Editor’s Note: John Hrabe’s examination of Goodwill Industries, published in early May, recently got a second life. On June 21, NBC News’ Anna Schecter echoed Hrabe’s findings: top Goodwill execs pull in six-figure salaries while federal regulations allow them to pay their disabled employees a sub-minimum wage. We’re re-posting Hrabe’s story here, not because we believe the federal government ought to do anything about wage disparities at Goodwill; we believe consumers and donors — supported by reporting like Hrabe’s — will make the right decisions in a free market.
By John Hrabe | Watchdog.org
Marathon runners like Jim Barnette are usually model employees. They’ll slog through whatever task is in front of them. Stocking shelves or greeting customer. Pulling clothes or pushing specials.
A 10-year veteran at Goodwill Industries of the Columbia Willamette, the 49-year-old is described by co-workers as having a “can-do attitude.” What else do you expect from a man who has finished three marathons?
“Our CEO, Michael Miller, describes Jim Barnette as a compelling role model whose determination, strength of character is nothing short of heroic,” said Dale Emanuel, a local Goodwill public relations manager.
In 2012, Barnette finally got his due. The headquarters of all 179 Goodwill organizations worldwide recognized him as “Goodwill Industries International’s 2012 Achiever of the Year.” Shannon Phillips, Barnette’ sister, who was interviewed for the corresponding promotional video, said that her brother has “always known what he wanted in life.”
“He just wanted a job,” she said. “He wanted to make money.”
But, money is the one thing Jim doesn’t get much of.
In 38 states, spanning from Hawaii to Florida, a majority of Goodwill organizations pay workers with disabilities less than the federal minimum wage, while simultaneously spending tens of millions of dollars in executive compensation and travel-related expenses, a Watchdog investigation has found.
According to data obtained from the U.S. Department of Labor’s Wage and Hour Division, 109 of 165 Goodwill entities in North America employ workers through the Special Wage Certificate program, which grants the nonprofits the right to pay subminimum wages to people with disabilities. Goodwill says that 7,300 of its 105,000 employees are subject to the special minimum wage exemption.
A Watchdog.org analysis of the most recent tax returns for these 109 Goodwill entities that use the Special Wage Certificate program reveals a pattern.
Goodwill’s top executives received more than $53.7 million in total compensation.
- Goodwill of Southern California paid more than $1.1 million in total compensation to its then-CEO, making him the highest paid Goodwill executive in the country.
- The highest-paid employees of 101 Goodwill organizations received, on average, a total compensation package worth nearly a quarter-million dollars per year, or $24.7 million in total compensation.
- Seventeen Goodwill entities reported executive compensation in excess of $1 million per year with 30 CEOs receiving more than $293,000 per year in total compensation.
- A husband-wife Goodwill executive team in North Carolina collected a combined $795,372 in total compensation.
- Goodwill entities spent more than $39.1 million in travel-related expenses, of which 14 entities spent more than $1 million in travel-related expenses.
- Thirteen organizations spent more than $100,000 in annual conference expenses.
All of Goodwill’s actions are not only legal, but, in some cases, being funded by your tax dollars.
Special Wage Certificate program: Government-sanctioned exploitation.
How is it legal to pay substandard wages in 21st century America?
A Depression-era loophole in federal law, Section 14 (c) of the Fair Labor Standards Act of 1938, allows employers to obtain a special wage certificate. Goodwill is among the most best-known institutions to use the program that affects 300,000 workers nationwide. The certificate grants employers, mostly nonprofits, the ability to pay people with disabilities less than the federal minimum wage. Instead of the current wage floor set at $7.25 per hour, workers with disabilities are paid a commensurate wage based on their performance.
“Goodwill Industries is one of the most well-known charitable organizations in the United States, but most members of the general public are unaware that Goodwill exploits people with disabilities,” said Marc Maurer, president of the National Federation of the Blind, which organized a nationwide protest of offending Goodwill organizations last summer. “We are conducting informational protests to make the public aware of this practice that, although sadly still legal, is unfair, discriminatory and immoral.”
Goodwill Industries openly defends the subminimum wage policy on its website and in response to media requests. Last year, Brad Turner-Little, director of mission strategy at the international headquarters, defended the practice as one of Goodwill’s “tools” to help the disabled.
“With 80 percent of working age adults with disabilities in our country not participating in the workforce currently, we believe that it’s important to explore more types of opportunities,” he said. “The special minimum wage certificate is a tool to create employment for people with disabilities. It’s not the only tool.”
Goodwill: A billion-dollar business
Founded in 1902 by a Methodist minister, Goodwill Industries promises as its charitable mission “to enhance the dignity and quality of life of individuals and families by strengthening communities, eliminating barriers to opportunity, and helping people in need reach their full potential through learning and the power of work.”
