Goodwill Omaha’s executive pay is causing some county officials to raise new questions about whether the organization’s thrift stores should remain exempt from property taxes.

By Henry J. Cordes / World-Herald staff writer

Monday, October 24, 2016

Goodwill Omaha CEO Frank McGree appeared before the Douglas County Board in May and successfully argued the charity should keep the property tax exemptions on its Omaha stores, saying the thrifts are an integral part of Goodwill’s efforts to help needy job-seekers.
But several members of the board now say they might have thought differently about the request had they known McGree was paid nearly $1 million in 2014, compensation spiked by a $519,000 retention bonus. Or that the tax-exempt nonprofit last year had 14 leaders on its payroll making six-figure salaries. Or that little of the profit from those stores actually found its way into those jobs programs McGree talked about.
"I am just flabbergasted, and disappointed," reacted board member Mike Boyle.
"That’s outrageous and wrong," said board member James Cavanaugh.
"You know, you just ruined my day," said board member Marc Kraft.
All three said they voted for the tax exemptions with the belief the charity was putting its thrift store proceeds to good use in its mission of serving the disabled and others facing barriers to employment — something they now question in light of The World-Herald’s investigation of Goodwill.
The newspaper found that McGree’s corporate-styled compensation was more than double the average paid to the leaders of Omaha’s most prominent local social service nonprofits or those leading the Goodwills in our region that are most comparable in size. An analysis of the nation’s largest Goodwill affiliates also found none could match Goodwill Omaha in the percentage of budget it devoted to CEO pay and the rate at which it paid six-figure salaries to employees.

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.

Goodwill Omaha Board of Trustees

Officers of the board
• Joseph R. Lempka: Chairman of the Board, 2009-present (President, Kiewit Building Group)
• Mark L. Stokes: Vice Chairman, 2013-present (Area executive vice president, Arthur J. Gallagher & Co.)
• Scott D. Semrad: Secretary, 2015-present (Principle, Urban Village Development)
• Robert J. Mitchell: Treasurer, 2006-present (Office managing partner, Deloitte Tax LLP)
• Mark Brasee: Chairman Emeritus, 2007-present (Attorney, Fraser Stryker PC)
• Frank McGree: President & CEO, 1986-present (Goodwill Omaha)

Other Board Members
• David M. Anderson: 2004-present (Vice president of finance, Blue Cross Blue Shield of Nebraska)
• Richard Frandeen: 2004-present (Commercial real estate representative, American National Bank)
• Ronald C. Jensen: 1993-present (Partner, Baird Holm LLP)
• Larry R. King: 2012-present (President and CEO, Woodmen of the World)
• Sandra A. Lane: 2008-present
• Joseph W. Lang: 2005-present (Principal, RDG Schutte Wilscam Birge Inc.)
• Erin Limas: 2015-present (Chief financial officer, Borsheims Fine Jewelry)
• R.J. Neary: 2011-present (Managing director, Investors Realty)
• Joseph J. Olsen: 2009-present (President and CEO, Phenomblue)
• Daniel A. Padilla: 2010-present (Business banking officer, First National Bank)
• Carol L. Russell: 1987-present (Community volunteer)
• Daniel G. Wenzl: 2013-present (Vice president, Aon Risk Services Central, Nebraska and Iowa)
• Lyn Wallin Ziegenbein: 2015-present (Executive director emerita, Peter Kiewit Foundation)
• Nancy L. Crawford: 2016-present (Associate general counsel, Mutual of Omaha Insurance Co.)
• Robert M. Bertsch Jr.: 2016-present (Senior vice president wealth adviser, Wells Fargo Financial Group)

Source: GoodwillOmaha.org

Former Goodwill employees interviewed by the paper also consistently expressed a belief the public charity has strayed from its mission, often citing its outsized executive pay.
And the paper found that just a fraction of Goodwill Omaha’s store profits went toward the charity’s mission programs. Instead, most such proceeds were consumed by administrative overhead, including pay for Goodwill leaders.
McGree, Goodwill’s 30-year CEO, and the charity’s board chairman declined to discuss the nonprofit’s pay practices or operations beyond a prepared statement to the newspaper and its required annual public disclosure statements. The board chairman said the pay is based on Goodwill’s need for "top-notch executive talent" and McGree’s performance.
Whether Goodwill will receive property tax exemptions on its Omaha stores in the coming year remains up in the air. Douglas County Assessor/Register of Deeds Diane Battiato has appealed to the state to overturn the County Board decision on thrift store exemptions for Goodwill and two other charities.

