Barna Research Group (BRG) reports that the average annual salary packages for pastors of Spirit-filled congregations are as follows: * $27,639--Charismatic nondenominational congregations
* $29,118--Pentecostal denominational congregations
* $30,682--Charismatic denominational congregations
Where does your compensation fit into this picture? Determining the appropriate compensation of a pastor has always been and will continue to be a sensitive and subjective task. When we pay a person in ministry a salary, we implicitly assign a financial value to the minister. Yet the process for determining a pastor's salary can be very subjective.
Your salary can be determined by a number of factors, including:
* the management or executive salaries paid to others in nonprofit organizations in your community
* salaries paid to other pastors in your denomination, network or congregational affiliation
* various beliefs and traditions referenced by different and distinct churches, ministers, duties, theologies and other variables.
"Reasonable" compensation. Nevertheless, "reasonable" compensation has long been the rule. Recently, "reasonable," or "non excessive," compensation was ascribed the fairly unhelpful meaning of an exchange wherein the economic benefit received by the person equals the consideration received by the church, per the new Internal Revenue Code regulations providing for the imposition of intermediate sanctions for excessive benefits paid to certain individuals.
In one sense, the "intermediate sanctions" legislation is inherently punitive in that noncompliance triggers a penalty, though compliance carries no corresponding benefit. However, within the legislation and the regulations exists a safe harbor called benefits for a church's decision-makers. Church leaders involved in determining compensation levels for ministers can shield their decision, and themselves, from undue scrutiny and possible sanctions by taking steps to create "reasonableness" prior to implementation and payment of a compensation package.
Proposed regulations allow a church to rely upon the expertise of people in the congregation who are in a position to deliberate upon the compensation of a minister. You should have a group of people able to determine your reasonable compensation, such as a personnel committee, board of directors or even other members of the clergy who should be familiar with and take advantage of recognized criteria for determining reasonableness. It is also advisable to obtain a qualified opinion and review from a person or group outside of the church as well.
Salary packages have increased in recent years. Surveys indicate that pastoral compensation levels, a term which encompasses both salary and other benefits (housing and car allowances, health insurance, retirement packages, etc.) have risen relatively steeply in the last decade and continue to rise. However, this trend is also equally true of compensation paid to executives in other sectors of the marketplace.
Nevertheless, most churches today still consider their senior pastors, who often function as the president and chief executive officer in addition to all their other duties, to be undercompensated in terms of the value that he or she adds to the church. Further, the great majority of churches hold close their biblically based beliefs that a senior pastor, as head of the church, is to be at least adequately, if not generously, compensated relative to nonchurch counterparts.
PAYING PASTORS WHAT THEY ARE WORTH IS BIBLICAL
Scriptural references sup porting reasonable compensation include:
1. A special tithe was to be set aside for the care and support of the Levites and priests (pastors): "The tithe of the people of Israel, which they present as an offering to the Lord, I have given to the Levites for an inheritance" (Num. 18:24, RSV).
2. The Lord commanded that a minister should be adequately supported: "In the same way, the Lord commanded that those who proclaim the gospel should get their living by the gospel" (1 Cor. 9:14).
3. Church work is a worthy vocation. "If a man desires the office of minister, he is aspiring to a notable task" (1 Tim. 3:1, Montgomery).
4. Pastors should receive an adequate salary. "Those officers of the church who fill their office well should be considered as deserving twice the salary they get, particularly those who labor in preaching and teaching" (1 Tim. 5:17, Williams).
A significant number of churches place emphasis on Scripture references that teach that diligent leaders of the church were in God's favor and prospered according to His will and plan. The book of Deuteronomy details the abundance of Abraham and his descendants. Abraham's wealth came from God as a result of his obedience and was tied to Abraham's willingness to undertake significant personal sacrifice in devoting himself to God's work.
Abraham is not the only biblical example of prosperity resulting from personal sacrifice and devotion to the work directed from God. The accounts of Joseph in Potiphar's house and of Jacob demonstrate the same principles. The large number of applicable passages regarding the subject of compensation exceeds the scope of this article.
HOW TO DETERMINE A REASONABLE COMPENSATION PACKAGE
Regardless of where your church falls along the spectrum of senior pastor compensation, the following common set of guidelines is most beneficial to follow.
