One of the key tasks of a church board is to determine its senior staff member’s compensation. The compen­sation must comply with prohibitions against reasonable compensation and guidelines for reporting of taxable elements.

ECFA members should also be careful to observe the compensation-setting requirements of ECFA Standard 6.

The following sample policy incorporates both a compensation philosophy statement (which may vary considerably depending on the church’s doctrine, mission, constituency, and culture) and best practices for tax compliance.
 

Executive Compensation Sample Policy for Churches

I. Purpose of the Compensation Process:

1. To assure that the church is able to retain high quality executive leadership by providing reasonable compensation.

2. To assure that decisions regarding executive compensation are made through a process free of potential conflicts of interest.

II. Persons Whose Compensation Is Subject to this Policy

1. The Senior Pastor’s compensation shall be reviewed under this policy at the time of hire and annually thereafter.

III. Role of the Compensation Committee

1. The Compensation Committee of the board is authorized to make recommendations to the full Board regarding executive compensation.

2. Only those members of the Compensation Committee who are free of conflicts of interest may be involved in evaluation of executive compensation.

3. The Compensation Committee should rely upon appropriate data as to comparability prior to making its recommendation, and shall contemporaneously place such data and other reasons, including a review of the Senior Pastor’s competencies, development, and commitment to the organization, for its recommendation in the minutes. Comparability data should include Senior Pastor salary averages for comparable nonprofit organizations of like size and scope.

IV. Board Approval

1. Only those board members who are free of conflicts of interest may vote on executive compensation.

2. The Board shall annually review and approve executive compensation, after a review of comparability data or other evidence that compensation is reasonable and shall contemporaneously substantiate its deliberation and decision in the minutes.

3. Additionally, the Board shall be notified annually of the total compensation package of any member of the Senior Pastor’s family who is employed by the organization or any of its subsidiaries or affiliates.

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