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Martha Stewart Gets a Pay Cut

Rick Newman
The Exchange

Going to prison is rarely a good career move, and for lifestyle diva Martha Stewart, it seems to have marked the beginning of a long downslide at her once ubiquitous empire. The latest indignity: A $500,000 pay cut at her namesake firm.

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In a regulatory filing, Martha Stewart Living Omnimedia (MSO) said it is making “certain modifications to the employment agreement between Ms. Stewart and the Company.” Those include a cut in Stewart’s base salary from $2 million to $1.8 million, and a reduction in the annual licensing fee paid to her, from $2 million to $1.7 million. So her total pay will fall to $3.5 million, down from $4 million.

The 71-year-old Stewart stepped down as CEO of her firm in 2003, when she was charged with obstructing justice and lying to investigators as part of an insider-trading scandal at the drugmaker ImClone. A jury convicted her on four counts, and Stewart served five months in prison. She remains MSLO's nonexecutive chairman, and of course she’s the face of the company as well.

A corporate fixer-upper

Stewart’s knack for casual elegance — and salesmanship — may have transformed America’s homes, yet the company she founded has become a dilapidated corporate fixer-upper. Its most profitable year was 1999. Since Stewart got out of prison in 2005, the firm has lost money in seven years out of eight. The company’s stock, which was worth about $37 in 1999, now trades around $2.35. That’s a 94% decline.

In its regulatory filing, Martha Stewart Living said it was cutting its founder’s pay as part of a plan to return to profitability. But the pay cut, while pragmatic, may be a symbolic defeat for a firm that, by its very name, is tied to the fortunes of a controversial celebrity. When Stewart started her company in the 1980s, it made sense to name it after herself, since she and her homey confections were the entire draw. But these days, the name may be more of a liability than anything.

The pay cut comes as business leaders are becoming wealthier, not poorer. The typical big-company CEO earned $15.1 million in 2012, 16% more than the year before. That trend defies efforts to rein in executive compensation and give shareholders more say in pay decisions. Stewart may be a rare contrary example of a business leader whose fortunes are declining along with those of her company.

Stewart’s personal wealth has almost certainly suffered as her reputation has declined. She owns the majority of shares in her firm, so the plunge in its market value during the past decade has dinged her own bank account as well. Forbes put her on its billionaire’s list back in 2005, but she is no longer included there.

Meanwhile, a lawsuit grinds on between J.C. Penney (JCP) and Macy’s (M) over which retailer is permitted to peddle which Martha Stewart brands. To some extent, the fact that two big department stores are willing to fight over her name shows the design doyenne still resonates with shoppers. Increasingly, however, Martha Stewart connotes a failing effort to cling to past successes. Before long, her paycheck may get cut again.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.