The financial rewards reaped by Methodist preachers who grow their flocks.

The search for better economic policy.
July 7 2010 7:15 AM

The Almighty Dollar

Are preachers motivated by the desire to save souls or to make cold, hard cash?

Chris Parsons is the son of a Baptist preacher. He remembers his mom hawking audiocassettes of his father's sermons in the church lobby after services—the Baptist church encouraged this spirit of enterprise among those tending its flocks. So perhaps it's no surprise that Parsons found his calling as an economics professor and is now preaching the gospel of Adam Smith at the University of North Carolina's Kenan-Flagler Business School. Parsons' thesis adviser, Jay Hartzell, is also a preacher's son. Hartzell likes to quote Corinthians in connecting his current work to his father's ministering roots: "If we have sown spiritual seed among you, is it too much if we reap a material harvest from you? If others have this right of support from you, shouldn't we have it all the more?" In other words, if Goldman Sachs bankers get paid based on profits they earn for the company, why shouldn't preachers get bonuses based on souls saved (and paying members recruited)?

Illustration by Mark Alan Stamaty. Click image to expand.

Working with David Yermack of New York University, the two preachers' sons set out to test the Corinthian hypothesis by investigating the economic incentives affecting the United Methodist clergy of Oklahoma, where Hartzell's stepfather had spent his career. In "Is Higher Calling Enough?" a study forthcoming in the Journal of Labor Economics, the researchers show that Oklahoma's ministers are driven not just by spiritual motivations but also by high-powered financial incentives. Working with more than 40 years of church records covering more than 2,000 clergy, the authors find that ministers received about a 3 percent share of revenues generated from boosting membership, comparable to the pay-for-profit sensitivity of Fortune 500 CEOs. They also uncover some unfortunate side-effects of financial incentives for ministers who, motivated by material concerns, may have been encouraged to poach congregants from one another's flocks rather than to bring new believers into the fold.

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Before examining how financial incentives have affected Oklahoma's pastors, we first need to say what makes a great minister. Performance for corporate execs is relatively straightforward—they get paid based on the profits they generate. For nonprofits, performance depends on the organization's mission. Hospitals exist to heal the sick; schools, to educate children. The United Methodist church's primary objective is to attract disciples (which in turn keeps the collection box full and the church solvent).

To test whether ministers in Oklahoma get incentive pay, Hartzell and Parsons photocopied accounts from all Oklahoma churches dating back to 1960 and shipped them to India to be entered into a massive spreadsheet. The numbers included, among other things, a complete accounting of each minister's compensation as well as congregation membership and church revenues.

The researchers examined whether pastors earned more in years when their churches saw congregations grow and their pay suffer if membership declined. It turns out United Methodist congregations gave their leaders a $15 boost (in 2008 dollars) on average for each new member added (about 3 percent of new revenues generated from the membership increase) and cut their pay by about $7 for each member lost. Of course, not all membership losses are the fault of church leadership. Just as you wouldn't want to reward Exxon's CEO if profits shot up because of a doubling in the price of oil, ministers shouldn't get rewarded or punished based on luck. And it seems that the ministers' paymasters (more on them below) are wise to some of the complications that confront executive compensation committees. Parsons and his colleagues found that minister pay was insensitive to membership changes from births and deaths in the congregation, which lie beyond his control.

The authors also compared the payoff from converting non-Methodists to attracting new members from other United Methodist congregations. Much to their surprise, ministers received nearly twice as much for "stealing sheep" from other United Methodist flocks than for bringing in congregants from other faiths.

Why wouldn't the bishop of Oklahoma set pay scales to encourage pastors to grow the United Methodist pie rather than encouraging competition among his own ministers? It turns out that the bishop of Oklahoma doesn't set ministers' pay at all but leaves it to the discretion of local congregations. To understand why, it's important to keep in mind that a pastor needs to do a lot besides scouting new converts—he should show compassion to members in sickness or in financial trouble, deliver thoughtful sermons, set an example for the community. The bishop has neither the time nor the localized information required to evaluate each of his hundreds of pastors on these hard-to-measure tasks. So he leaves the task to each church, but with the cost that local interests prevail. And local interests may be well-served by attracting other Methodists, who may be more stable, dues-paying members than those who are new to the church.

The bishop does, however, get the last word, through his choice of which pastors get promoted to the choicest pulpits. And he uses this reward to at least partially reverse the backward incentives of local congregations. The study found that the path to high-paying, prestigious congregations is through converting people of other faiths, not stealing Methodist sheep.

None of this is to say that Oklahoma's ministers are inspired by paychecks alone—while their pay-for-performance sensitivity is similar to that of business leaders, the sums involved are much, much smaller (their average compensation was around $35,000 in 2006). But it is a reminder that even in circumstances in which one wouldn't expect material rewards to be a motivation, a higher calling may not be enough.

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Ray Fisman is a professor of economics at the Columbia Business School and co-author of The Org: The Underlying Logic of the Office. Follow him on Twitter.

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