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Pastor Pay—It’s About More than Just Money

Getting the compensation-setting process right must be a priority.

 

by Dan Busby and John Pearson

 


The elders who direct the affairs of the church well are worthy
of double honor, especially those whose work is preaching and teaching.
For Scripture says, “Do not muzzle an ox while it is
treading out the grain,” and “The worker deserves his wages.”

1 Timothy 5:17-18 NIV
 

 

Anthony has been the church’s senior pastor for 15 years. Finances have been tight over this time period. The church board has reviewed and adjusted his compensation package about every three years. Even then, the adjustments only amounted to cost-of-living increases.

It has been five or six years since Anthony’s last performance review by the board. Since performance reviews and compensation reviews go hand-in-hand, it is past time for the board to step up to its responsibilities.

Reviewing and setting the senior pastor’s compensation may be one of the board’s least favorite things to do—but bad theology might be at the root of this angst. It requires communication with the senior pastor on a very sensitive topic. It is simply an “out-of-body” experience for most boards—especially if finances are tight.

Boards would rather approve new programs, review the financial reports, adopt new policies—anything but set the senior pastor’s compensation.

There are so many factors to consider in compensation-setting. What is fair pay for this position? Sound comparable data can be a challenge for churches.

Board members from the business world understand the compensation-setting process in that sphere. Leaders of parachurch ministries know how compensation is set in their world. But the compensation-setting responsibilities for your church board are often different from other experiences.

Why are there are so many questions—and too few clear answers? Here are eight questions many boards ask:

  1. How often should the board obtain compensation comparability data?
  2. What is the best source of comparability data?
  3. What types of fringe benefits are appropriate?
  4. How much should be allocated to each of the fringe benefit categories?
  5. If the senior pastor is the founding pastor of the church, should this impact the compensation planning?
  6. Should the senior pastor play any part in the compensation-setting process?
  7. Should a compensation increase for the senior pastor relate to how the church is doing financially?
  8. Should the church board be aware of compensation amounts paid to family members of the senior pastor?

While all of these questions cannot be answered here, there are six principles that boards should consider when setting compensation for the senior pastor[1]:

  1. Ensure that the pastor’s compensation is reasonable. Rarely is a pastor’s compensation unreasonably high—more often, it is unreasonably low. Church boards should keenly focus on the compensation approval process—this is generally a larger issue than the amount of pay.
  2. Annually review all elements of the compensation. Too often, the board focuses on base salary to the exclusion of fringe benefits. All elements of compensation should be considered, including fringe benefits (taxable, non-taxable, or tax-deferred), such as health insurance and retirement.
  3. Limit the pastor’s role in the process. The group approving the pastor’s compensation should be totally independent (no conflicts of interest). So, the pastor should not be involved in the compensation-setting process, except when the board discusses the adequacy of the compensation to meet the needs of the pastor and his or her family.
  4. Be informed about compensation paid by the church to family members. While the board, typically, need not approve the compensation of members of the pastor’s family who are paid by the church, the board should at least be aware of those compensation packages.
  5. Use comparability data. At least every few years, the church should review comparative compensation data.[2]
  6. Formally approve the compensation. Boards use various processes to arrive at the compensation level. Here are two options:
  • Board as a whole. It may make sense for the entire board to handle the compensation-setting process for smaller churches.
  • Board committee. Larger churches will typically utilize a committee of the board to do the initial work on the compensation-setting process with final approval by the full board. This may be the executive, personnel, or other compensation committee.

The compensation package of the senior pastor is often recommended by a board committee, but the ultimate decision on the package should generally be made by the independent members of the full governing board. The senior pastor should be recused from the decision-making process, and all others involved should have no conflicts of interest (e,g., as paid staff or family of the pastor).

Senior pastors, church attenders, and members will deeply appreciate boards that address compensation-setting with integrity and thoroughness. Churches that do not compen­sate their senior pastor adequately will often need to play catch-up when setting the compensation of their next senior pastor, or will find it difficult to find a good pastor altogether.

As your board engages in the compensation-setting process, other resources you may find helpful include:

  • ECFA Church Knowledge Center at ECFA.Church
  • Annual Minister’s Tax & Financial Guide and the Church and Nonprofit Tax & Financial Guide authored by Dan Busby and other ECFA staff
  • 8 Essentials of Compensating Ministers (www.ECFA.Church/Books.aspx)
  • Smart Money for Church Salaries by David Fletcher (xpastor.org)

 

BOARDROOM LESSON
_______________________________

When a board focuses primarily on the cash compensation
paid to the senior pastor, it can easily overlook
the most important element—
the process by which compensation is set.

  Board Action Steps:

  1. Review: Annually review the senior pastor’s compensation and fringe benefits package.

  2. Compare: Periodically, obtain comparability data to ensure that compensation is reasonable.

  3. Document: Approve all elements of the compensation package, with the senior pastor recused, and contemporaneously document the board’s decision.

 

Prayer

Lord, give our board wisdom to give appropriate priority
to our compensation-setting process
for our senior pastor. Amen.

 

 


[1] See ECFA Standard 6 – Compensating-Setting and Related-Party Transactions at http://www.ecfa.org/Content/Comment6a.

[2] The Knowledge Center at ECFA.Church provides information on church compensation surveys: www.ECFA.Church/KnowledgeCenter.

 

From Lessons From the Church Boardroom: 40 Insights for Exceptional Governance, ECFAPress, 2018, www.ECFA.Church/KnowledgeCenter.


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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