The leaders of Goodwill Omaha’s board of trustees continue to defend what they paid the charity’s former CEO, calling the compensation reasonable and justified.
When it comes to the outsized number of other Goodwill executives taking home big paychecks, the trustees say Goodwill’s CEO, not the board, set those salaries.
They also say they were unaware of the “mission drift” at the charity described by former employees. They don’t point a finger of blame at former CEO Frank McGree for that or any other issue, still offering praise of his leadership.
Nonetheless, the board leaders say they are committed to having an outside third party conduct a thorough review of Goodwill’s finances and operations and making any necessary changes — including changes to the board itself.
“Everything is open to look at and talk about,” said Joe Lempka, chairman of Goodwill’s trustees. “They will look at the board. And we’re going to look at the best practices.”
Five members of Goodwill’s volunteer board of trustees recently sat down to answer questions for the first time since a World-Herald series that laid open the charity’s corporate-style executive pay, scant thrift store profits devoted to jobs programs and an internal culture described as putting maximizing profits ahead of the clients the tax-exempt charity is set up to serve.
In defending McGree’s pay — which exceeded $400,000 a year and spiked close to $1 million in 2014 thanks to a $519,000 payment that was part of a retirement and retention agreement — the trustees cited his 30-year tenure and the charity’s growth over that time.
They said the pay was fair based on salary surveys from compensation consultants Goodwill hired, though the trustees declined to release the salary data they used to make that judgment. They said it’s covered by nondisclosure agreements signed with the consultants and includes other confidential personnel information.
And while standing behind McGree’s retirement pay, the trustees still won’t say how much additional retirement income McGree is due or whether he’s to receive any severance pay. They said those are likewise personnel matters they can’t discuss.
The trustees’ comments come as two other members of the 21-member board — Lyn Wallin Ziegenbein and Daniel Padilla — have chosen to resign their positions.
Ziegenbein, in an interview, did not join in the defense of McGree’s pay, feeling it was far beyond the norm for Omaha nonprofits. Having joined the board just last year, she said she was stunned by McGree’s pay and the rest of The World-Herald’s revelations.
In many ways, the board leadership’s defense of McGree and the charity’s operations also belies what has taken place in the five weeks since The World-Herald series was published.
McGree has stepped down, and two other high-paid executives have likewise departed. The charity in a statement two weeks ago said it had learned some lessons, pledging a top-to-bottom evaluation of its pay structure, an outside assessment of its operations and an ethics review by another outside organization.
Given all that, it’s a little surprising the trustees in their recent comments didn’t more readily acknowledge that mistakes were made, said Anne Hindery, CEO of the Nonprofit Association of the Midlands. Given McGree’s long tenure, she said, it wouldn’t be surprising if some aspects of the organization over time came to be on autopilot.
“At the end of the day, it’s the board’s responsibility to oversee the organization,” she said.
But Hindery and Angela Eikenberry, a University of Nebraska at Omaha professor who studies nonprofits, say they’re glad the board is opening up and moving forward.
“Even if they feel they were correct in what they did, if the public has a different understanding, you have to repair that,” Eikenberry said. “You have to do something to build that trust up again.”
In spite of Goodwill’s slogan that shopping at or donating to its signature thrift stores helps the disabled and others with barriers to employment, The World-Herald’s investigation found that at the charity’s Omaha affiliate, such efforts have contributed more to lofty executive salaries.
McGree’s pay was more than double the average for CEOs at other Omaha social service nonprofits. It also ranked high among the nation’s more than 150 Goodwill affiliates, even though Goodwills as a whole pay more than most nonprofits.
In all, 14 executives and managers at Goodwill Omaha last year were paid $100,000 or more, including McGree’s daughter. For its size, none of the nation’s 78 largest Goodwill affiliates had more employees paid in six figures, the newspaper found.
The paper also revealed that out of $4 million in profits generated by Goodwill’s thrift stores last year, no more than $557,000 found its way into its job programs. Most thrift profits were essentially gobbled up by the agency’s $4 million in overhead expenses, including executive pay.
More than a dozen employees told the paper that Goodwill’s mission in recent years has taken a back seat to executive pay, with job trainers who worked with disabled students frustrated by the charity’s reluctance to hire graduates to work in the profit-driven thrift stores.
While the series raised questions about the board’s role and oversight, board leaders for months declined to discuss the charity’s operations, instead communicating through written statements. Now as Goodwill seeks to move forward, Lempka and fellow trustees Mark Stokes, Joe Lang, Ron Jensen and Sandy Lane recently agreed to answer questions on behalf of the board.
Lempka and Stokes both serve on the charity’s executive committee. Lane, an accountant, heads the audit committee. Jensen has been on the board for more than two decades, making him among those most familiar with how McGree’s pay package was developed.
When it comes to McGree’s pay, it’s the extras on top of his $250,000 base compensation that make it stand out, including the $519,000 payment that’s part of a lucrative retirement package, incentive bonuses that in recent years have averaged $100,000 a year and a country club social membership.
Jensen said the package was based on considerable study and was reasonable given McGree’s role over three decades in growing Goodwill Omaha from an organization with a $1.8 million annual budget to a $30 million one.
