Founders of churches and monasteries are frequently shown in mediaeval art holding model churches to indicate their role. In this picture Stephen is depicted as the founder of Faversham Abbey in Kent, a major royal abbey of Cluniac Benedictines, where the king was eventually buried.

If we look at the full page of the MS from which Stephen's portrait is taken, the Latin caption (bottom right) mentions that he founded Faversham. Stephen's predecessor Henry I to the left also holds a church, Reading Abbey which he founded, as is explained in his caption.

The complete page can be seen on the British Library site here:

http://www.bl.uk/IllImages/BLCD%5Cbig/c131/c13122-35.jpg

Sadly, there's very little left of Faversham Abbey today, though the site has been excavated.

The rod that Stephen holds is his royal sceptre.