I’m going to assume that this change has nothing to do with the employee’s performance, either overall or in the payroll portion of his job. There seem to really be two related issues here–the removal of his payroll responsibilities and the pay cut. I would deal with each one separately.
When you tell him about the removal of his payroll responsibilities, preface it with why this is being done. Stress that the change has nothing to do with his capabilities or performance (if indeed that is true).
And this is an apt time to give him positive feedback and praise on his performance. Studies show that, even more than good wages, what employees want most of all is full appreciation for work done.
Guidelines for giving positive feedback
Describe the behavior, not the person.
Use specific language and examples.
Describe the impact of the behavior on you, others or the task.
Show appreciation for the person’s effort.
Be sincere, not manipulative.
Before you go on to cutting his pay: is there nothing that can be done to replace his payroll responsibilities with other duties of comparable worth? As you say, he has 12 years’ service with your organization. Perhaps he would need some additional training or education. But hasn’t he earned some attention being paid to his career?
And don’t forget any potential legal ramifications. This is a demotion, second only to involuntary termination in severity. Even if he is an under-40, native-born, white male, how many women in your organization are being demoted through no fault of their own?
If you must cut his pay, tell him (or problem-solve with him) what he can do to get back to the same level of compensation. Finally, be on the alert for warning signs of workplace violence–whether in the form of physical attack, sabotage (e.g., of financial records), theft (e.g., embezzlement) or just bad-mouthing–either now or in the days to come. Job demotion is one of the classic triggering events of violence for those who are prone to it.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.