The Goodwill Board of Trustees issued the following statement to the Omaha World-Herald:
“The board takes the comments of the community seriously, and we are in the process of evaluating those as well as the issues outlined over the course of the three days of articles written by the Omaha World-Herald. We serve voluntarily because we believe in the mission of Goodwill, and we will respond in more depth after we’ve had a chance to go through our due diligence.”
Below is a letter from our President and CEO, Frank McGree
As you can imagine, I’ve received several inquiries over the past few days following the Omaha World-Herald’s stories on our organization from all parts of our community through email, social media and over the phone. First and foremost, I care about the wellbeing of my employees, the thousands of people we serve every day, our stakeholders and community – I take allegations such as these extremely seriously for these people.
When I arrived at Goodwill Omaha almost 30 years ago, the organization was in a rough place. Since then we’ve worked hard to become one of the top performing nonprofits in the nation – building an organization you can be proud of. Part of that is a commitment to our mission and another is our commitment to running a world-class organization.
I was contacted by the Omaha World-Herald last Monday after work, with a list of questions and a two-week deadline for answering them. Upon following up Thursday to let them know we were working on the answers and nearly complete, we were told the stories were actually running Sunday. Unfortunately the Omaha World-Herald decided to run the stories without our answers to their questions.
As many organizations and corporations can relate, there can be a certain hierarchy with getting statements out, especially given the accusatory nature of the questions issued to us. In the end we were given less than a week to reply – which was impossible to pass through the proper channels in our organization. Direct communication is imperative and important to us; we make it a priority to set the record straight and as always – to be clear with our donors, employees and the community at large.
The following is the list of questions issued by the Omaha World-Herald in an email to us on Monday, October 17, verbatim, as well as my responses.
1. Frank McGree and several other top executives show substantial performance bonuses most years. What criteria are those bonuses based on? Are they at all based on store revenue growth and growth in store profit margins?
Good question. Yes and yes – for our retail organization. However, everyone at Goodwill has goals directly tied to key performance indicators as they relate to helping us achieve our mission which vary based on their role and responsibility. The organization is complex with various lines of service that differ vastly from one to another. Each incentive plan is structured in accordance with performance goals necessary for us to achieve our organizational goals. Growth is an extremely large part of our organizational strategy and expectations are high across the board as growth enables us to have more impact with our mission and that’s the only reason we exist – to serve and grow the impact we have in the community. We don’t take the responsibility lightly, and we design compensation strategies accordingly. I would hope we’re not the outliers in this regard as these practices are those of any successful organization.
2. You gave us information on the retention bonus that Frank received in 2014. Your latest report showed you still had $1.15 million in additional deferred compensation liability. Who was that owed to? And what are the terms under which it will be paid out to those people?
As is the case with my role, the organization has several other key executive roles to which we contribute to a retirement fund annually. “Deferred compensation liability” is an accounting term so it’s easier to think about it like a 401(k) plan. The organization invests into it in small increments every year as part of the compensation package and then it accrues interest so the longer you stay, the bigger it gets. Mine has been funding since 1993 and a lot of the money in there is appreciation, not Goodwill money – you could use approximately 59% Goodwill contributions and 41% appreciation as the ratio for your article. Our practice on payout is to defer payment as long as possible to allow the employee’s investment to grow. However we are legally obligated to make the payout eventually – which is what happened with mine in 2014. Again, just like a 401(k), I got a payout, and I paid taxes on it at that time like anyone else and there was no negative impact to the organization – the payment never hit the operating statement. So that’s how that works. I would also add that strategically, institutional knowledge and demonstrated capability are two very important characteristics of successful leadership in any organization, and we’re no different. We’re fortunate to have a leadership team with a combined average of 19 years of experience at Goodwill, which makes us unique and, in my opinion, very lucky. Our ability to retain top leaders has been a major part of our success.
3. You say you base executive pay on consultant surveys. Who are considered your peers in that analysis? Are for-profit organizations in the peer group? Can you provide us with your latest peer list?
It’s complicated because there are no other local organizations comparable to our organization, and there are no Goodwill’s nationally comparable either. First of all, we are a $30 million organization with close to 600 employees across various service lines so the way we are “made up” is unique and complex. Second, because of the makeup, we are structured differently in many ways unique to the way we service out the Goodwill Mission. Most Goodwill’s have retail of course, but even within that, there are various levels of sophistication that require different approaches and things. So, you won’t get an apples-to-apples comparison. While we do compare ourselves in areas of overlap with other Goodwill International organizations, Goodwill Omaha uses other services for data including Mercer, Hay, Goodwill Industries International, and recently the organization has engaged the SilverStone Group as well. The actual list is comprised of other complex organizations facing similar opportunities and challenges and varies from year to year.
4. We have found your executive pay is well above that of other social service charities in Omaha. Are such organizations considered in your peer pay comparisons?
It’s the board’s responsibility to set my compensation, and they use a variety of sources to inform their decision.