Don’t be confused by its charitable mission or nonprofit status. Goodwill Industries is a multi-billion dollar business. In 2012, the nonprofit generated $4.89 billion in total annual revenue. The bulk of the company’s revenue, $3.53 billion, came from sales at its 2,700 secondhand shops. The nonprofit, which has become synonymous with used-clothing donations, also received $87 million in government grants.
Each Goodwill entity is independently operated. The organizations file separate tax returns and are controlled by an independent board of directors, usually local business and community leaders. That explains why the Watchdog investigation found substantial variation in wages and financial policies throughout the country. To be clear, not every Goodwill organization pays its disabled workers less than the federal minimum wage, or its CEOs top-dollar.
Husband-wife Goodwill team earns $800K
In Durham, N.C., you’ll find a husband and wife executive team earning nearly $800,000 in total compensation, while also utilizing the subminimum wage certificate program.
Goodwill Industries of Eastern North Carolina Inc. President and CEO Dennis McLain received $430,239 in total compensation, while his wife, Linda, received another $365,133 in pay and benefits. The group’s 2011 tax return notes that the couple was also entitled to first-class travel and access to a private club, paid for, in part, with revenue generated from the efforts of disabled workers who were paid less than minimum wage under the special wage certificate program.
“A 2012 audit report shows Goodwill also approved a tax-free retirement housing allowance for the president, $2,500 a month from his retirement until his death, and a retirement medical plan paying up to $9,000 a year,” reported the News Observer’s Josh Shaffer in February.
The News Observer also raised questions about more than a million dollars in charitable funds that the group allegedly spent in sub-Saharan Africa.
“Its 990 federal tax form for 2011 shows $1.36 million spent on ‘donations and related costs’ to nonprofits outside of North America.” the News Observer first reported. “But its disclosures to the IRS provide no details about who received this funding. The names of organizations Goodwill sent checks and wire transfers are left blank on the tax documents, labeled only as sub-Saharan Africa, East Asia or South America.”
The North Carolina couple, however, isn’t the highest-paid Goodwill executive team in the country.
Goodwill’s million-dollar man in Los Angeles
In 2011, the highest-paid Goodwill executive in the country was Douglas Barr, then-CEO of Goodwill of Southern California. Barr, who retired in July 2012, received a total compensation package worth $1,188,733, including a base salary of $350,200, bonuses worth $87,550, retirement benefits of $71,050, and $637,864 in other reportable compensation.
“Doug is a leader among Goodwill chief executive officers and inspires others with his commitment to the Goodwill mission,” said Jim Gibbons, president and CEO of Goodwill Industries International in a press release that announced Barr as the recipient of the 2011 Kenneth K. King Award for Management Excellence, the highest honor for a Goodwill executive.
The same year, the organization spent $3.76 million in total compensation for top personnel, $2.5 million in travel-related expenses and $424,997 on conferences, conventions and meetings. To help pay for expenses, the group received $7.47 million in government grants and contributions, according to its most recent tax return filed in October 2012. That was an improvement for taxpayers, who shelled out more than $9 million in government funds to Los Angeles-area Goodwill in 2010.
Around the country, it’s the same story: Goodwill entities accepting government funds and a tax-exempt charitable status while paying subminimum wage to people with disabilities. In 2011, the Goodwill of Southwestern Pennsylvania accepted more than $11.3 million in government grants, which helped offset $929,066 in executive compensation. The same year, Goodwill of Western and Northern Connecticut Inc. accepted $8.1 million in government grants, while paying $1.08 million to executives, including $424,751 to its president and CEO, David H. Turner. The group spent another $732,047 in travel-related expenses.
Goodwill spends fund to lobby for more government funds
In some cases, government funds helped fund lobbying efforts to obtain more government funds. In St. Louis, MERS/Missouri Goodwill accepted $11.99 million in government funds and reinvested $37,800 in lobbying and political expenditures “for the purpose of identifying opportunities in regards to mission needs and funding,” according to Schedule C, Part II of the group’s tax return.
The organization needed additional funding in 2011 to make up for the more than $1 million, which was embezzled by an assistant vice president for human resources.
“From 2007 through June 2010, Ronald Partee, 45, of St. Louis, used fake bills, invoices, and letters to trick MERS/Missouri Goodwill Industries Inc. employees into send checks to his fake businesses,” the St. Louis Post-Dispatch reported in May 2011. Ultimately, Partee received 70 months in prison for his million-dollar embezzlement.
In 2011, executives legally withdrew $1.42 million from the organization in executive compensation. Lewis Chartock, the president and CEO of MERS Goodwill, was paid $516,645 in total compensation, which included the group covering his spouse’s travel-expenses for organization functions.
