IRS safe harbor rules enables the organization's board to award over a million to its retiring chief, who shut down charity projects while opening more retail stores.
A Winston-Salem Journal columnist (Scott Sexton) vented about the million dollar retirement package given to Billy Whitaker, former head of Goodwill Industries of Northwest North Carolina (EIN 56-0588474 Form 990). Mr. Whitaker retired over a year ago, but the Form 990 reporting the severance deal is just now finding its way to the Internet. (For some reason Guidestar doesn't yet have the 2005 return, but I found it through the Foundation Center's 990 Finder.)
The details are buried on page 28 of the Form 990. Mr. Whittaker's retirement compensation includes:
- One full year's salary (at $240,000 per year according to the news story, although the Form 990 reports it at $291,198),
- Accrued sick and vacation pay of $112,149, and
- An annual payment of $74,062 for the rest of his life (he was 66 at retirement)
A glance at life expectancy tables shows that a 66-year-old male has over 14 years to live, which means that Goodwill NWNC can expect to pay out over a million, over and above the $350,000 it will pay in year one.
Another notable aspect of this plan is that it was negotiated (if you want to call it that) in 2002, even though Mr. Whittaker has been employed as chief executive since 1986. So it was not as if Goodwill needed to put together this package to attract him to the job.
In the column, Linda Wood, chair of the Goodwill NwNC board, defended the salary as being in line with that of other executives of similar sized businesses. She is alluding to IRS rules for determining whether executive salaries are reasonable or represent excessive compensation. Under the IRS safe harbor (or CYA) provisions, a board can establish a presumption of reasonableness by comparing salaries to other comparable nonprofit and for-profit businesses, and Goodwill NwNC is a $30 million a year business.
The trouble with that analysis, of course, is that Goodwill, unlike other retailers, pays nothing for what it sells. It doesn't have to make merchandising decisions, its marketing requirements are minimal. Selling used clothes is an attractive business even on a for-profit basis, so making money at it as a tax exempt charity doesn't take a business genius.
Mr. Whittaker's big contributions was making some shrewd decisions about opening more stores, which he did—while shutting down Goodwill NWNC's charity operations, like a homeless shelter it had run. It's arguably a good thing, but hardly makes Mr. Whittaker a captain of industry. In fact, he might have shown a little more compassion if he had to make do with a 401(k) plan like the rest of the staff.
As we pointed out in other cases*, the rest of the management team at Goodwill make handsome but not spectacular pay. For instance, the next highest paid executive, the head of workforce development, received $120,000 a year. So there's no justification for an executive salary double that, much less a million dollar pension. The only reason these salaries and payouts are so high is that the IRS safe harbor provisions let nonprofit boards get away with awarding them. (*Ad Council Pay Structure Suggests Overindulgent Board, May 9, 2007)
In effect, the safe harbor provisions for compensation turn "everybody else is doing it" into a principle of law.