Steven Madden Ltd. guarantees its founder a minimum salary of $700,000 a year.

The contract also makes Mr. Madden eligible for a hefty annual bonus and stock-option grant -- though the board can withhold such rewards if he doesn't spend at least six months a year being creative and design chief. As of now, he receives only his salary, says the company. "Considering everything that went on, he made out OK," says Robert Fields, a New York attorney and compensation consultant.

A federal district court upheld Mr. Madden's employment accord when it approved settlement of a shareholder derivative suit last June, the company says. His contract still offers "enormous value" because it clarified the company's rights to his name and allowed extension of the brand beyond shoes here and abroad, it adds. Mr. Madden will resume work as creative and design chief once he completes his prison sentence, according to Mr. Winograd.