5. In your 2014 990 you reported having 13 employees paid $100,000 or more. Our analysis of Goodwill affiliates with budgets of $20 million or more shows that for your size you have more employees paid $100,000 or above than any other Goodwill. Iowa City’s Goodwill is slightly larger than Goodwill Omaha and has two. Kansas City, slightly smaller, has one. Your rate of such employees is three times the average for large Goodwills. Please explain why.
Well first off, what a couple of amazing organizations. Both are unique and doing great things for their community. As I said above, we’ve been lucky enough to retain a consistent team of some of the most experienced leadership of any nonprofit in the country and the combined years of experience at our executive level is astonishing for an organization like ours – that has had the kind of success we’ve had. I guess I don’t worry about how many people I have compared to other organizations because I believe these types of cursory comparisons are dangerously uninformed and can lead to poor management decisions. Our organization fosters performance, results and impact, and we build all facets of the organization around that including compensation. For your article, nine people have salaries over $100,000 and five more have a total compensation that reached $100,000 including their bonuses for achieving their key performance indicators – just so your numbers are accurate. I believe my staff is fairly compensated for their capability and demonstrated impact. I am always thinking about that.
6. From looking at your 990, and from comments you previously made about 80 percent of retail revenues going into operation of the stores, it appears thrift store profits amount to $4 million annually ($20.4 million in sales and $16.2 million in retail expenses). Is that accurate?
No. In 2015, our audited retail sales were $19.9 million. We had expenses of $16.1 million, for a net gain of $3.7 million. However, as in all organizations, net proceeds must be applied toward the administrative costs of running the organization, otherwise known as “General and Administrative,” which at our Goodwill were $3.5 million in 2015. Our administrative costs of running Goodwill are less than 14 percent of our expenses, which you’ll probably find out in your research is well below the threshold recommended by major charitable watchdog groups.
7. Your 990 indicates your overhead costs, including management, fundraising and general expenses, totals $4 million. Isn’t that essentially where your retail revenues over expenses are largely going? Wouldn’t you be able to put more than the $577,000 of store proceeds into jobs programs (as you previously reported to us) if these costs were brought down?
Yes. And we are always looking at ways to run the organization as efficiently as we can to achieve the kind of results we’re targeting while serving our mission. Running an organization with the size and complexity of Goodwill Omaha is a daily challenge.
8. There are a number of employees in leadership positions at Goodwill that are related to others in high positions. To name some, there are Frank and Shannon McGree. Vice president Cheryl Hilgenkamp has a sister working directly under her. Board member Carol Russell’s daughter-in-law is a vice president. Should the public be concerned about this?
No. I think our mission is contagious and our focused pursuit of success is infectious. I’m really proud that we foster brand advocates out of our employees that are constantly making referrals of friends and family that already bleed Goodwill blue. Of course we have a policy in place to guide decision-making but in regards to the aforementioned roles, our primary objective was hiring top-notch talent. Those individuals were hired on demonstrated ability, proven experience and passion for our mission and they prove their value daily.
9. Federal records suggest that you recently have employed 110 workers at less than minimum wage. Is that correct? Many Goodwill affiliates have recently stopped paying subminimum wage, giving all disabled workers at least minimum wage. Are you considering dropping the program? Why or why not?
That’s an important local and national conversation, and we’re not the only organization that is impacted by this. We’re committed to all our employees, and we’re trying to work through the complexities involved. We currently have 32 workers at less than minimum wage, and while it’s not a significant financial issue for the organization, the individuals can be negatively affected in other benefit areas. It’s about doing the best thing for the individual, and we’re working on it.
10. When did you first make an agreement with Prestige Products Inc. to repackage hair rollers?
We started our relationship with them in 2009.
11. Do you still repackage hair rollers for Prestige?
12. How much is Goodwill Omaha paid by Prestige? How much money has it made from the company for the duration of the contract?
We don’t get paid anything today as we are no longer one of their vendors, but revenue generated was about $68,000 over the lifespan of the contract – which was 8 years in total. It amounted to about $8,500 a year.
13. Five ex-employees with direct knowledge of the repackaging have told us the following story: Chinese rollers are being repackaged into Nylrem plastic bags that are stamped, “Made in America.” Please explain this practice.
Yes, this is an issue I was really upset about. What happened was that the rollers were originally made in Glenwood, Iowa, and then the company decided to manufacture them in China unbeknownst to us. We had some employees that figured this out and unfortunately for us it took a while to get to the executive level where we immediately took action. So the short story is that we knew about this for a while before it was brought to my attention at which time I told them we’re no longer servicing the contract until the packaging was fixed. They fixed it. We started working again. This happened again recently, and so we said we’re done. While there were no red flags through any of our internal processes, we’re working on improving the process to try and make sure things like this don’t happen.
14. The ex-employees provided us with details illustrating that Goodwill Omaha leaders – first Todd Milbrandt, and then most of the leadership team – have been aware of this China-to-Made In America switch. Why did the practice continue for years after employees began to raise questions about the legality and ethics of the practice? Related: We would like to request an interview with Milbrandt, who is repeatedly named by ex-employees as an executive who knew for years that the China-to-US switch was happening as a part of this contract with Prestige.
