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What is a Minister Worth?

Who should determine a Leader's Salary - the Church or the IRS?

By James E. Guinn
As published in Ministries Today magazine

As a result of the collapse of Jim Bakker's PTL ministry and the revocation of its tax-exempt status, everyone is debating how much is "proper compensation" for a Christian leader. 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, for risk-taking, for charisma, for 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 the priest or pastor: 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. 8:24, RSV)

* 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, RSV).
* Church work is a worthy vocation. "If a man desires the office of a minister, he is aspiring to a notable task" (1 Tim 3:1, Montgomery).
* 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).

It is the responsibility of church leaders to 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 organization or their own beliefs, their salaries and compensation packages vary widely. I know of one church with revenues of $4 million that pays its pastor $75,000 - as well as another church of the same size that pays its pastor $200,000. Such disparities make it impossible to determine a minister's worth by simply selecting a category from a survey or chart.

Besides the compensation levels reflected, the church surveys I have seen are often inadequate because they are compiled from voluntarily reported information. I suspect that ministers of large organizations are reluctant to disclose - or perhaps unaware of - the value of their total compensation package. Further complicating the attempt to determine a ministers worth is the fact that the components of compensation packages for leaders of different religious organizations are not always readily comparable. Some ministers live in church-provided parsonages, while others own their homes and are provided a housing allowance. Some churches and religious organizations are not always readily comparable. Some churches and religious organizations provide automobiles, retirement plans and expense allowances while others do not.

Without doubt, church leaders involved in determining their minister's compensation have a tough job. But it's their job. They need to do it well, so they can make sure they keep it. Over the last three years, appropriate compensation for ministers has been heatedly debated not only by church members but by a general public outraged by stories of excesses run on the front pages of our newspapers. The issue has also become of great concern to the Internal Revenue Service. In an audit of a tax-exempt religious organization or church, IRS agents concentrate primarily on two areas:

1. Activities by the organization that may produce income subject to corporate income tax.
2. Transactions that may result in inurement of benefit by "control parties" of the organization-that is, the conversion of the organization's assets to personal use by officers, directors, trustees, founders or major donors. If such misuse of funds is discovered, the organization's tax-exempt status is in danger.

If a church or religious organization is found to be in compliance in these areas, one issue remains: Are the compensations of the control parties "excessive"? Compensation in excess of a "reasonable amount" is deemed by the IRS to be "inurement of benefit" and a threat to tax-exempt status. But "excessive" compensation, like beauty, is many times in the eye of the beholder. Church leaders have the difficult but crucial task of determining the level of compensation required to obtain and retain the high-quality minister their church or organization needs. This person may be called on to use his unique abilities to preach, teach and raise funds to promote the gospel of Jesus Christ. He may be the founder or the director of the ministry. Is the IRS in a position to place a value on the God-given talents and anointing of a unique man of God in light of the religious beliefs of the church or group he serves? In calculating the compensation of a control party, an IRS agent includes every possible item of benefit to the ministers, such as salary, housing allowance, retirement, provision of housing and housing costs, automobile usage or allowance, expense accounts, and travel allowances. Once the total for the year is accumulated, the agent, using his own judgment, in may cases, compares this total to what he believes is a correct compensation package.

My ongoing experience with IRS audits of religious organizations has convinced me that government agents are making determinations on compensation based on inadequate surveys, as well as on data from one court case where the ministry was grossly out of control. They are not looking at data from legitimate church and religious organizations that are properly operated. Nevertheless, if - in the agent's opinion - there is excessive compensation, this is designated as inurement of benefit and the organization's tax-exempt status is placed in jeopardy. The organization is forced to justify the compensation paid to the individual either through the IRS administrative appeal procedure or perhaps in a court of law. Either avenue can be very expensive to the organization. Usually, if the only item of disagreement in the audit is the compensation level of the control parties, the organization will prevail, but only after expending a great deal of time, effort, and money in their own defense.

To my knowledge, the highest compensation package the IRS has deemed appropriate in an audit of a religious organization is $ 150,000, with no account taken of the size of the organization. A bankruptcy court, using IRS audit information in a PTL civil case, ruled reasonable compensation for Jim Bakker to be $ 177,156 in 1987, even though PTL had revenues greatly exceeding $ 100 million for several years. I personally find such limits arbitrary and capricious.

Although the Internal Revenue Service may have the authority to regulate compensation packages for executives of secular tax-exempt organizations, the question is: Should they be involved in the compensation of ministers of religious organizations and churches? Obviously, if the IRS can regulate the amount of compensation paid to ministers, then it can at least partially regulate churches and religious organizations - a situation that is anathema to many Christians and questionable under the First Amendments's prohibition of government intervention in the religious practices of its citizens. Such decisions, I believe, should be beyond the scope of, authority or jurisdiction of the IRS.

To allow the IRS to dictate what it believes to be appropriate compensation for ministry leaders will undoubtedly place severe restrictions on the quality and quantity of ministers who will be available to serve the church. Unfortunately, we don't live in a perfect society. If there were no abuses of the tax-exempt organization laws by individuals, the IRS would not have to be involved. But as it stands, some regulation is deemed necessary to prevent rampant abuse of publicly donated funds by unscrupulous individuals.

So far I have found no precedent where the IRS has been permitted to regulate the compensation for ministers of responsible, legitimate churches. But it is a sad indictment on the church that corrupt men and women exist and operate even within our own ranks - thus prompting IRS intervention.

The wise church or religious organization will develop proper policies and procedures for setting compensation for its key ministers, with each compensation package independently determined. This will help prevent a situation in which it must defend its compensation package to the Internal Revenue Service, perhaps in a public courtroom. An independent compensation committee should be formed, excluding members of the founder's or minister's family, but including board members and perhaps outside compensation experts or businessmen with expertise in compensation. This committee should evaluate, as objectively as possible, the contributions made by individuals to the religious organization over the previous year. They should consider:

* 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 individual's character and his responsibilities as he serves the organization
* 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
* Profitability to the church or organization of the services rendered
* Time and energy the individual dedicates to the group's activities and programs
* Number of available persons to perform the duties of the position (indispensability)

The committee should then review current salaries and benefits. Proposals for proper compensation for the coming year should be made and discussed. A written opinion from a compensation expert could help serve as evidence of the committee's objectivity. The use of these procedures by an independent committee will go a long way in proving to the Internal Revenue Service that the founder, director, senior minister or other control parties are not compensated at their own whim or discretion. A clear business-like procedure will make it difficult for an IRS agent to question a particular compensation level. Although the IRS may still choose to contest the amount, it is not likely to prevail when the church or organization can show that independent thought and responsible action went into the compensation decision.

How much is a minister worth? That's a question to be prayerfully decided by the leaders of the church or religious organization he serves - and hopefully not by the IRS.


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