GOODWILLS FACE FEW LIMITS ON CEO PAY

Big salaries, bonuses and lucrative retirement packages are funded in large part by revenue from the charity’s signature thrift stores. So that compensation doesn’t need approval from governments or private donors.
STORY BY HENRY J. CORDES | ILLUSTRATIONS BY MATT HANEY | THE WORLD-HERALD

By Henry J. Cordes / World-Herald staff writer

Sunday, October 23, 2016


While Frank McGree’s $933,444 in compensation for running Goodwill Omaha in 2014 ranked as quite handsome in the nonprofit world, it didn’t even make him the nation’s highest paid Goodwill executive that year.
That distinction fell to Steven Lufburrow, the CEO of Houston’s Goodwill, who collected over $1.3 million in total compensation, according to a World-Herald examination of the latest tax filings from 156 regional affiliates of Goodwill Industries International.
And Lufburrow wasn’t the only high-paid Goodwill executive. In all, 23 Goodwill CEOs nationally received total annual compensation exceeding $400,000, including a second executive whose pay also topped $1 million.
Indeed, the way Goodwill affiliates pay their leaders stands out starkly in the nonprofit world. National survey data suggest Goodwill affiliates, on average, pay their leaders markedly more than other charities in the business of training people for jobs. Goodwill executives also often turn up on lists of the highest paid CEOs among social service charities.
And while not all Goodwill CEOs are highly paid, The World-Herald’s examination of Goodwill affiliates’ latest disclosure forms showed that big salaries, five- and six-figure annual bonuses and lucrative retirement packages are common for many Goodwill executives — funded in large part by the revenues from the charity’s signature thrift stores.

Highest paid Goodwill CEOs

Among 156 regional Goodwill affiliates identified by The World-Herald, Goodwill Omaha's 2014 pay to its CEO ranked third-highest. Even excluding a $519,000 retention bonus, it still rated 22nd.

CityCEO total compensation% of budget devoted to CEO pay
Houston$1,338,9621.9
Atlanta*1,144,937 1.0
Omaha933,444 3.1
Portland, Ore.882,288 0.7
St. Louis649,257 0.7
New York*621,878 0.5
Austin, Texas526,997 0.7
Chicago/Milwaukee514,849 0.2
Boston497,178 1.9
Phoenix490,235 0.4
Tucson, Ariz.*488,626 2.0
Indianapolis477,341 0.5
Los Angeles453,556 0.3
St. Petersburg, Fla.444,714 0.8
Macon, Ga.442,611 1.2
Sacramento, Calif.439,386 0.7
Durham, N.C.435,092 1.8
Sarasota/Bradenton, Fla.433,077 1.3
Rochester, N.Y.432,689 1.1
San Jose, Calif.429,812 1.2
Washington, D.C.429,364 1.1
Appleton, Wis.420,044 0.8
Omaha (excluding $519,000 retention payment)414,444 1.4
Fort Worth, Texas410,741 1.4
Palm Beach, Fla.394,220 0.9
Bridgeport, Conn.391,275 0.8

* 2013 numbers

Source: Latest IRS disclosure forms (2014 for most) accessed on-line at National Center for Charitable Statistics.

"In the case of Goodwill, my experience is that (their executives) are highly paid, with some question as to whether they deserve to be so highly paid," said Elizabeth Keating, a Boston University professor who has studied pay in the nonprofit sector.
Goodwill Industries International, the umbrella organization to which the nation’s independent regional Goodwills are affiliated, would not comment for this series. The Maryland-based charity — founded in 1902 by a native Iowan — paid its own CEO, James Gibbons, $689,418 in total compensation in 2014.
The organization does defend how its affiliates pay their executives on its website, saying they make pay decisions based on a "rigorous process" that includes independent consultants, salary surveys of individual markets, business standards and individual performance.

Those who study nonprofits agree that since Goodwill is in the retail business, it does need to attract and retain talent that understands the business world. However, the organizations also need to remain true to their status as a tax-exempt nonprofit and to not unnecessarily divert dollars from the charity’s mission.


