Former Yankees manager Joe Torre made headlines recently when he turned down an offer to manage the team for another year for $5 million, or a 22 percent reduction from his previous salary, albeit with performance incentives. His thinking was that the offer showed that the Yankees had lost faith in him—even though he would still have been the highest-paid manager in the game—and so it was time to move on.

“The fact that somebody is reducing your salary is just telling me they’re not satisfied with what you’re doing,” Torre said at a press conference explaining his decision.

But can it ever be a good decision to accept a pay cut? Sometimes the answer is yes, say career experts, but only in certain very specific situations. A company in an industry-wide or economic downturn may ask its employees to take lower salaries to keep the organization afloat or to avoid massive layoffs. In that case, the alternative is often having no job at all. Executives frequently accept lower base pay in exchange for stock options or other financial incentives that can result in a big payoff down the line, and career changers moving from lucrative industries into nonprofits or academia usually have to take a hefty salary cut.
     
But in many cases, a pay cut is a not-so-subtle way of saying you’re no longer wanted, which is how Torre interpreted the Yankees’ offer.

“Often this is just a message for you to leave,” says Bill Belknap, an executive coach with the Five O’Clock Club, a national outplacement and career-counseling organization. “A lot of hard-nosed companies wouldn’t even give you the option. They would just fire you.”

Belknap says he generally advises his clients against taking a pay cut because it usually means a step back in an executive’s career, especially if management believes that the employee has been a poor performer. Belknap tells clients who are offered a pay cut that they should usually resign unless the organization promises to restore their compensation to its earlier level if performance improves.

Belknap adds that if word gets out about an executive’s pay cut, it could be a lot more difficult to motivate employees, since they might lose respect for a manager they perceive to be weak or a loser.

Dory Hollander, a workplace psychologist based in Arlington, Virginia, agrees, saying that accepting a pay cut often carries such a stigma that an employee can become a “mini-pariah.” She believes, however, that the stigma is often unfair, since advancing in one’s career requires taking calculated risks that occasionally may mean taking a pay cut.

Derek Chew, a program manager for Yahoo in Santa Monica, California, is a good example.

In 2003, Chew took a risk by asking his boss at a Michigan-based Web-marketing startup to move him from his position as project manager to one as a sales associate. The move meant he’d have to take a 50 percent pay cut, albeit with an opportunity to earn commissions, but Chew felt it was worth it to learn more about the company he was working for.