In this paper I examine employees` response to a permanent pay cut within one of the leading international operating personnel consulting firms. While the rare empirical evidence provides controversial results, I find strong effects which support the existing theory on employees’ adverse reaction to pay shifts below their “fair” pay (Akerlof and Yellen, 1990) and the employers’ concerns stated in several surveys of wage setting parties. By observing clear measures of employee performance and quit behavior, I find (i) strong reductions in employee output as well as in output generating inputs and (ii) an increase in employee absenteeism and personnel turnover.