The recommended three-step procedure, detailed below, for implementing a compensation package for the senior pastor (and possibly other highly compensated executives within the church) is to (1) select a compensation committee composed of disinterested individuals; (2) determine which established compensation criteria are most applicable given the beliefs and practices of your church and the relative value your church will assign to each, and decide on the level of compensation; and (3) take advantage of the rebuttable presumption of reasonableness allowed by the Internal Revenue Service (IRS) by complying with the stated requirements, and when there is any question that a compensation package could be deemed generous under the circumstances, obtain the review and opinion of a qualified individual or entity.
1. The compensation committee. The wise congregation will develop proper policies and procedures for setting compensation for its key staff, with each compensation package independently determined. This will help prevent a situation in which it must defend its compensation package to the IRS or, perhaps, in a public courtroom.
An independent compensation committee, free from the pastor's control, should be formed, excluding members of the founder's or minister's family, but including board members and outside committee members who, perhaps, have experience in the area of executive compensations. This committee should evaluate, as objectively as possible, the contributions made by individuals to the religious organization in the previous year.
The committee should then review current salaries and benefits. Proposals for proper compensation for the coming year should be made, discussed and then formalized in a recommendation to the board of directors in which the authority to adopt a compensation package usually resides.
For religious organizations and churches that have long-established procedures for evaluating compensation and historic records on which to base decisions, it is a bit easier to determine the proper compensation package for a leader. But for newer organizations--especially those where the founder is still active and where the organization has experienced rapid growth--it is difficult to evaluate the "worth" of a founder whose abilities may be unique. How do you compensate for vision, risk-taking, charisma or anointing?
Of course, compensation procedures are more complicated in a religious organization than in a secular tax-exempt one because religious beliefs are a factor. Scripture refers often to compensation for a priest or pastor. Church leaders must apply biblical truths in their interpretation of religious doctrine to determine a minister's compensation.
Some orders of Catholic priests and other religious groups require their members to take a vow of poverty. Other groups espouse a prosperity doctrine. These are religious matters to be determined by the church or organization. There may be situations in which ministers have approximately equal talent, but because of the doctrines of their organizations or their own beliefs, their salaries and compensation packages vary widely.
2. Factors to consider in establishing proper compensation.
A) Factors related to the church:
* What churches or religious organizations of similar size pay someone in a similar position
* Whether the church or religious organization will be hindered in carrying out its function by paying a particular sum
* The church's specific view and ideology toward pastoral compensation
* Profitability to the church or organization of the services rendered
* Number of available persons to perform the duties of the position (indispensability).
B) Factors related to the individual:
* The individual's character and his responsibilities as he serves the organization
* The individual's performance
* The individual's ability to generate revenue
* Ease or difficulty of the work
* Working conditions
* Future projects
* Future prospects
* Living conditions
* Unique ability, including background and experience
* Technical training
* Prior years' inadequate compensation
* Time and energy the individual dedicates to the group's activities and programs.
These factors do not comprise an exclusive list of relevant considerations for determining compensation, but will serve as a useful starting point for most churches. Further, the relevant weight your church assigns to any of these factors, or other considerations, is left to the discretion of your board or compensation committee.
However, regardless of the emphasis you place on any particular consideration, whether or not it is listed above, your church should reflect the fact that such considerations were taken into account and identify them specifically in the official minutes. Doing this will memorialize the diligence of the decision-makers in arriving at a particular compensation package.
With respect to ascertaining what similarly situated churches pay their pastors, you may find only a limited amount of publicly disclosed information applicable to your church. Reported surveys are often inadequate because they are compiled from voluntary reported information, while other reference points, including larger organizations, are often less obtainable and remain undisclosed.
Further complicating the attempt to determine a minister's proper compensation is the fact that the components of compensation packages for leaders of different religious organizations are not always readily comparable. Some churches and religious organizations provide automobiles, retirement plans and expense allowances, while others do not. It is precisely for these reasons that the IRS has recognized that a church, acting alone, may be in more of an inferior position to make this judgment than an entity specializing in compensation reviews. This leads to the third step, taking advantage of the rebuttable presumption of reasonableness.
3. Comply with the provisions that create the presumption of reasonableness. The intermediate sanctions legislation was actually implemented to soften the more severe penalties prescribed against an organization engaging in excess benefit transactions. Until recently, the IRS was limited to only one remedy in curing egregious violations of payments of excessive benefits to disqualified persons (including unreasonable compensation) by tax-exempt organizations--the revocation of tax-exempt status.
