Multiplication Center

Setting Pastors’ Salaries – What’s the Missing Ingredient?

November 1, 2016

By Dan Busby and Michael Martin

cooking-1013455_640Try making a hamburger without beef, brewing coffee without beans, or baking a cake without sugar. Something’s not quite right, is it?

Without the missing ingredient, you end up with less-than-desirable results.

According to the latest Leadership Network salary survey, when it comes to setting compensation in many large churches across North America, an important ingredient seems to be missing as well: Where are the church boards?

salaryreport_figure11Our colleague Dr. Warren Bird recently blogged that churches are being questioned, when it comes to who knows and approves compensation specifics, and he encouraged all churches to embrace the high compensation-setting standard of ECFA (Evangelical Council for Financial Accountability).

At Dr. Bird’s invitation, here are a few thoughts on the standard that has already been adopted by over 2,100 ECFA-certified organizations and how it can practically benefit your church. At the end of this blog is a link for follow up help. First, a bit of context:

What is the compensation-setting standard?

In a nutshell, ECFA’s standard requires the entire church board (corporate governing body) to annually approve total compensation of its lead pastor (or comparable position). The church may utilize a compensation committee, but the entire church board must still affirm, ratify, or otherwise approve the committee’s recommendation.

In churches with lead pastors compensated at $150,000 or more, additional due-diligence steps are required, including obtaining relevant comparability data such as the Leadership Network salary report to demonstrate the reasonableness of the compensation package.

It’s important to note the “standard” focuses on excellence in the compensation-setting process and does not impose any sort of arbitrary cap on compensation across all churches and, in striking the balance on appropriate transparency, does not require disclosure of confidential compensation details beyond the church board. On the spectrum of who should know and approve compensation (see the graphic), we believe the board is just where the sweet spot lies when it comes to appropriate oversight and transparency in compensation-setting, especially for the lead pastor.

See the ECFA website for the full standard and related commentary.

How can the compensation-setting standard benefit your church?

Here are just three of the reasons why board knowledge and approval of the lead pastor’s compensation can benefit your church:

1. Strengthens the church’s defense against claims of negligence.

Under the laws governing nonprofits, board members are considered “fiduciaries”—charged with exercising the highest standards of care to protect the best interests of the church. Boards are entrusted with some of the most important financial matters like approving the annual budget and strategic goals, buying and selling property, and hiring and firing the lead pastor, to name a few.

If something major goes south at the church or these standards of care are breached, it’s ultimately the church board who can be held legally responsible.

The survey suggests the current practice in many large churches is for an in-house committee (43%) or senior staff (25%) to have knowledge of compensation specifics but without oversight by the board. If any allegations of impropriety were raised, this practice leaves the door wide open for boards to be accused of negligence in failing to provide adequate oversight to a very important financial matter—with lead pastor compensation often being the most significant element of the most significant category (staffing) of a church’s annual expenses.

When the entire church board knows and approves the compensation of the top leader, the likelihood of being accused of negligence is greatly diminished.

2. Increases objectivity and reinforces unity among the board.

Even with many great resources today like the Leadership Network survey to assist churches in setting their pastors’ compensation, it can still be a very complex decision involving a number of variables in one of the most sensitive areas of church administration.

What if our church is in a high or low income region? What is the impact of growth in attendance or campuses? What if the pastor has authored a bestselling book? What about pastors who founded the church, have been undercompensated throughout their career, and are nearing retirement? What do we do about stereotypes and perceptions involving excessive compensation? These are just a few of the tough questions larger churches in particular must wrestle with today in arriving at compensation that is fair and reasonable to the pastor.

Bottom line: Setting salaries should involve a great deal of prayer, strategy, and discernment.

Even in churches utilizing compensation committees for their valuable research, expertise, and discussion, involving the entire church board can bring additional wisdom and objectivity to the process. After all, if board members have been recruited based on their biblical qualifications, passion for the church, and ability to process other very important decisions, why would the compensation-setting of the lead pastor be any exception?

3. Demonstrates integrity and protects against government overreach.

Last but not least, we believe churches that are committed to the highest standards of excellence and integrity in compensation-setting will strengthen their witness for the gospel and prevent government overreach into the church.

We’ve all heard it before: “That church just wants your money” or “The pastor is in it to get rich” or “Churches have no accountability” — and all the other misperceptions surrounding money from people who are skeptical of the church and our mission.

You also don’t have to look far to see the environment is deteriorating with respect to how the government as a whole views churches. Not to be an alarmist, but there is serious talk these days of eliminating the pastors’ housing allowance, making churches file detailed annual reports with the IRS (Form 990), eliminating church tax exemption, and more—things that would never have been dreamed of or discussed just decades ago. If we want to preserve our freedoms as a church and protect against this sort of government overreach, it will take churches doing their best to demonstrate the highest levels of financial integrity.

That’s what ECFA’s ministry is all about and why we at Leadership Network and ECFA believe it is necessary and helpful for churches to engage the entire board in knowing and approving their lead pastor’s compensation: “Taking precaution so that no one will discredit us in our administration of this generous gift; for we have regard for what is honorable, not only in the sight of the Lord, but also in the sight of men” (2 Corinthians 8:21, NASB).

Click here to download a checklist and practical next steps in incorporating this standard at your church.

dan-busby-2_colorDan Busby is president of ECFA, an organization that certifies Christ-centered organizations for financial integrity. He has served 110-man years on nonprofit boards and dedicated his entire career to serving churches and ministries. For 2010-2015, the NonProfit Times presented Dan with the NPT Power and Influence Top 50 Award, recognizing him as one of the 50 most influential nonprofit executives in the sector.

martin-michaelMichael Martin is ECFA’s vice president of church relations and associate legal counsel. He is passionate about helping churches and ministries with legal and tax-related issues and compliance with ECFA standards.

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