Incentives, Finance, and the Church

 

Takeaway

  • UT research study lends new insight into the relationship between performance and the compensation of the clergy
  • Ministers receive additional pay for growing their churches, just as CEO pay increases with firm size
  • The talent of a pastor is a factor in increasing church membership; this could also be true for executives

Corporate executives are often accused of earning ungodly amounts of money, but new evidence suggests their compensation packages have qualities similar to those offered to church leaders, albeit on a much larger scale.

Jay Hartzell, chair of the McCombs Department of Finance, researches the relationship between performance and compensation of the clergy. In his studies, he has examined performance-based incentives for pastors and the importance of a pastor’s talent in determining the success of an individual church. In each case, he identified parallels to the corporate world.

Performance Incentives

In one study, Hartzell and his coauthors observed that if a pastor is able to grow his congregation by 1 percent, his pay increases by an average of about 0.3 to 0.4 percent. Hartzell says CEO compensation increases at about the same ratio relative to firm size.

“The elasticity of ministers’ pay to church size looks comparable to the elasticity of CEO pay to firm size,” he says. “If you doubled the size of a church, the minister would make something like 70 percent more, and that’s about what it would look like in the data with CEOs.”

Of course, the average minister's salary — about $35,000 in this study's sample — is dwarfed by a typical Wall Street paycheck.

“The pay levels we’re talking about suggest that people are not in this profession for the money," Hartzell says.

Hartzell and his colleagues charted more than 40 years of church records, illustrating 100 variables on membership, finances, attendance, compensation, and facilities for 727 Methodist churches in Oklahoma with a combined population of about 250,000 congregants.

Pastor incentives include salary, housing, and the potential to be promoted or demoted at their next church assignment. Those who perform well at one church are statistically likely to perform well at their next location, and Hartzell found that performance directly correlates with membership and attendance.

“The local church really cares about growing,” Hartzell says. “Ministers who grow their churches more make more money and they get placed at bigger churches later.”

The central leadership of the Oklahoma Conference of the United Methodist Church also rewards growth, particularly a minister’s ability to attract congregants who are new to the Methodist faith. Increasing overall membership is both an ideological priority and a matter of financial importance for the UMC organization. More members means more donations to fund church programs, outreach, building projects, and other needs.

As the organization learns about each minister’s ability to strengthen their congregations, it decides where to place them next. Pastors who are skilled at bringing new Methodists into the fold are often placed at larger churches, which they can help grow even more. The placement of a new minister at a church can also correlate with a dramatic jump in attendance.

Talent in the Pulpit

In another recent paper, Hartzell explored the question of whether the success of a church significantly depends on the talent of its minister. To do this, he and his coauthors tracked the paths of individual pastors from church to church and observed how each congregation responded to the new arrivals. Increasing attendance was again used as the measure for success.

“How much of religious participation can be explained by the talent in the pulpit? If you have a really talented pastor, does that drive a lot more participation or a little more participation — is it that big a deal or not?” Hartzell says. “Some would argue that people go to church because it’s the right thing to do under their belief system and it shouldn’t matter how skilled the orator in the pulpit is — but we have evidence the person in the pulpit matters.”

With further study, this line of reasoning could also be extrapolated to corporate leaders.

“There’s a growing but important literature on how much CEOs matter,” Hartzell says. “I don’t think we can conclude that because ministers matter that CEOs must therefore matter, but it’s at least related to this question of how much the people performing a task really matter.”

One factor that makes it difficult to extend the findings from religion to business is that pastors tend to be more mobile than CEOs, allowing more data to be collected at each new congregation. The average pastor moves to a new church every three to five years, whereas the average CEO tenure is about six years.

“At the end of the six years, CEOs usually retire; it’s not that common that they move on to be CEO at another big firm,” Hartzell says. “In general we don’t see them work for six different firms, so it’s very hard to disentangle [the performance of] the firm versus that of the CEO.”

Hartzell says future research could examine the economics of megachurches such as Lakewood Church in Houston, which is led by Pastor Joel Osteen. One element to explore could be the pay gap between “superstars” like Osteen and ministers at smaller churches. Another angle could be the role of technology — such as broadcasting services on TV or streaming them online — in helping megachurches grow their audiences on an even larger scale.

“The idea of what drives religiosity is still open,” Hartzell says.

 

Faculty in this Article

Jay Hartzell

Professor, Finance Department Chair McCombs School of Business

Jay Hartzell is the chair of the Department of Finance at the McCombs School of Business. He also serves as executive director of the Real Estate...

About The Author

Rob Heidrick

Writer, McCombs School of Business

Born and raised in Austin, writer Rob Heidrick has spent several years as a contributor and editor at local magazines and community newspapers. He...

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