Wednesday, February 22, 2012

Compensation Planning - Part 2 of ?

As we continue our journey of taking an in-depth look at compensation, we will look this week at Step 2 - Defining the Umbrella.

One of my mentors who is a teacher and pastor once taught me that people retain concepts that are associated with pictures. I try to incorporate this philosophy into my technical training since technical topics tend to be "uninteresting" and sometimes downright boring. Keeping in line with this teaching technique, I created the idea of the compensation umbrella. The compensation umbrella is the amount of reasonable compensation that may be paid to an employee. In other words, it is the maximum amount that may be paid to an employee. It does not have to be paid, but it is the measuring stick used to determine the maximum that can be paid.

Defining the umbrella or the amount of reasonable compensation that may be paid should be accomplished using outside data compiled from an independent source.

These include salary surveys from organizations such as the National Association of Church Business Administrators and using independent compensation experts. These are people specifically trained in the arena of compensation and human resources and have practiced in this area for many years. (The IRS and some states' attorney general offices have declared that this does not include certified public accountants or attorneys unless compensation and human resources is their area of specific practice. In addition to a lack of qualifications, most attorneys and CPAs are not independent to the person whose compensation is being evaluated.) Additionally, smaller organizations, i.e., less than $1,000,000 in revenue may accumulate information from like size and like minded organizations.

After gaining data from outside sources, the data should be reviewed through the lens of the operations of the organization. To this end, the organization would want to consider the following factors:

  • The employee/minister's qualifications

  • The nature and scope of the employment arrangement

  • The size and complexity of the organization

  • The prevailing economic conditions of the area

  • The organization's overall salary philosophy

  • The financial condition of the church

The above steps only create the umbrella of reasonable compensation. The organization is not bound to pay this amount. However, if it pays more than this amount then the employee and the decision makers may be subject to penalties and the organization's exempt status could be jeopardized. This subject will be discussed in next week's post.

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