Executive perks: Sales performance
Spousal travel is just one of a wide array of Goodwill executive perks that might seem ill-fitting with a public charity. Goodwill Industries of Greater New York & Northern New Jersey Inc., which received $33.4 million in government grants, offered a senior vice-president a complicated incentive pay package structured on sales numbers and linked to the Consumer Price Index. According to Schedule J, Part III of the group’s 2011 tax return,
“For each month David Schoch, senior vice president of the organization, remains employed under the employment contract, Goodwill will pay him a commission equal to one quarter of one percent (25% of the total dollar amount invoiced by Goodwill’s GoodTemps Division for that month, which amount Goodwill will pay to him by the second pay period following the month during which the amounts were invoiced commission paid to him during any fiscal year will be limited to a dollar amount (hereinafter “CAP”) determined at the start of each new fiscal year. The CAP equaled $49,455 for the fiscal year beginning on July 1, 2007 and will increase each subsequent fiscal year by a percentage equal to the Consumer Price Index (CPI) as published thirty (30) days prior to the first day of that fiscal year.”
Schoch isn’t even the highest paid executive of the Greater New York Goodwill. That honor is bestowed upon William Forrester, president and CEO, who took home $566,138 in total compensation of which $399,289 was base pay.
These performance bonuses are replicated throughout the country and can sometimes result in lower ranking executives earning more than their supervisors. In Denver, local Goodwill President and CEO Jesse Wolff’s $251,321 in total compensation was surpassed by Ric Berninzoni, the group’s then-vice-president of retail operations who earned $295,605 in total compensation.
According to the group’s 2011 tax return, “Part of the pay structure for certain retail operations personnel and for the Executive Team (President/CEO and Vice Presidents) includes bonuses based on net revenue results. The President/CEO did not receive a bonus in 2011.” Berninzoni’s compensation for that year also included a $150,000 severance payment.
In some cases, the good times roll on for executives even after they leave the organization. Goodwill Industries of Houston, according to its 2011 tax return, sponsored “a deferred compensation plan for Steven P. Lufburrow that provides for monthly benefit of $6,000 payable upon the defined retirement age.” The Houston president and CEO received a total compensation package worth $411,081 and was based on “an annual incentive performance bonus determined by the compensation committee.”
Goodwill International defends executive pay
Tommy A. Moore Jr., Goodwill Industries International’s board chairman, defends the organization’s executive compensation policies.
When asked to address the more than half-million dollar compensation paid to Goodwill Industries International’s President and CEO Jim Gibbons, Moore said, “The board goes through a rigorous process to determine his compensation based on the impact of his leadership, strategic goals and performance.”
The CEO’s annual review, however, is less rigorous than the corporation’s review of subminimum wage employees, who are evaluated every six months, or sometimes even more frequently. Turner-Little, the spokesman for Goodwill Industries International Inc., described the “lengthy” and “extensive” process.
“Every six months, an individual who is paid under a special wage certificate, their productivity has to be assessed at least every six months. Oftentimes employers will do it more frequently than that, Turner-Little said. “And all that has to be documented and made available to the Department (of Labor) if they need to see it.”
The employee evaluations are just one component of a lengthy administrative process required by the Department of Labor in order for an organization to maintain its minimum wage exemption.
According to the Goodwill national spokesman: “In order to receive a Special Minimum Wage Certificate from the Department of Labor, a business has to go through an application process, which is fairly extensive, identifying the types of jobs that the special minimum wage certificate will be applied to, provide evidence of having surveyed local companies to determine what the prevailing wage rate is for the (specified) jobs that are being performed so that accurate computation of the commensurate wage rate can be determined.”
After Goodwill has surveyed at least three companies for comparable wage information data, the organization must evaluate individual employees.
“They have to outline their individual productivity assessment process for the jobs that are going to be paid under the special minimum wage certificate and that has to be done both for service-type jobs as well as piece rate work – so hand assembly type work, making a product as well as providing a service,” Turner-Little said. “Then, (they) have to outline what their time-study process is going to be, all of that is contained in the application process.”
Work center certificates, the type Goodwill says it uses, can remain in effect for two years. Then, the process starts again, but not without adding all the previous data to the new Department of Labor application.
“If they have had the certificate in the past, the use of that certificate, the number of employees, the types of jobs that were performed, and provide evidence to the department that they have implemented the certificate in compliance with expected regulations,” Turner-Little said.
Which begs the question, why is Goodwill spending so much time and money on bureaucracy? Remember, Goodwill says the subminimum wage policy helps them save money and hire more workers.
The law is based on two assumptions:
- People with disabilities are not as productive as able-bodied individuals.
- A commensurate wage tied to the disabled workers productivity increases employment opportunities for the disabled.
The National Federation of the Blind, which has fought for years to change the policy, says workers with disabilities can be just as productive and valuable as other workers without disabilities.
