Abstract Incentives are critical to the study of economics. But do they work in non‐traditional economic settings, such as religious organizations, in a manner consistent with economic theory? This study considers the agency relationship between churches and their clergy. This paper contends that pastor compensation is not typically tied directly to performance, but rather indirectly through promotion tournaments. Pastors whose performance is recognized as being exceptional are rewarded by being called to larger, more prestigious congregations. Given the difficulty of observing and measuring pastor performance this represents a sensible solution to the church–pastor principal–agent problem. Copyright © 2001 John Wiley & Sons, Ltd.
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