Whether a demotion is prompted by an internal reorganization, a merger or the need to better match an employee's skills to a different position, compensation is a major factor when determining how to best navigate the change.

Shifting compensation is more clear-cut when an employee knowingly applies for, interviews for and accepts a different position within the same company that carries less responsibility and pay. However, when an employer initiates a worker's demotion, one of the biggest considerations is how to handle morale and performance issues if the employee’s pay is decreased — or how to address pay equity questions that may arise if the employee's higher salary remains in place. READ MORE