The foundation principle of compensation design in the free enterprise system is that contribution will be equated to compensation. This principle should guide the salary and benefits philosophy and design of churches if they want to be fair and competitive with their staff compensation.
To better understand the meaning of the philosophy and application of “contribution equals compensation” let’s look at two metaphors, The Compensation = Compensation Scale and The Compensation Pyramid.
Compensation Equals Contribution Scale Metaphor
The Compensation = Contribution Scale – A metaphor for compensation design in a free market-oriented economic system is a balance scale with a tray on each side. The scale represents the fundamental principle of balance or equity in compensation.
Contribution Equals Compensation – This foundation principle means that an employee’s compensation should be equal to their contribution to the organization. Contribution = Compensation is the basis for equity or fairness in an organization’s compensation system.
Contribution – Contribution goes on the left side tray of the balance scale. Contribution consists of three elements: Records/Reports, Responsibilities and Results.
- Records and Reports – Records and Reports include the past record of education, training, experience and accomplishments of the employee.
- Responsibilities – Responsibility means the job duties and areas of oversight, accountability and authority assumed by the employee in their present position.
- Results – Results are the agreed upon outcomes achieved by the person in their present position, as well as the various initiatives involved in achieving the results.
Compensation – Compensation goes on the right side tray of the balance scale. Compensation is summarized by the word “reward.” This represents the actual salary, bonuses and benefits paid to the employee.
The Balancing Component – The square lever found on the middle point of many balance scales is an adjustment mechanism, referred to as “The Balancing Component.” In a free enterprise labor market, like that in most churches and non-profits, supply and demand forces are constantly at work, throwing the scale out of balance. The Balancing Component brings the scale back into balance, and it can work on either side of the scale.
- High Demand/Low Supply – When the demand for a particular position or skill is high and qualified people are in short supply, the marketplace puts a higher value on contribution. Under these circumstances the church or organization must increase compensation for a given position.
- Low Demand/High Supply – On the other hand, when there is low demand and high supply, the reverse is true……….you may pay less for the same position.
The Balancing Component requires you to identify the various Reference Groups you are comparing your church staff to. It may be employees inside the church or staff in other churches. These Reference Groups may be better understood through the Compensation Pyramid metaphor.
Compensation Pyramid Metaphor
The Compensation Pyramid describes three factors which must be considered when translating the Contribution = Compensation Scale concept into a church staff compensation system.
Internal Equity – The first point of the pyramid, Internal Equity, refers to the equality between jobs on the church staff. Not all jobs are created equal. Different jobs make a different contribution to the church’s mission. Some jobs have more responsibility, require more training or supervise more people. Internal equity is determined by a ranking process based on such factors. Jobs with similar contributions, responsibilities and skill requirements are grouped together in a category referred to as a Job or Salary Grade.
In most formal compensation programs, this process is called job or position evaluation, and the outcome is the assignment of each job to a general classification, such as Ministerial, Administrative and Operational Staff. On large church staffs there are typically multiple Salary Grades within each classification, such as M1, M2, M3, and A1, A2, A3, and O1, O2, O3, etc. It is important to note that internal equity does not evaluate the person – just the job.
External Equity – The second point of the pyramid, External Equity means that the pay for jobs in the church is similar to that paid in other churches. This phase of salary administration is usually accomplished through salary surveys of like-sized churches. The outcome of this step is the development of Salary Ranges with Minimum, Maximum and Mid-Point (Reference Rate) salaries for each Job Grade.
This Mid-Point, or Reference Rate, may be viewed as the competitive salary for a given position in the marketplace. The church may use the Reference Rate as a basis for budgeting for new positions and a goal to achieve for all current positions. Like Internal Equity, External Equity does not look at the person – only the job.
Job Performance – The third point of the pyramid, Job performance, looks at the person in the job. A particular job can be performed at different levels of proficiency by different people. The process of regularly reviewing a person’s performance is referred to as Performance Appraisal.
Provision for including Job Performance in the compensation system is provided through the Salary Range for a particular job. The higher salaries in the range for a job allow higher performing contributors to be paid more than the lower contributors, or for more experienced employees to be paid at a higher rate.
Designing A Church Staff Compensation System
The Compensation Scale and Compensation Pyramid metaphors may be used as tools and checklists for designing and evaluating a church staff compensation system. Contact me at firstname.lastname@example.org to discuss how I might help your church design a fair and equitable staff compensation system.
This post is a general description of the concepts found in the Main Event Management Organizational Leadership program, Model-Netics. Contact me at email@example.com to learn how to bring Model-Netics Training to your church or organization.
Posted on February 14, 2017