Goodwill Omaha three years ago fired its former CEO amid scandal over his corporate-style pay, including a healthy six-figure salary, $100,000 annual performance bonuses, a $519,000 lump-sum retirement payout and a country club membership.
But even after Frank McGree was shown the door, he still ended up being paid an additional $610,000.
That’s because the generous compensation agreements the charity’s board had signed with him also gave him two years of base pay as severance — payable, McGree claimed, even if he was fired.
That final payment to McGree was revealed in the charity’s latest public disclosure statement, covering the charity’s finances for 2018.
McGree filed suit in 2017 over Goodwill’s refusal to pay him the severance. In 2018, the charity’s board acknowledged that it settled the lawsuit, part of an effort to move on from the McGree controversy. But until now, the size of the settlement wasn’t publicly known.
In the end, it appears Goodwill’s board decided to throw in the towel on the litigation. The payment was actually more than the $550,000 that McGree had sought in his lawsuit, suggesting that the two parties had other disagreements besides the severance.
Nearly the entire board of Goodwill has turned over since a World-Herald investigation in October 2016 that revealed Goodwill’s compensation practices.
The current board chairman, James Rich, who joined the board in 2017, said he could not speak in detail about the payment because of a confidentiality agreement that was part of the court settlement. The settlement agreement, however, acknowledged that the amount paid to McGree would eventually be disclosed in its nonprofit federal tax return, which is a public document.
Rich said the charity’s new board is happy to move on and has been sharply focused on the community jobs programs that are central to Goodwill’s mission. Rich also said the current board would not agree to put such a provision in an employment contract and has no such agreements now.
“It’s behind us,” he said.
The severance payment was just another example of how Goodwill’s compensation for McGree and other executives went well beyond the norm for such nonprofits.
The World-Herald investigation three years ago revealed that Goodwill spent so much on executive pay that scant profit dollars from its thrift stores were left to support its job programs.
McGree received base pay, retirement pay, performance bonuses and other compensation exceeding $400,000 annually — more than double the average for CEOs at other Omaha social service nonprofits. A $519,000 lump-sum retirement payment in 2014 brought his pay that year close to $1 million.
In all, 14 executives and managers at the charity were paid $100,000 or more, including McGree’s daughter. Nationwide, no Goodwill affiliate of its size had more employees paid in six figures.
Days after the newspaper’s series, McGree was ousted, and all the other top executives and most of the board ultimately turned over.
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Nebraska Attorney General Doug Peterson then launched his own investigation, using subpoena power to obtain 140,000 pages of documents and interviewing dozens of witnesses.
He determined that between 2011 and 2015, not a single dollar of revenue generated from Goodwill’s stores went towards its mission. In addition to pay, McGree and fellow executives also rang up nearly $350,000 in annual food, drink, entertainment and travel expenses.
Despite those issues, the board had continued to heap ever larger pay on McGree, seemingly unaware of the problems and convinced he was one of the nation’s best Goodwill executives.
McGree made a similar claim in his lawsuit, filed a year after he was fired.
“Frank was generally recognized as one of the top Goodwill executives in the United States by Goodwill Industries International,” the suit said.
The suit said that to induce McGree to stay with Goodwill, the board’s compensation committee in 2008 entered into an agreement calling for him to receive two years of base compensation upon termination of his employment.
After McGree’s firing, the charity’s board resisted paying him any money, prompting McGree’s federal court suit.
It’s not clear why the payment he received in the end exceeded the $550,000 he sought in his lawsuit. But the charity had set aside at least $80,000 in additional deferred compensation for him in the last two years before he was fired, and he also claimed he was due interest on the unpaid money.
It’s possible those dollars factored into the settlement. McGree’s attorney also declined to discuss details of the settlement.
Including the $610,000 payment, McGree received more than $2.3 million in compensation for his last three years at Goodwill.
Anne Hindery, CEO of the Nonprofit Association of the Midlands in Omaha, said that severance agreements are not unusual for CEOs in the corporate world and that large national-scale nonprofits at times provide them, too.
“But I’m not aware of any (local charity) in Omaha that has negotiated a contract like that,” she said.
While the Goodwill episode was painful, Hindery said it has produced positive change that’s gone beyond Goodwill.
She said more nonprofits and their boards have sought to adopt best practices, with some of their donors requiring it. Some donors also are requiring local nonprofits to base pay on nonprofit salary surveys, including the survey of Nebraska nonprofits that her organization conducts.
Hindery said it’s important that nonprofits and their boards offer compensation that helps them attract talented leaders and workers. But they also need to be able to say how they arrived at their decision and why it’s appropriate.
“Because if they can’t justify it,” she said, “they shouldn’t be paying it.”
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