Keating co-authored a Harvard study 15 years ago that suggested one possible reason Goodwills tend to pay their leaders more than other nonprofits: because they can.
Charities that rely on government grants or private donations can’t as easily boost executive pay.
Government grants and contracts limit the amount that can be paid on overhead and require detailed reporting of how the dollars are spent. Individual philanthropists likewise want to see their cash donations going toward services, not executive pay.
But charities like Goodwill with access to revenue from commercial enterprises, or others with large endowments that spin off income, face no such donor oversight or restrictions on those dollars.
"In the financial literature, it’s called free cash flow," Keating said. "It’s unencumbered."
Keating’s study found that nonprofit CEO compensation was significantly higher in the presence of such free cash flows. Free cash was a far bigger predictor of higher executive pay than how the charity actually performed, the study found.

Through their thrift stores, Goodwill’s national affiliates reportedly generate nearly $4 billion in annual sales. Given those free cash flows, perhaps it’s no surprise some Goodwill CEOs are highly paid compared with leaders at other nonprofits.
Pay among the independent affiliates — each run by a local board — varies considerably. Among the nation’s 78 largest Goodwills — those with budgets of $20 million or more — CEO pay ranged in 2014 from Lufburrow’s $1.3 million to the $113,000 paid to the top executive in San Francisco.

But overall, Goodwill executive pay tends to stand out among nonprofits. The 2013 salary survey of charity tracker Guidestar showed the median annual pay for nonprofits in job preparation and procurement fields with budgets between $25 million and $50 million was about $161,000. For Goodwills that size, the figure was nearly twice that, at $297,000.


Goodwill also stands out when looking beyond averages to the nation’s highest-paid CEOs among social service charities.
The charity watchdog Charity Navigator keeps a database of the latest available CEO compensation for 8,000 of the largest national charities that rely heavily on public donations for their livelihood.
In its latest data as of July, Lufburrow topped the list among social service nonprofits. In fact, five of the 10 highest paid social service CEOs — and eight of the top 16 — were Goodwill executives, including the CEOs from St. Louis, New York, Chicago/Milwaukee and Boston.
Charity Navigator includes only 20 Goodwill affiliates in its tracking. Numerous other Goodwill executives — including Omaha’s McGree — were paid enough in 2014 to have also ranked near the top if Charity Navigator had tracked those charities.
Among Goodwill affiliates, the World-Herald’s examination of the latest disclosure statements available online showed Houston’s Lufburrow ($1,338,962) was followed by Atlanta’s Raymond Bishop ($1,144,937), McGree ($933,444) and Portland, Oregon’s Michael Miller ($882,288).
The Houston, Atlanta and Portland Goodwills have budgets that are two to four times the size of Omaha’s.

Employees paid $100,000 or more among Goodwills with budgets of at least $20 million

City Budget in millions in 2014 Employees paid more than $100K $100k employees per $10 million budget
Omaha$29.8134.36
Boston, MA$26.1103.82
Durham, NC$24.783.24
Las Vegas, NV$31.5103.17
Sarasota/Bradenton, FL$33.6102.98
Fort Worth, TX$30.482.63
Charlotte, NC$50.2132.59
Sioux City$20.052.50
Macon, GA$36.092.50
Long Beach, CA$20.952.39
Washington, DC$37.992.37
New Orleans, LA$21.952.29
San Francisco, CA (2013)$39.792.27
New Haven, CT$23.152.16
Jacksonville, FL$27.862.16
Dayton, OH$42.192.14
Bridgeport, CT$47.9102.09
New York City (2013)$116.5242.06
South Bend, IN$24.952.01
Little Rock, AR$25.052.00
Northern Rockies (MT, ID, WY, UT) $45.491.98
Grand Rapids, MI$25.451.97
Oakland, CA$25.551.96
Los Angeles, CA$150.7291.92
Indianapolis, IN$90.2171.89
Orange County, CA$71.2131.83
Tacoma, WA (2013)$72.7131.79
Colorado Springs, CO$39.371.78
Chicago, IL/Milwaukee, WI$211.6371.75
Santa Cruz, CA$23.341.72
Austin, TX$70.9121.69
Appleton, WI $54.791.65
San Antonio, TX$63.2101.58
Greenville, SC (2013)$38.161.57
Louisville, KY$52.881.51
Phoenix, AZ$127.3191.49
Mobile, AL (2013)$20.231.49
Memphis, TN$20.231.49
St. Paul, MN$60.691.48
Atlanta GA (2013)$116.5171.46
Fredericksburg, VA$28.141.42
Denver, CO$71.2101.40
Wilmington, DE$35.651.40
St. Petersburg, FL$57.581.39
Winston-Salem, NC$59.081.36
Palm Beach, FL$45.961.31
Columbus, OH$47.361.27
Oklahoma City, OK$24.431.23
Baltimore, MD$49.761.21
Orlando, FL$43.051.16
Columbus, GA$26.131.15
Canton, OH$26.531.13
Richmond, VA$53.461.12
St. Louis, MO$89.2101.12
Roanoke, VA$54.061.11
Harrisburg, PA$63.171.11
San Jose, CA$36.941.08
Honolulu, HI$28.331.06
Nashville, TN$75.981.05
Seattle, WA$97.4101.03
Sacramento, CA$59.461.01
Cincinnati, OH$39.641.01
Fort Myers, FL$30.031.00
Philadelphia, PA (2013)$30.730.98
Charleston, SC$44.040.91
Houston, TX$69.060.87
Miami, FL$94.480.85
Spokane, WA$24.120.83
Tucson, AZ (2013)$24.720.81
Rochester, NY$38.130.79
Portland, ME (2013)$67.850.74
Iowa City$30.420.66
Portland, OR$124.380.64
San Diego, CA$48.830.62
Pittsburgh, PA$51.330.58
Tallahassee, FL$22.610.44
Kansas City, MO$25.010.40
Savannah, GA$28.510.35

