Goodwill Industries Omaha: The Ugly Wage Ratios that Define this Nonprofit Business

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Goodwill Truck on the freeway / swong95765

October 23, 2016; World-Herald (Omaha, NE)

Henry Cordes has written a series of articles for the World-Herald exposing a set of unsavory management practices at the Omaha Goodwill that are an affront to taxpayers and donors. Though the articles largely focus on executive pay as compared to other local mega-groups and Goodwill organizations of a similar size, the larger picture exposes a number of unethical practices that should be of major concern to government funders and supporters.

First and foremost among the issues Cordes identified is the fact that while this organization’s executive compensation was definitely on the high side, soaring one year to nearly $1 million for the CEO alone, it was paying many of its disabled workers a sub-minimum wage under the now-controversial Section 14(c) of the Fair Labor Standards Act. Organizations must apply for a special certificate that allows them to pay a wage below the minimum, and in 2013, when NBC News did an investigation, they found many as 69 Goodwill franchises across the country had such certificates, sometimes paying less than a dollar an hour. NBC had to file FOIA requests to find out just how much those workers were earning, and it uncovered that at 14 locations, workers were making 23¢ or less hourly. Cordes goes on to note that this law has come under increasing disfavor among advocates for people with disabilities and that many Goodwill branches that formerly used the certificate have divested themselves of it.

Additionally…

  • Part of the work Goodwill Omaha had workers with disabilities doing was repackaging Chinese-made rollers in packages marked “Made in America” for sale as American-made goods.
  • The organization includes a number of highly placed staff members who are related to the CEO or board members or their own supervisors.
  • Of the $4 million in profits made from the $30 million operation, only $566,000 was spent on job-related program costs. The rest of these costs were covered by grants.

Cordes writes:

While Goodwill Omaha runs job training and assistance programs that serve thousands annually, nearly all of those activities have been funded by government grants and contracts—not the $4 million in annual profits generated by Goodwill’s thrift stores in eastern Nebraska and western Iowa. Even its signature program that employs disabled job trainees within its stores is primarily funded by school districts. Goodwill officials identified only $557,000 in jobs program spending in 2015 that was funded by retail sales. Most store profits are being consumed by administrative overhead, which includes much of the pay to its top leaders.

“At Goodwill, we often refer to ourselves as a caring community enterprise,” the nonprofit’s CEO, Frank McGree, said in a prepared statement. “We exist to serve the training and employment needs of our disadvantaged citizens, and we do that primarily through an effective and profitable business model utilizing a network of 17 successful area retail stores.”

Part of Frank McGree’s $933,444 in compensation in 2014 came from a retention bonus of over $500,000. On top of that, he received a $95,000 incentive payment and $52,000 in deferred retirement pay. There were, to Cordes’s count, 13 people who made six figures at the agency that year, and apparently, as we said, more than 100 who made subminimum wage.

Unlike many other reporters in mainstream press, Cordes has done an excellent job at putting the executive compensation in context. In the end, the picture shows an organization that purports to function in the best interests of people with disabilities but pays those folk poorly and its executives on the high side while supplementing the low salaries—and the entire operation—with tax dollars and donations from the public. Just how nonprofit is it?—Ruth McCambridge

  • Wowzer. Add this deplorable treatment of special-needs employees to their “effective and profitable business model” (McGree’s own words) that every business can be envious of: no inventory production costs of any kind, since all the items they sell are donated from individuals living in their stores’ communities. 500K retention bonus? Makes me wonder who is on his local board, or what senior executive approved this item?? Kudos to Henry Cordes for opening the door on this not-so-goodwill issue through his reporting prowess. Makes me certain to rethink my next donation to this $5 billion nonprofit organization.

    • AudreyA

      Please see my post-this particular Goodwill does not reflect the practices of every Goodwill.

  • Pingback: Goodwill Omaha’s “Bad Business” Model May Affect Property Tax Exemptions of Other Local Nonprofits - Non Profit News For Nonprofit Organizations | Nonprofit Quarterly()

  • AudreyA

    Each Goodwill is independent from the parent organization. This particular Goodwill may have problems but it does not reflect every Goodwill nonprofit and its practices are not “typical.” People do not understand how important the 14(c) sub-minimum wage is to the disabled community. Some people with physical impairments (esp. the blind) are furiously working to end 14(c) without regard for what that will do to people with intellectual disabilities. I cannot understand how people with physical disabilities have so little concern for others. Close the Goodwills, fire the CEOs, end 14(c) and you will have created not a single job for anyone; you will instead have slammed the door shut on people who cannot compete in the regular workforce for a job, no matter what accommodations are offered. If Goodwill is required to pay everyone the regular minimum wage, the result will be that many thousands of people with disabilities who love their work will be fired and replaced with more productive workers. Why is this better?

    • Erin

      There is absolutely no reason any worker should be paid a mere 23 cents an hour in 2016. A multimillion dollar industry can surely afford to pay ALL its employees minimum wage, especially a business which sells donated goods. I don’t believe everything I read, but if the majority of this article is true, it is not only disturbing, but heartbreaking, and disgusting at the same time. Shame on “Good”will!

  • Dalia Broderick

    Whenever you hear about a retention bonus, it’s a problem. Why should they need to pay such a bonus for an executive to stay? What is the real problem there?

  • James Abruzzo

    Allow me to opine as a nonprofit compensation consultant serving boards and CEOs for more than twenty years. First, it is the board’s responsibility to determine fair and reasonable compensation. And the IRS is very clear about how to determine that – ensure that the there are no conflicts of interest between those deciding and those receiving the pay; conduct a comparability survey; demonstrate that the compensation is fair and reasonable and is congruent with your organization’s compensation philosophy (also developed by the board); document the process. By following these steps, the board creates a “safe harbor” against Intermediate Sanctions (and fines) that may be imposed by the IRS. I am frequently called by reporters asking me “is executive x is being paid too much” or, “is it fair that executive y is receiving such and such.” ‘Fair’ and ‘too much’ are relative terms. Reporters, by an large (and board members for that matter) don’t know how to interpret form 990 and therefore may just not understand how much the executive is actually being paid. Also, in my experience, these best practices in executive compensation elude more that half the boards in US. Back to the “bad media situation;” the answer is for all boards to prevent such an occurrence by following best practices and then be willing immediately, to provide the information to a reporter who asks. Also, referencing executive compensation information (such as deferred compensation) in the audited financials combats the charge that the nonprofit is trying to hide something. Contrary to what many nonprofit boards and executives believe, we need the press to pry into the business of nonprofits – when done intelligently, their investigations provide a healthy check on our institutions, that we all “own” and whose running we entrust to a volunteer board. The IRS does not have the resources to perform this function, the press is our only hope and we should be grateful for their persistence. And board members must take their responsibility seriously to follow the best practice guidelines. James Abruzzo, http://www.jamesabruzzo.net

  • Seth Perlman

    I am deeply disturbed, but not surprised, that NPQ would report this story without giving the full context and fall once again, as it has done so often in the past, for the myth that overhead costs somehow define the effectiveness and impact of an organization. This is a story that is exactly the sort of damning and poorly researched journalism we have come to expect from the general media, not a magazine that purports to hold itself out as a credible trade paper. If our own industry’s news sources remain hopelessly bogged down by this persistent belief that retaining competent executives is not important to solving social causes then the philanthropy sector has a herculean task to get the public to understand that these misguided preconceptions are wrong-headed.