This "remedy" was tantamount to a death penalty at an organization-wide level. Regardless of whether the entire organization had violated applicable laws, this overly broad remedy, when invoked, would usher the demise of the organization, as seen in the collapse of Jim Bakker's PTL ministry and the revocation of its tax-exempt status.
In contrast, the intermediate sanctions legislation provides for specific penalties for offending individuals in the form of mandatory disgorgement of the excess benefits as well as excise taxes on the excess benefits; but the legislation seeks to avoid punishment at an organization-wide level in all but the most extreme cases. Further, the intermediate sanctions legislation provides a safe harbor for church decision-makers who have the duty of deciding and approving compensation levels for ministers.
MEETING THE IRS REGULATIONS FOR REASONABLE COMPENSATION
The regulations provide that the transaction will be presumed to be reasonable by the IRS if three conditions are met:
1. Board approval, no conflict. The compensation arrangement or terms of transfer are approved by the organization's governing board, or a committee of the governing board, composed entirely of individuals who do not have a conflict of interest with respect to the arrangement or transaction.
2. Have a basis for your decision. In making its determination of reasonableness, the governing board or committee obtained and relied upon appropriate data as to comparability prior to making its determination. Relevant information includes:
* compensation levels paid by similarly situated organizations, both taxable and tax-exempt, for functionally comparable positions
* the availability of similar services in the geographic area of the applicable tax-exempt organization; independent compensation surveys compiled by independent firms
* actual written offers from similar institutions competing for the services of the disqualified person.
3. Document thoroughly. The governing board or committee adequately documents the basis for its determination concurrently with making that determination. For a decision to be documented adequately, the written or electronic records of the governing body or committee must note:
* the terms of the transaction that was approved and the date it was approved
* the members of the governing board or committee who were present during debate on the transaction or arrangement that was approved and those who voted on it
* the comparability data obtained and relied upon by the committee and how the data was obtained
* the actions taken with respect to consideration of the transaction by anyone who is otherwise a member of the governing board or committee but who had a conflict of interest with respect to the transaction or arrangement.
In calculating the compensation of a minister, bear in mind that the IRS includes every possible item of benefit to the minister, such as salary, housing allowance, retirement, provision of housing and housing cost, automobile usage or allowance, expense accounts and travel allowances. When the total for the year is accumulated, the agent, using his own judgement, in many cases compares this total to what he believes is a correct compensation package.
In obtaining for your church the rebuttable presumption of reasonableness, you should give careful consideration to the option of utilizing an independent firm's services in compiling comparability data and compensation surveys as well as in obtaining an opinion as to the reasonableness of the compensation package.
As noted above, publicly available comparability data that would be of assistance to your particular church may be scarce, but firms specializing in compensation studies retain unobtainable, confidential data, which they can access and use to your assistance in a report without revealing the corresponding names and sources of the data.
Moreover, the regulations themselves specifically allow a church's governing board to retain such experts and to consider and rely upon such reports in making their determinations regarding compensation.
As is often the case when dealing with the IRS, the defensibility of your position correlates to the precautionary steps, or lack thereof, that have been taken.
While your church retains wide discretion to establish compensation levels in accordance with its own prerogatives and beliefs, the discretion is not unlimited. While no specific salary package limit or mathematical formula exists to objectively assess compliance, compensation is nevertheless controlled by the test of whether it is "reasonable under the facts and circumstances." This standard, while imprecise, is not entirely subjective and is certainly not without definition or meaning.
The reasonableness standard for determining compensation requires your church to exercise diligence to ensure its conclusions are based on, and relate to, actual value or consideration the church receives from the individual whose compensation is at issue. Within this legal requirement exists the framework for obtaining a rebuttable presumption of reasonableness, which your church needs to justify paying your pastor what he or she is worth, not only to a congregational board, but also to the IRS. *
Jim Guinn is a CPA in the Dallas-Fort Worth, Texas, metroplex and contributes regularly to Ministries Today concerning financial issues. David Middlebrook practices law in Dallas and specializes in legal issues for nonprofit corporations. He has authored a resource on protecting churches from potential child abuse, The Guardian System (Creation House). Both edit The Guinn & Middlebrook Newsletter.
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