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. After all, the Omaha charity is a nonprofit.

By Henry J. Cordes / World-Herald staff writer

Saturday, October 22, 2016

Say this about the way Goodwill Omaha pays the executives who oversee its thrift stores and jobs programs: It’s certainly not thrifty.
Frank McGree’s annual compensation as Goodwill’s longtime CEO has regularly exceeded $400,000 in recent years, his pay package spiced with six-figure performance bonuses, annual deferred retirement pay and other perks. A one-time $519,000 retention bonus in 2014 spiked his pay that year close to $1 million.
That type of corporate-style CEO compensation bears little resemblance to what’s paid by Omaha’s most prominent social service nonprofits and is atypical nationally, too. And while it’s not unheard of among the nation’s more than 150 independent American affiliates of Goodwill Industries International, Goodwill Omaha’s CEO pay still stands out among those charities, too.
What’s perhaps most remarkable about Goodwill Omaha is how far its generous pay practices extend down the chain of command.
The charity paid 13 executives and managers $100,000 or more in 2014, a figure Omaha’s other social service charities don’t even approach. A World-Herald analysis of the nation’s Goodwills found only six had more employees paid in six figures — and each of those affiliates was at least three times larger than Goodwill Omaha.
And little of its roughly $4 million in annual thrift store profits is going toward the job training programs that are essential to its mission. Most of the store proceeds are being consumed by the nonprofit’s administrative overhead, costs that include much of the pay to its leaders.

Frank McGree’s 2014 pay

Base pay$249,948
Retention bonus519,000
Incentive bonus95,000
Retirement and deferred pay52,000
Other compensation*3,688
Total compensation933,444

* Likely includes country club membership

Goodwill Omaha officials defend the charity’s pay structure, saying McGree’s compensation recognizes both his success over 30 years and the charity’s need for top-notch talent. They also say Goodwill is different than other nonprofits, making comparisons difficult.
“Goodwill has a unique model that allows it to generate much of the revenue needed to run a $30 million nonprofit organization, invest in operations and give back to the community through many key programs,” McGree and board Chairman Joe Lempka said in a joint statement last week.
Those who study charities agree that, with its chain of thrift stores, Goodwill does need to attract and retain leaders who know the business world. They also say there’s been a trend toward nonprofits becoming more businesslike in how they operate and compensate their leaders.
But the way Goodwill Omaha operates and pays its leaders also needs to square with its status as a tax-exempt public charity and obligations to the people who donate to it.
“You are rightly raising some red flags,” said Peter Frumkin, a University of Pennsylvania professor who has studied nonprofit pay. “A greater businesslike approach, more focus on income and compensation based on performance — that’s the broader context here. In this case, the question is did it go too far, and are there abuses?”
Other local experts on nonprofits were taken aback in hearing about Goodwill’s executive pay practices.
“Wow,” said Anne Hindery of the Nonprofit Association of the Midlands.
“I’m very surprised,” said Angela Eikenberry, a University of Nebraska at Omaha professor who studies nonprofit management.

The question of whether Goodwill’s pay is appropriate is rooted in its nonprofit status. Nonprofits are endowed with a powerful tool for pursuing their charitable missions: the ability to generate income and assets free of most federal, state and local taxes.

But in turn, federal law prohibits the nonprofit’s board members, officers or key employees from receiving excessive compensation from the nonprofit’s tax-exempt income. In fact, excessive pay is subject to repayment, with added penalties.
So how much executive compensation is too much? Experts say there’s no easy answer to that.
While the IRS requires that nonprofit pay be “reasonable,” there is no set definition for what that means or standard formula for determining it. Instead, the IRS has laid out a process nonprofits must follow to pass legal muster.
The pay determination must be independent of the person whose pay is being set. Pay should be at “market rate,” determined by comparing entities of a similar budget size and in a similar field of activity. For-profit organizations can be included in the comparisons as long as the jobs, organization size and mission are similar.
If an organization relies on good data, the burden is on the IRS to prove the pay is unreasonable.
Goodwill Omaha officials declined a World-Herald request to question a representative of its board, which sets pay for the nonprofit’s top leaders.

In a statement, the charity said its board uses independent resources and salary surveys to help determine executive pay, including input from two compensation consultants and from Goodwill Industries International. Past tax disclosure forms — required annually by the federal government — have indicated the Omaha charity also has used data for both national nonprofits and for-profit corporations.
Goodwill Omaha says its pay reflects the fact it has many long-serving leaders. That includes McGree, who came to the organization in 1986 and has seen it grow 20-fold during an award-winning tenure, Goodwill said.

