Through best-selling books and excessive compensation, a growing number of pastors are becoming millionaires. Let’s take a look at one of them.
Thirty-one years ago James MacDonald and a small team of believers started Harvest Bible Chapel (HBC). The church grew rapidly and launched new multi-site campuses in the Chicago suburbs. MacDonald also reached a large radio audience after launching his media ministry Walk in the Word.
With assistance from his church and ministry staff, MacDonald became a prolific author. Moody Publishers, LifeWay Press and others published MacDonald’s Bible studies.
HBC fired MacDonald in February 2019 after radio show host Mancow Muller broadcast an audio clip of MacDonald discussing the idea of planting child pornography on Christianity Today President Harold B. Smith’s computer.  MacDonald was furious because Christianity Today published an article that didn’t defend him for suing Christians critical of his actions.
A recently published audit of HBC revealed that MacDonald was being compensated extravagantly. The church’s compensation committee approved almost $4 million in compensation for MacDonald from 2015 through 2017.
In 2017, MacDonald was approved to receive $1,387,500 in salary and benefits.
What would be MacDonald’s hourly rate?
If a pastor worked 2,000 hours in one year and was paid $500 an hour, he could earn a million dollars. A pastor could reach 2,000 hours by working 40 hours per week for 50 weeks, two off for vacation.
So how many hours did MacDonald work? According to former church members, MacDonald took extended vacations up to two months each summer along with vacations during various holidays.
If MacDonald worked 1,600 hours in 2017, basically 40 hours per week for 40 weeks, he was paid $867.19 per hour.
Is it reasonable to pay a pastor $867 per hour?
The IRS website asks a key question: “How do we know whether the compensation we’re paying to our officers and key employees is reasonable?” The answer: “Reasonable compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances.”
To establish reasonableness, a compensation consultant or committee will study what similar churches or non-profits pay their officers. However, a troubling trend has emerged of pastors’ salaries being compared to those of big business CEOs and famous celebrities.
In 2011, a Senate Finance Committee report noted one televangelist’s compensation was based on that of famous pop singers and TV talk show hosts:
“Taking into consideration the compensation of for-profit CEOs and media personalities like Oprah Winfrey, Britney Spears, Madonna, Rosie O‘Donnell, and David Letterman, and mindful that the minister also receives income from book royalties and consulting fees, the consulting company recommended that the minister‘s total compensation be set at $2 million.”
Senator Charles Grassley and his staff were concerned the “reasonableness” standard for compensation was being abused:
“Throughout the course of charity investigations during the past nine years, including hospitals and religious organizations, Committee staff has obtained and reviewed many compensation studies. Often times, staff found that decision makers rely on a compensation consultant’s analysis and simply rubber stamp the consultant’s recommendation without challenging the consultant’s assumptions.”
Tax Penalties for Excessive Compensation Involving Non-Profit Executives
Grassley’s staff concluded tax laws were too lenient on non-profit leadership that permitted excessive compensation. A Senate report noted, “ …{There} is little incentive for the organization’s governing body or managers to scrutinize transactions for excess benefits or to prevent excess benefit transactions from occurring.”
Pastors and ministry staff are rarely prosecuted for excessive compensation. According to the Charlotte Observer (quoted by ProPublica), prosecution of non-profit abuses is not a big priority at the IRS:
“Most years, fewer than 10 of the nearly two million U.S. nonprofit leaders are penalized for receiving excessive compensation. And the IRS office that monitors non-profits is so thinly staffed it examines just 1 percent of their returns.”
Where is the Accountability?
In 2011, Senator Grassley asked the Evangelical Council for Financial Accountability (ECFA) to set up a commission to study tax loopholes his staff identified that were being abused by religious organizations, and to propose solutions.
In December 2012 the Commission on Accountability and Policy for Religious Organizations made its recommendations public and suggested the status quo be maintained—thus continuing to provide blanket protection for churches and ministries paying exorbitant wages.
The Commission report opposed penalizing churches and ministries for excessive compensation: “Excise tax penalties should not be imposed on a nonprofit organization itself in connection with an excess benefit transaction.”
The Commission’s defense of the status quo should not be surprising. The commission included attorneys and allies of televangelists. One of its legal experts, Thomas Winters, has served as, and may continue to be MacDonald’s attorney. In March 2019, Winters registered the new non-profit organization Walk in the Word with Dr. James MacDonald.
In a recent audit of HBC, Winters’ law firm received harsh criticism for not providing an “independent” compensation study. Instead, Winters & King relied “on data gathered through circular methodologies … and developed from the firm’s own clients for which it presumably provided similar executive compensation studies to justify each other’s organizations.”
There are ample reasons for the IRS to audit MacDonald and HBC. This should be a warning to other megachurches that have employed similar strategies while paying large salaries to pastors.