Of course, people with disabilities aren’t inherently less productive employees. Samuel R. Bagenstos, a professor of law at the University of Michigan Law School and a former deputy attorney general for civil rights, has written “The Case Against the Section 14(c) Subminimum Wage Program.” He cites examples of how workshop employers automatically assigned jobs “without any connection to the abilities and background of the individuals.” One college-educated woman with cerebral palsy was paid $3 per week to assemble rubber mats, according to a former federal rehabilitation commissioner cited by Bagenstos.
Double speak at Columbia Willamette Goodwill?
Barnette, the marathoner who has mild quadriplegia, a seizure disorder, cognitive delays and is legally blind, doesn’t let his disabilities affect his job. The nonprofit openly admits that fact. According to an April advertisement posted on YouTube, “He never lets his disability get in the way of being able to do something.”
“My disability doesn’t really affect me to do a good job,” Barnette says in his own words. “It doesn’t really affect me at all.”
Barnette’s supervisors, co-workers and even the top Goodwill executive in the country agree.
“He never lets his disability get in the way of being able to do something,” said Cheri Folk, director of workforce development at Goodwill Columbia Willamette.
“My first impression of Jim was that he could do all of the jobs that I offered to him,” said Edith Rojas, one of Barnette’s co-worker and an integration specialist at Goodwill. “One of his strengths is that he’s really smart. He always goes beyond my expectations, and he tries to reach his goals.”
“You can’t help but be impressed when you meet Jim Barnette,” Goodwill Industries International’s Gibbons said, according to a May 2012 press release. “Challenges to employment don’t exist in Jim’s world. He demonstrates that meaningful work is something everyone deserves.”
Yet, according to Goodwill Industries International’s website, “Jim Barnette, Goodwill Industries International’s 2012 Achiever of the Year, receives a commensurate wage through the Special Minimum Wage Certificate.”
When asked about the contradiction, Goodwill Industries of the Columbia Willamette defended its wage policies.
“The people Goodwill Industries of the Columbia Willamette serves under the certificate are not regular employees of Goodwill,” the organization said in a statement released by its general counsel Bob Barsocchini. “They are not held to any specific productivity standard but they are fully compensated according to their individual ability to produce.”
In 2011, the Columbia Willamette Goodwill, one of the largest in the country, says it paid $922,444 in commensurate wages to approximately 250 people with developmental disabilities. These employees worked 159,584 hours for an average hourly wage of $5.78. The lowest paid worker received just $1.40 per hour.
“Keep in mind, every person working under the special minimum wage certificate either directly, or through their guardians, chooses to do so,” the organization said. “If 14c is repealed, hundreds of thousands of those individuals will probably lose access to paid work experience.”
The organization’s tax returns contradict Goodwill of the Columbia Willamette’s claims that it can’t afford to pay minimum wage to all its workers.
According to its most recent tax return filed last August, Goodwill Industries of the Columbia Willamette generated a $14 million profit on $118.6 million in annual revenue. The corporation, which has $170 million in net assets, paid its top brass $1.55 million in total compensation. Just Michael Miller, the president and CEO, collected $742,875 in total compensation.
Asked about its executive compensation, the nonprofit said that it had hired “Frederic W. Cook & Company, a nationally-recognized compensation consulting firm, to ensure that compensation for the executive team is reasonable.”
However, the Oregon Department of Justice reached the opposite conclusion after a 2004 investigation into the organization’s finances.
“After the 18-month investigation, the Department of Justice concluded that Miller’s pay was ‘unreasonable,’” Matthew Kish, a staff reporter with the Portland Business Journal, wrote in 2011.
“Without question, Goodwill of the Columbia Willamette is a financial juggernaut,” Kish reported.
The 2004 investigation by The Oregonian newspaper detailed Miller’s executive compensation and the subminimum wages paid to disabled workers. You might recognize the name of one employee trotted out by Goodwill to defend its policies. “It’s a challenge that Jim Barnette fully embraces — that is, when he’s not puzzling over how to hang up a skort, a skirt-shorts hybrid,” reported The Oregonian’s award-winning reporter Jeff Kosseff.
Barnette’s sister, according to The Oregonian, would “go over his performance numbers” every night at dinner because it was “one of Jim’s big prides.” Kosseff wrote that the nonprofit defended the policy, which “precisely compensates them for their work while adding motivation for them to exceed minimum wage.”
In 2012, U.S. Rep. Cliff Stearns, R-Florida, introduced H.R. 3086, the Fair Wages Act, to stop the practice, which he called “deplorable and wrong.” U.S. Rep. Gregg Harper, R-Miss, has reintroduced the measure, HR 831, this session.
“Meaningful work deserves fair pay,” Harper said. “This dated provision unjustly prohibits workers with disabilities from reaching their full potential. The current federal disability laws are hopelessly outdated and will ultimately lead to unemployment and poverty for these individuals.”