“When you have great people, great things can happen,” Lempka said. “Long-tenured staff are committed to us, and we are committed to them.”

Goodwill’s statement said the one-time retention bonus was based on a retirement package agreement the board signed with McGree 20 years earlier to encourage him to stay here. The agreement called for him to receive the set-aside money, along with accrued interest, in a lump sum if he was still with Goodwill in 2014.
Goodwill’s past board president, Mark Brasee, said such deferred compensation programs represent “a common and successful tool utilized by many for-profit and nonprofit organizations’’ to retain leaders.
Goodwill continues to put large amounts of money into deferred retirement income for McGree — nearly $90,000 over the past two years. And it seems possible there’s another big payout coming McGree’s way.
Goodwill’s latest tax filing shows the charity still had nearly $1.2 million in deferred compensation liability. It’s unclear who that is due to, but McGree and three other top executives have recently had retirement pay set aside for them.
Goodwill officials would not answer specific questions about executive pay beyond the nonprofit’s statements and public disclosure documents, so it’s difficult to determine what it considered its peers for comparison purposes. But a World-Herald analysis found McGree’s pay is far from typical, either here or nationally.
The big bonus that spiked McGree’s pay to more than $933,000 in 2014 made him among the nation’s highest paid nonprofit executives.

2014 CEO pay for Omaha social service charities

CharityCEOTotal CEO compensation% CEO payEmployees paid more than $100,000Budget in millions
Goodwill Omaha Frank McGree $933,444 3.1 13 $29.8
United Way of the Midlands* Karen Bricklemyer 280,305 1.2 5 23.1
Lutheran Family Services Ruth Henrichs 208,393 1.0 3 20.8
Heartland Family Service John Jeanetta 189,572 0.8 4 23.2
Catholic Charities John Griffith 167,623 1.1 1 15.2
Habitat for Humanity Amanda Brewer 145,050 1.0 2 14.7
Food Bank for the Heartland Susan Ogborn 124,793 0.5 1 23.3
Salvation Army (western division) Maj. Paul Fleeman 89,096 0.2 2 45.3
Average (excluding Goodwill) $172,119 0.7 2.6 $23.7

* United Way of the Midlands was transitioning leaders in 2014 due to the death of CEO Karen Bricklemyer, so her pay for 2013 is used in this comparison.

Source: Organization IRS 990 filings for 2014, accessed online. Salvation Army is considered a church and does not file a 990. Figures for 2014 provided by charity.

The charity watchdog Charity Navigator tracks executive compensation for 8,000 of the nation’s largest nonprofits that rely on donations from the public. In its database of those charities’ latest disclosure filings — covering tax year 2014 for most — only 23 chief executives had pay that topped McGree’s. Most of those paid more were the heads of large national charities or major-city arts organizations, and on average they managed annual budgets eight times larger than Goodwill Omaha’s.
Even excluding McGree’s big retention bonus, his other compensation in 2014 totaled more than $414,000 — almost 2½ times the $172,000 average for the CEOs of the city’s most prominent local social service charities and nearly 50 percent above the next-highest paid.
Similarly, national survey data from charity tracker Guidestar show the median CEO pay in 2013 for nonprofits of Goodwill Omaha’s size in the job preparation and procurement field was about $161,000. McGree’s pay in that same year was almost three times that, at over $468,000.
McGree’s pay also runs high compared with most Goodwill executives nationally, and that’s even as Goodwill nationally tends to pay more than other nonprofits.
The World-Herald analyzed the latest available disclosure forms online for 156 Goodwill affiliates across the nation, most covering tax year 2014. McGree’s 2014 pay, including his retention bonus, ranked him third highest among all the Goodwill CEOs, behind two whose total pay topped $1 million. Even without the bonus, McGree’s compensation still would have ranked 22nd — yet Goodwill Omaha’s budget was the 54th largest in the World-Herald analysis.
And among the 78 largest Goodwills — those with budgets of $20 million or more — Goodwill Omaha devoted more of its budget to CEO pay than almost any other. With the bonus, Goodwill Omaha ranked No. 1 in 2014, and it still ranked near the top excluding the bonus.

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
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.