I talked to Todd several times, and we have no indication that anyone at the executive level knew. Again, I am disappointed that it took so long for the discrepancy to get in front of us and that our teams didn’t feel empowered to take action themselves. This is another thing as a CEO I am working on constantly – trying to improve the organization.
15. At any point, did Goodwill Omaha research the FTC rules regarding the Made In America labeling?
16. Is it correct for a non-profit to use teenagers with disabilities, low-income Omahans and recently released prisoners to perform this work? Is it correct for a non-profit to use taxpayer dollars (in the form of local, state and federal $ that helps pay these workers) to perform this work?
Absolutely. We believe anyone who wants to work should be able to regardless of their challenges. It’s a basic human right. That’s our mission.
17. Did you ever request that Prestige Products remove the misleading labeling from its packaging? If so, what justification did they give Goodwill Omaha for not doing so? If not, why not?
Yes, as I stated above.
18. What can you tell us about the decision to cancel Goodwill Christmas parties (at least the off-site, expenses-paid parties) in 2013 but then go ahead with a company-paid Christmas party for Goodwill executives?
We had a down year in 2012 and as a result we had a salary freeze in 2013 that carried into 2014 for our Leadership Group. Fortunately we were able to continue pay increases and eligible employees received bonuses (at about a 40% decrease) for hitting their targets. Both years (2012 and 2013) we decided that we would not pay for departmental holiday parties with Goodwill money. In January of 2014, I had the Leadership Group to my house to say thank you for bearing with us through everything.
19. Several ex-employees who worked with the work experience program and its teenagers argued to us that Goodwill repeatedly refused to hire these teenagers once they completed the program. Do you have numbers on how many work experience students have been hired by Goodwill recently?
Work Experience is a program that gives special education students an opportunity to gain exposure to a work situation in a supportive environment. The program is designed as a training program, not a job placement program. By participating in Work Experience, students can take the first step in making the transition from an educational setting to the professional working world. Upon completion of program, students are provided with a recommendation and community resources to assist them in obtaining the type of job that best suits them.
20. A common source of frustration among people who have left Goodwill was the culture…simply put, that they joined Goodwill because it was a non-profit who helped people, but then found a culture that was profit-driven. How would you characterize the culture of Goodwill Omaha?
We have a results-driven culture because results allow us to serve the mission. Our organization is not right for everyone.
21. Frank McGree mentioned before the county board that Goodwill provides vouchers to help the needy buy clothing. How do you distribute these vouchers? What was the value of such vouchers redeemed in 2015?
We distributed 725 vouchers to numerous churches and other nonprofits in the Omaha metro area last year. It is up to those nonprofits to distribute the vouchers to the families who need them most. In 2015, the value redeemed was over a thousand dollars.
22. In 2013, the 990 shows that Frank and three other executives received a total of $130,000 in deferred retirement income. That same document shows the total amount of retirement pay to all other Goodwill employees was $120,000. Why is retirement pay between management and rank and file workers so disparate?
The numbers are not accurate. To calculate the figures you’re looking for – total retirement contributions executive vs. other Goodwill employees – you’d need to look at the annual agency financial audit. The audit is comprised of both 990’s – the one you’re looking at and the GSSI 990 which is the corporation within Goodwill that houses our federal contracts. According to the audit, the total contributions made to other employees in 2013 was actually $462,224 vs. executives at $130,402. As far as disparity, different roles in the organization have different compensation packages, with different types of plans (401(a) and 403(b)) and this is part of that.
23. Was an employee salary freeze in effect in 2013? Is this also when the company’s 401K match was reduced?
In the nonprofit world, we have 403(b) which is similar to a 401(k). But you’re correct. As I stated above that was the case. We had a 5% match in 2012 and had to reduce to 3%. Fortunately we were able to bring that back up again 4% in 2015.
— END QUESTIONS —
Goodwill’s mission is simple. To provide the ability for people to work if they want to – regardless of their challenges. Sometimes we can affect this directly by providing a job, and other times we can only train and prepare people to work. However, while the mission is simple, the business of serving out the mission at such a high level is complex. Very complex. It takes close to 600 people to try and accomplish this mission every day – many with significant barriers – spanning various ventures, departments and teams. We hire the best people we can at all levels of the organization, and we spend the necessary resources to provide our organization the tools we need to succeed. There is no doubt that our commitment to running the organization with all the diligence and rigor of any high-performance, $30 million company with the same makeup and complexity of our Goodwill, regardless of profit status, has been and will continue to be the foundation of our success.
We’ve obviously heard your concerns, and we’ve added them to the list of challenges and opportunities we’re consistently looking at to determine their impact on the growth of our organization and our commitment to fulfilling our mission. Nothing about that process is different today than it was last week. We are extremely lucky to have a seasoned, experienced and highly engaged board to complement one of the top executive nonprofit teams in the country as well as hundreds and hundreds of the hardest working people in Omaha. I am extremely proud of our organization, and I can’t say that enough. We’re also thankful for all the community partners we utilize to help ensure the integrity of our organization and our activities through various audits, research studies and assessments and those that support our mission and help us achieve success.
Thank you for your time.
President and CEO