How much should we pay our pastor?

A Review of How Salaries are Determined (October 2024)

This is a question that will elicit a groan from just about any lay leader in a church.  There are so many landmines involved: morale or continuity of the pastor, potential disdain of congregants who compare their own salaries to that proposed for the pastor, recommendations from church associations, and willingness of the church’s financial team to direct scarce resources to this expenditure.  There are likely others.  Lay leaders will cry out for a simple rule they can follow, and use to explain their decisions to folks who disagree.  

So, let’s start at the very foundation of the matter and ask what is the right amount to pay any employee.  Unfortunately, what a person gets paid is dependent on too many factors to produce a simple formula.  Below, we examine some of these factors.

Let’s start with an example.  Ask yourself which of these two people should earn the higher salary.  The CEO of a major international corporation that employs hundreds of thousands of people, or the best batter in the baseball major leagues.  

My assertion is the baseball player every time.  This is because the unique skills of the player contribute more to the ultimate success of the ball team (including its corporate profits) than the unique skills of the CEO contribute to the success of a corporation.  Fantastic ball players are not a dime a dozen.  Great CEOs kinda are (relatively speaking).  In fact, most corporations have large senior management boards made of people every bit as capable as the CEO.  Also, whereas the success of a ball team is very much the outcome of the combined abilities of very talented athletes, the majority of short-term successes and failures in business are tied to the state of the economy and trends in customer demands; matters outside of the CEO's control.  Consider the fact that when well-known CEOs move to another corporation they often have difficulty replicating the success they had in their previous job.

The above analogy is rooted in the concept of supply and demand, a bedrock of all economic theory.  Considering the above example, the value of an employee can be said to be based on their unique abilities in making an organization successful.  Focus on the word unique, and not on the word ability.  In many employment situations, ability is plentiful.  Uniqueness, based on the very meaning of the word, is not.  Supply and demand suggests people with unique abilities to achieve success should get paid more.

This is why the importance of the job has virtually no bearing on wages.  As an example, ask yourself which group has saved more lives throughout history, doctors or sanitation workers.  Yes, it is the latter.  But no one is suggesting that they get paid more than doctors.  There is often a low supply of skilled doctors and a high demand for them.  Conversely, there are generally more workers (supply) who could do sanitation work than needed (demand).

This is an ugly truth in employment situations that causes great difficulty for people who have undertaken rigorous and costly study to advance their career.  For example, the person with an MBA will expect more money than the person with a Bachelor of Commerce.  However, if the employer does not need the extra knowledge and skills that comes from such higher education, the uniqueness that warrants higher pay evaporates. Consider that few stage or big-screen actors would be remunerated better based on having a Ph.D. in theatre studies.

So, can we stop here and just apply these market-based rules?  Not really.  As I said, there are a number of other systemic factors that come into play.  The highest player-salary paid by the Toronto Blue Jays was $24 million per year.  The highest paid CEO in Canada earned $152 million in 2024.  In fact, there were nine Canadian CEOs that were remunerated in excess of the figure for the ball player.  (The CEO of the Toronto Blue Jays earned $15 million in 2023.)  The fact that some CEOs earn more than what the market logically should offer is an example of how other systemic matters intervene. 

For example, how can a government-regulated power company pay multiple millions each year to its CEO when the government’s deputy minister (CEO) of all its health institutions receives a small fraction of that.  That is because corporations have found ways to create self-serving backstops so remuneration can be what they want.  It is no coincidence that the boards of directors of corporations are populated with the CEOs of other major corporations.  Then, when a CEO looks for compensation, the decision is made by a bunch of people who likewise value (over value?) the role of CEO and similarly want great compensation for themselves.  Then this CEO sits on the boards of other companies and reciprocates.  Further, when these people are asked to justify their compensation decisions, they will always fall back on consistency with the average CEO pay rates for the whole industry, which they have inflated over time through co-operative efforts.

This also has a trickle down effect.  A CEO can be uncomfortable sitting with their senior management team if her salary is many multiples of what the others at the table get paid, knowing that they all contribute almost equally to the success of the company.  And this would make it more difficult for the CEO to lead and motivate such a group to do their best work.  Accordingly, there is strong top-down pressure to pay them commensurately (not equal, of course) with the CEO.

Another factor is public pressure.  Such pressure is put on corporations, but to little effect.  The most effective voices of influence over a public corporation are from its institutional investors; mainly pension, investment and insurance fund managers.  The CEOs of these funds also get paid exorbitantly, so they generally will not raise any issues about the CEO’s salary and bonuses.  

However, public pressure is of great effect on government salaries.  Consider that many if not most governments in Canada publish the salaries of their employees by name.  For this reason, the pay of senior government managers is generally much lower than that of private-sector senior managers with equivalent qualifications and responsibilities.  The pay at the lower ends of government pay scales is generally higher than that in the private-sector, but there is not much public concern about that.  Accordingly, the power of the voter will keep government management pay in check.

Another factor related to remuneration is how success is defined.  In large private-sector corporations this is just about always the bottom line or, in other words, return to the shareholders.  So a CEO will be considered successful and be well remunerated for improving profits, even thought they did it by laying off tens of thousands of people, and driving many of its other jobs to casual status to reduce employee benefit costs.  Accordingly, decisions with major detrimental societal consequences have no bearing on the measurement of their success.  In the government, the message is often ‘get your work done under these budgetary restraints and, by the way, you are not allowed to do this by firing or lowering the wages of people currently performing their job adequately.’  Now there is a goal worth remunerating if successfully accomplished.

In some workplaces, pay scales control salary levels.  This is big in government but also used in the professional service sector.  People can ride up the scales based on a combination of good work and gained experience.  Good in theory, but such systems will not adequately remunerate the workplace superstars.  They very well may look for another employer who values and better remunerates their high than average achievements.  Accordingly, pay scales can be a system that can lead to mediocrity of performance.

As a final example, consider collective bargaining.  In theory, this is the embodiment of supply and demand and free-enterprise practice.  Collective bargaining corrects the power imbalance between employers and employees and, in my opinion, has a net positive benefit to society.  However, it also pits short-term pressures against long-term pressures and many employers cannot handle these.

This concept is best illustrated by an example.  If the union of an auto manufacturer asks for salary increases greater than what the company is willing to or can pay, that is just the starting-point of negotiations.  Sometimes what happens is an agreement is made that has a low short-term impact on the company but a higher one down the road.  An example would be foregoing large salary increases but offering improvements to the pension and/or health plans.  Another example is agreeing to salary increments that are weighted more heavily to later years.  The problem is that the pressure exerted by the union is immediate (work stoppages), and corporate managers are highly sensitive to short-term profits.  They are often willing to negotiate if they can just delay the impact of their commitments.  To you and me this seems short-sighted and a bit ridiculous, but it is a major reason why some major companies have gone under or had to be bailed out by governments.

Back to church.  I have seen eyes roll when a pastor announces that he plans to study towards a Doctorate in Theology.  Deep down, many congregants will feel this won’t likely make the pastor a better preacher, and probably do little for the skills it takes to manage the ministry and business of the church.  However, it will increase the pastor's sense of self-worth and that may come along with higher salary expectations.  But, as I have explained above, such an expectation may not be realistic when all of the other salary considerations noted above come into play.

So, how much should you pay your pastors?  Let me know when you figure that out.