The bonuses and perks are what make McGree’s pay stand out the most.
His base pay has recently been about $250,000 annually, which in itself isn’t jaw-dropping. The average salary of CEOs for larger Nebraska nonprofits in the 2014 salary survey by the Nonprofit Association of the Midlands was $169,000.
But McGree also receives big performance bonuses, and they’ve been so routine it’s like they’ve become part of his regular pay. He’s received incentive bonuses the last three years of $100,000, $95,000 and $100,000. The latest Midlands salary survey found almost two-thirds of the largest nonprofits offered incentive pay to their CEOs, but the median bonus was just $6,500.
A paid country club membership and the ability to bring his spouse along with him on out-of-state trips twice a year are also part of McGree’s compensation.
In addition, he receives lucrative retirement benefits. Goodwill set aside $52,000 in deferred retirement pay for McGree in 2014, more than double that of the Omaha CEO of the United Way and far above what’s paid by the other prominent social service nonprofits in Omaha.

During 2013, McGree and three other top executives at the charity received a total of $130,000 in deferred retirement pay. That was actually more than all other Goodwill employees received as contributions from the charity to their 401(k)-like retirement plans.
McGree’s retention bonus is what most attracted the notice of national nonprofit experts briefed on McGree’s compensation. Elizabeth Keating, a Boston University professor who has studied nonprofit pay, said it struck her as a case of board members from the corporate sector bringing a corporate-styled incentive into the nonprofit world.
“That’s certainly quite unusual,” agreed Daniel Borochoff of Chicago-based charity watchdog CharityWatch. “The people who agreed to that — is that really necessary?”
The sheer number of Goodwill Omaha employees paid $100,000 or more also raised eyebrows among the experts. Goodwill Omaha had 13 such employees in 2014, and the number rose to 14 last year.
The World-Herald’s analysis of the nation’s 78 largest Goodwills found Omaha for its size had more employees paid six figures than any other. Its rate of such high-paid employees was more than three times the average — even though Omaha’s cost of living is below the national average. The Goodwill affiliate in Portland, Oregon, with a budget four times larger than Goodwill Omaha’s, reported only eight employees paid in six figures.

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
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.

Omaha’s top-dollar pay practices become a larger concern when looking at the amount of thrift store profits that Goodwill is devoting to its mission.
A big part of Goodwill’s public profile is its pledge that when people shop at its thrift stores or donate goods, it helps train and employ people with barriers to jobs. “Shop at Goodwill, Create Jobs,” reads the simple message of billboards around Omaha. Videos promoting Goodwill’s job mission work play on a loop on televisions in its stores.
But look at the numbers behind Goodwill’s jobs programs and it’s not quite that simple.
The vast majority of Goodwill Omaha’s $10 million in annual job programming is funded by grants and contract funds from government agencies and other entities. In fact, its latest disclosure form indicates it receives enough such revenues to cover about 97 percent of the programs’ total reported costs.
The charity’s disclosure form also indicates it makes about $4 million in annual thrift store profits. In response to a World-Herald query, the charity identified only $557,000 in job program-related spending in 2015 that it said was funded by thrift sales.
That included an undefined $350,000 for “mission services” and $207,000 in hourly wages paid to high school special education students participating in a job training program.

The series

Day 2: Monday
» Omaha charity takes a different approach from its regional counterparts in spending and serving the public.
» Interviews with former employees reveal frustration with what they see as a broken culture, 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.

That $557,000 is less than one-third of the nearly $1.8 million that Goodwill Omaha paid McGree and eight other top executives that year.
Goodwill’s disclosure form indicates the charity’s thrift profits are essentially eaten up by costs for management, fundraising and general expenses. In all, those overhead costs totaled $4 million in 2015.
Goodwill officials defended their operations, saying they are proud of the charity’s work in the community and the tens of thousands who have benefited from its programs.
“The organization stands strongly behind how it operates and the positive impact it is having in our community,” McGree and Lempka said.
Still, Borochoff said the World-Herald’s examination of Goodwill’s executive pay and finances certainly raises questions about whether public charitable dollars are being spent in ways that maximize the nonprofit’s public purposes.
“If they were a business making some charitable grants, that would be one thing,” he said. “But it’s a charity, and people when they drop off clothing have a belief it’s helping charity. That’s not going on to a significant degree, and that’s unfortunate.”, 402-444-1130

Goodwill Omaha executive pay: An investigative series

Share your thoughts