Data taken from the latest IRS Form 990s filed online with Urban Institute's National Center for Charitable Statistics. Most are from 2014. Among 78 affiliates with budgets of $20 million or more.

Budgets of related organizations were combined when identified. Some budgets revised down to take out estimated cost of donated goods, conforming with budget practice of most Goodwills. Some budgets would be artificially inflated without that adjustment.

Like McGree, Lufburrow’s 2014 pay was significantly boosted by a big retention bonus, one even larger than the $519,000 bonus McGree received. Lufburrow was paid $884,000 in a lump sum for being with the organization at age 55.
Were it not for Lufburrow’s retention bonus, it appears Bishop would rank as the highest paid Goodwill executive. His compensation in 2013, the latest available, included base pay of roughly $474,000, a $210,000 incentive bonus, $230,000 in deferred retirement pay, a $182,000 cash payout as part of his retirement plan and about $50,000 in other pay and benefits.

The series

Day 1: Sunday
» Goodwill Omaha has some of the most staggering executive pay you’ll find in the nonprofit world.
» Goodwill does need to attract and retain leaders who know the business world, but local experts on nonprofits are taken aback at the generous level of compensation.
» The repackaging of hair rollers appears to violate rules for “Made in America” labeling, Matthew Hansen writes.
Day 3: Tuesday
» County assessor and some County Board members say Omaha Goodwill’s tax exemptions may come under scrutiny.
» Columnist Matthew Hansen addresses some of the unanswered questions about Goodwill Omaha.

Portland’s Miller at one time was Goodwill’s highest paid CEO. But in 2005, Oregon’s attorney general concluded Miller’s $831,000 pay package for the previous year was "unreasonable," partly because the charity primarily based his pay on comparisons with large for-profit companies.
His base pay and performance bonus were reduced 24 percent, and the agency’s board also stopped making payments into a severance package Miller is to receive when he leaves the charity — one the board had likened to stock options that some for-profit corporations provide their leaders.
Miller’s pay has since rebounded and now exceeds his 2005 figure. His 2014 compensation included an incentive bonus of nearly $234,000 — the largest among Goodwill CEOs in The World-Herald’s analysis.
It’s difficult to tell just from the organizations’ tax filings if the big executive pay is hurting the Goodwill affiliates’ service to their mission of helping people who are hard to employ. But Daniel Borochoff, president of charity watchdog CharityWatch, said he has that concern when he sees how Goodwill CEOs are being paid compared with most other nonprofits.
"These big outsized salary payments are being made as if it’s more of a business than a charity," he said of Goodwill. "They need to earn their tax-exempt status."
henry.cordes@owh.com, 402-444-1130


Goodwill Omaha executive pay: An investigative series

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