Battiato based the appeal on her interpretation that state law calls for such stores to be taxed. But she said The World-Herald’s disclosures may raise other grounds for rejecting Goodwill’s exemptions, including the possibility that profits derived from the property are being distributed to officers, members or others.

"It certainly does raise that question," said Mike Goodwillie (yes, that’s his real name), the compliance officer in Battiato’s office.
Regardless of how the appeal turns out, Goodwill’s exemptions are something that can be reviewed annually. Battiato and some County Board members said they thought that, in light of the new revelations, the issue could well come up again next spring.
"This definitely deserves some sunshine," Cavanaugh said. "The purpose of a charity property tax exemption is not to enrich individuals working for those charities. If that’s what’s going on, that’s wrong."
Goodwill Omaha, like most of Douglas County’s nonprofits, has for years received tax exemptions on its properties, including its stores. Though the properties have not been given valuations for years, the Assessor’s Office calculates Goodwill is saving roughly $280,000 in annual taxes on the five stores it owns in Omaha. Goodwill also rents four retail locations in Omaha, has an online store and seven other retail locations across the metro area.
At the urging of the county board, Battiato in the past year took a hard look at nonprofit exemptions. As part of that process, the assessor examined the Omaha thrift stores operated by Goodwill, the Salvation Army and Habitat for Humanity.

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

The Assessor’s Office in the end recommended that all three be denied the exemptions on their stores, citing state tax regulations.
Even if the income from the property is used to support the charity, state tax regulations specifically say it’s the use of the property that determines whether it is exempt. In this case, the property is used as a retail store — a taxable commercial enterprise, the assessor said.
"If you generate money for a good cause, that’s terrific," Goodwillie told the board. "But that doesn’t change the basic use of what’s going on within the four walls of that property."
Goodwillie also offered photos that showed the nonprofits’ thrift stores were indistinguishable in appearance from for-profit thrift stores in the county that are taxed.
In addition, he noted that the past exemptions were in part granted based on indications from Goodwill and the Salvation Army that the stores were used in their training programs. In examining the programs, the assessor ultimately deemed the properties were more stores than job-training sites.
The assessor noted that in the five stores Goodwill owns, only 28 of the 145 employees were job trainees. The rest were regular hourly employees hired from the community. One of the stores had no trainees.

The Salvation Army contended to the board that most of its workers in its two stores and warehouse are participants in the charity’s drug and alcohol treatment programs, with the work part of their therapy.
McGree also appeared before the board, challenging the notion that Goodwill’s stores were no different from for-profit thrifts.
"We could not disagree more," he said. He touted Goodwill’s mission of helping the hard-to-employ, saying: "We do that in a variety of ways, but most importantly through our retail stores."
McGree cited one of Goodwill’s signature programs, in which high school students with disabilities work as trainees in the stores. He also noted that last year 1,500 people completed court-ordered community service or met work obligations under the food stamp program by spending time working in the stores.
Goodwill’s application for the exemptions also said the proceeds from its stores support its job training and employment mission. However, The World-Herald’s investigation raised significant questions as to just how much of its $4 million in annual store profits do support such programs.

Other Goodwills in Nebraska

Nebraska has two other Goodwill affiliates, based in Lincoln and Grand Island. Both are much smaller than Goodwill Omaha.
Disclosure statements for 2014 show the Lincoln affiliate had seven stores and a budget of $4.3 million. It paid CEO Joanne Pickrel total compensation of about $95,000.
Grand Island’s Goodwill Industries of Greater Nebraska in 2014 had eight stores and an annual budget of $12.3 million. It paid then-CEO Kris Brown — who retired last year after 31 years leading the nonprofit — total compensation of $192,000. One other employee was paid $115,000.