“I want to assure (the public) this wasn’t just done at the whim of anybody,” Jensen said.
Jensen said the process of setting McGree’s annual pay started with a compensation committee drawn from the board before the package was ultimately approved by the entire board.
The board used survey data from two outside consulting firms and from Goodwill International, the umbrella organization over the nation’s independent Goodwill affiliates.
Jensen said the data involved a mix of both for-profit and nonprofit firms. That’s appropriate, he said, given that Goodwill is a complex organization that not only runs retail stores but also manages government contracts, deals in tax-exempt bonds, serves thousands of clients and interacts with the public.
Jensen said McGree’s retirement package was based solely on national Goodwill data. It started out in 1993 as an effort to root McGree — who had other opportunities — in Omaha and evolved from there into what’s known under the tax code as a 457 plan, Jensen said.
Jensen called such plans “not unusual in the nonprofit world.” The board also noted that only about $300,000 of the $519,000 McGree received came from Goodwill dollars, the rest being accrued interest on the set-aside pay.
It remains unclear just how big McGree’s retirement pay will be. In addition to the $519,000, the charity has been setting aside other dollars for him in recent years, part of $1.1 million in remaining deferred pay obligations the charity has on its books.
It’s also possible McGree is due some type of severance pay, something the board likewise won’t discuss. Any such payments to McGree will ultimately have to be disclosed on Goodwill’s future public tax filings.
“I don’t think we can go there,” Jensen said of severance pay.
Goodwill data was also the basis for McGree’s country club membership, though Lempka seemed to acknowledge it was not a typical benefit among Goodwills.
Goodwill officials also confirmed for the first time that McGree was also provided a car by the charity — most recently, a 2015 Jeep Grand Cherokee for which it paid $24,000. After McGree’s recent departure, the vehicle was returned and sold by the charity for more than was paid for it.
Jensen said the value of McGree’s package was borne out by his performance.
“We wanted someone who could make good long-term decisions,” he said. “I think the proof is in the pudding there with Frank.”
Since Goodwill’s board did not provide the specific data behind its pay analysis, it’s difficult to know how defensible it is. The key is what types of organizations Goodwill used for comparison.
Hindery, of the nonprofit association, said McGree’s total pay is unlike anything she’s ever seen locally — particularly the extras.
While most nonprofits provide retirement pay, she said Goodwill’s package “is definitely way above standards for Omaha.” She said very few nonprofits use 457 plans because they are generally just for executives. Most charities instead prefer more inclusive 401(k)-type plans that apply to both executives and other staff.
And while most larger charities also pay performance bonuses to their CEOs, a survey by Hindery’s organization found the median is about $6,500.
Ziegenbein, the board member who resigned this week, said she also considered McGree’s pay out of line.
“Knowing the Omaha nonprofit community like I do, it was stunning,” said Ziegenbein, an attorney who for years directed the Peter Kiewit Foundation in Omaha. “That was very much an exception to the Omaha norm.”
Ziegenbein did not dispute that McGree’s pay would have been approved by the full board but has no recollection of it coming up during her short board tenure.
Lempka said while the board still stands behind McGree’s pay, it will be studying CEO compensation as part of its review going forward.
Lempka said the same holds true for the pay of the rest of Goodwill’s executives. The charity retained consultants to provide salary surveys for that pay, too, though McGree was ultimately responsible for those pay decisions, not the board.
The board members said they had no knowledge Goodwill was out of step in the number of high-paid executives it had or in the amount of store revenues it was putting into its jobs programs.
“I can’t speak to the accounting breakdown you are talking about,” Lempka said of The World-Herald’s figures.
From board members’ perspective, there was much job training going on at Goodwill — $10 million worth annually. In fact, each board meeting began with a testimonial from a Goodwill jobs client. But The World-Herald found that nearly all the job training was funded by government grants and contracts, not the store profits often touted as critical to the charity’s mission.
The board members said they were also unaware of the cultural issues raised by former employees. Lane said she was disappointed former employees didn’t feel they could bring such concerns directly to the board, saying the issues raised “were shocking to me.”
But she said Goodwill is responding appropriately, engaging with a local business ethics organization and is seeking to open up lines of communication with employees. Hindery said all nonprofits should have an effective whistleblower policy that gives employees the ability to air concerns when immediate supervisors aren’t responsive.
In hindsight, Lempka said it’s possible that as Goodwill grew, its operational practices just didn’t keep up.
“I have to go back to we’re going to ask a third party to look at it all,” Lempka said. “We need to look at all of those things and figure out if there are some things that need to be elevated to board level that weren’t.”
While leaving the board, Ziegenbein expressed optimism that Goodwill will ultimately get back in Omaha’s good graces. She said she had joined the board largely in memory of her late cousin, Ann, who had Down syndrome and was proud of her job at Goodwill.
“I’m a believer that when all the facts come out, the air gets cleared and you can ask for redemption,” Ziegenbein said. “If you tell the truth, recognize the mistakes you made and move forward, I believe Omaha will forgive.”