Reducing the employee's salary due to lack of performance

Performance = Ability x Motivation
Ability is the person's aptitude, as well as the training and resources supplied by the concern he is employed.
Motivation is the product of desire and commitment to perform in the given work.
Someone with 100 percent motivation and 75 performance ability can often achieve above-average performance. But a worker with only 30 percent ability won't be able to achieve the type of performance you expect, regardless of his or her level of motivation.
Poor permanence can be
Lack of knowledge in the given work
Motivation to do the given task
Sluggish, lethargic attitude towards work.
Remedy
Diagnosing Poor Performance
Very difficult tasks.
Low individual aptitude, skill, and knowledge.
Evidence of strong effort, despite poor performance.
Lack of improvement over time.
Recharging the Ability in a candidate
Resupply of the best resources to finish a given task
Retrain.
Refit.
Reassign.
Release.
Before going down that route, however, try the strategies discussed here and create a great work environment for your employees – one where their abilities are used to their full potential, and where good motivational techniques are used on a regular basis.
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From there, it's important that you and the employee discuss and agree upon a plan for improving performance. Write down what you've agreed, along with dates by which goals should be achieved. Then monitor progress with the team member, and use the techniques we've discussed above for increasing motivation and dealing with ability-related issues.

Dear AM:
We need to look to both the sides of the coin, before taking the punitive action of pay reduction( Please also take into account the statutes and the relevant bye-laws).
The performance appraisal , by definition comes after one year, and whatever the reasons are for the staff's low output / performance, has he been provided the necessary facilities for skill building and development, to match the needs of the job, at the company's 'satisfactory' level. All such 'measurements' are too vague. Also remember all learners and task performers are not equally proficient - and though performance appraisal has become a very definite science, yet it is relative and often given to a lot of subjectivity ..
The onus at this point lies on the management to help train the employee with skills development, within a given time frame, and then think of upgrading or firing the employee.
Regards
Arif ur Rehman
Karachi

Dear Soumitra,
Here are the answer for your questions:
1. Process of recruitment was followed but checking on his capabilities wasnt tested as we had to rap the position very urgently and we had very limited number of good resumes. But certainly, the employer's expectations was put across and a detailed technical discussion was carried. Though he wasnt excellent, he was much much better than the other for the cost we had. We always believe in grooming employee's to help them perform much better.
2. Yes, he had been set on a career graph, given clean picture on what his job requirements are.
3. I agree upgradation has to happen. Since we are a start-up we cannot offer him to take up courses, but we have put it across to him that he must attend courses to gain knowledge and that we will be flexible on his work to facilitate his learning.
4. Yes maam, we do feel that. Thats exactly what we have been doing from past 3 months.
5. He did match to our job requirements and thats what he was interested for. Im not saying he lacks in all the aspects. He has the knowledge but he doesnt know where and when to apply it until told to do so. He is being mechanical. We want him to be pro-active. If not for major decisions, at least for the one which he can think for, we need him to make such decisions for himself.
To add on,
I conducted little programs to enhance his decision making ability and think out of the box. Other programs to improve his communication and skills is in process too. My intention is never to bring down his salary, coz i know standing in my employee's shoes, its very painful to do so. MD is sitting with him for every task assisting him how to go about it. By now we expected that he could get little hang of it. But its very slow. If we did not have intentions of pushing him to go better and give him good career exposure, we would have been harsh. But thats not ethical.
Most of the programs that we can do in our limits is been done and still doing to push him. Every week we counsel him and understand his bottle necks. He says hes doing absolutely fine but he needs time to complete tasks. Thats fine, but absolutely fine is not shown in his work. The problem is, we cannot sit with him for every task assisting him coz we not running out on our time to finish our tasks.
Thats why i need alternate suggestions to avoid taking such action.

Thanks a lot Mr. Murali and Arif UR Rehman for your feed backs. I am trying my best to achieve the points discussed in this thread.
Motivation programs are carried on every week in this company sir. Thats the foremost thing i take care of. Never want any employee low or down that affect his work. Till date that hasnt happened, hopefully will not happen :)

Dear Aishwary,
Is any clause under the letter of appointment speaks of you can decrease one's salary? Did your letter of appointment speak of quantum of performance? Did you counsel the employee regarding his performance you looked for? Did you warn him for this? Is your standing order having the scope of decrease salary of employee?
If it is No then you can not decrease.

Dear Prabhat sir,
No sir, its not been mentioned in the offer letter, thats exactly what im afraid of. Its unethical to do so when its not mentioned in the offer letter. Apart from that, counselling and warnings have been given to the employee.