While Goodwill runs $10 million in jobs programs annually, they are predominantly funded by grants and payments from government agencies and other outside entities. Even the in-store program that McGree cited before the board is financed primarily by funds from the Omaha Public Schools and other districts that send students.
For example, OPS expects to pay $428,000 to Goodwill for its 62 student participants this year, charges that cover the salaries and benefits of the trainers and most other costs of the program. A former Goodwill employee said the charity’s charges to the schools even include a rent assessment for use of classroom space in the stores.
So how much Goodwill store revenue actually goes to jobs programs? In response to a query from The World-Herald, Goodwill officials identified only $557,000 in jobs-related spending from retail proceeds: an undefined $350,000, plus $207,000 in hourly wages paid to the students in its in-store program.
That was one-third as much as Goodwill spent in 2015 on pay for McGree and eight other top executives. In all, Goodwill’s 2015 IRS disclosure form shows the $4 million in store profits were nearly consumed by $4 million in overhead costs for management, fundraising and general expenses, including much executive pay.
In the end, the County Board voted 6-1 to approve the exemptions for the three charities. Board member Clare Duda voted no, saying he felt the board should listen to its legal counsel on the matter — Goodwillie.
In voting their support, board members cited the good work the charities were doing.
At one point during the debate, Boyle said to Goodwillie: "You haven’t raised the issue of any salaries that are out of line. Nobody is living out at Fairacres in a mansion that runs Habitat."
The Assessor’s Office did not look at publicly available disclosure forms for the charities. If they had, they would have found Habitat’s chief executive was paid total compensation of $145,000 in 2014. The Salvation Army is considered a church and therefore is not required to publicly disclose its finances. But the charity said its leader in Omaha in 2014 received total compensation of $89,000.

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.

In light of the Goodwill pay disclosures, Boyle recently saw the irony in his statement that day. "Maybe no one’s living in Fairacres, but they can certainly afford to."
Battiato said The World-Herald’s findings support her determination that the store properties’ primary use is as retail outlets, not job training sites. And she said the paper also raised other possible grounds for denying the exemptions.
State tax regulations say that to receive property tax exemptions, no part of the income from the property can be distributed to members, directors, officers or private individuals. On that count, Goodwillie said he’d be particularly interested in how Goodwill determines what it pays in executive bonuses, which have been sizable. McGree has received incentive bonuses at or near $100,000 each of the past three years.
Goodwill did not respond to questions on how it determines bonuses. Its public disclosure form suggests bonuses are not contingent on revenues or earnings.
However, a former member of Goodwill’s executive staff said the size of the bonus pool each year has historically been determined by growth in agency revenues and profits, including retail store dollars. Whether the pool was paid out was determined by a number of benchmarks, including revenue and profit growth, the former employee said.
Looking back now, several Douglas County Board members said they’re not sure how they would have voted had they known of Goodwill’s pay practices. But they said the information certainly would have altered the discussion.

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 2: Monday
» Omaha charity takes a different approach from its regional counterparts in spending and serving the public.
» Despite the lucrative salaries of its top executives, Goodwill Omaha continues to pay workers with disabilities less than the minimum wage.
» Big salaries, bonuses and lucrative retirement packages are funded in large part by revenue from the charity’s signature thrift stores, which is largely unmonitored by governments and private donors.
» Interviews with former employees reveal frustration with what they see as a broken culture, Matthew Hansen writes.

"It’s something I would have raised," Boyle said. "No one expects people who work there to take a vow of poverty, but (consideration of) pay needs to be included, for God’s sake."
Board member Chris Rodgers said Goodwill "will have some explaining to do" the next time it seeks exemptions.
"It has to pass the smell test," he said of the charity’s executive pay. "They are going to have to justify it."
Kraft said that while he’s disheartened to see Goodwill’s executive pay, he’s still not sure he’s ready to pull the store exemptions. That would take even more money away from the charity’s mission beyond what is being spent on what he called "exorbitant" pay.
"I still think Goodwill is a good organization," Kraft said. "But they could be so much better. And I put the blame for their excess wages on their board."
Both Rodgers and Kraft said that as a public charity receiving tax exemptions from federal, state and local governments, Goodwill has an obligation to be sure it’s spending its money in ways that maximize the public good.
In fact, no one spoke better to the charity’s obligations to the public during the County Board hearing than Frank McGree himself. He was asked by Boyle to address a rumor he’s sometimes heard that Goodwill is a private company.
"We are a community-based organization owned by you and you and you," McGree said. "That’s who owns Goodwill."
henry.cordes@owh.com, 402-444-1130

Goodwill Omaha executive pay: An investigative series

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