The primary concern, or ethic, of a manager is to maximize profit for the business, i.e the owners. It is his purpose for being.
You are entirely correct. Where we disagree is in the term of outlook. Your manner of phrase suggests that you are basing your premise upon a larger, probably corporate, structure. One of the greater failings of this ilk of business today is its irrational, though (stock) market driven, emphasis upon "per-short-time-period" (i.e., quarterly) earnings. To maximize profits under this (IMHO absurdly sick) model, the slashing of "workforce costs" is right up there at the top-o'-the-heap.
However, it is unethical, to place inordinate importance on paying people based solely on "merit." A startup firm may not be able to pay the same salary as an established one, for instance. Should the former pay more than is prudent and risk tanking? Of course not.
Merit-based pay is not solely paying on an absolute scale in accord with established firms in your marketplace. Anyone joining a startup operation knows the purse-strings are tight in the beginning. They have probably joined based on the possibility of the "eventual payout". If and when that time does come, payout should be solely based upon merit. "Merit" might even be, "I was here first and suffered longer" or "I worked longer hours and accomplished more" or "I was the one responsible for our invention being approved by the FDA".
A good manager will keep his people happy, i.e., pay them what they are worth, not because it is the moral thing to do, per se, but because in the long run, happy employees are better workers and tend to stay put. Of course, rather than pay a market wage, he might also put a Coke machine in the lunch room and charge 5 cents a can to make them happy, instead.
I have no problem with your definitions of "pay". Take my case as an example. The folks who sew with me live in some rather unsavory sections of NYC's Outer Boroughs. For three days each week, they come and live in a large, wooded country estate, during which time they work on shirts. Certainly a nicer environment than they have the other four days. They consider this to be part of their remuneration.
It is neither unethical, nor immoral for that matter, to pay below-market wages to your workers, if you can manage it. It is the exact opposite.
Here is the gist of where we disagree, for I consider this attitude not only immoral, but also, primarily, <s>stupid</s> poor business judgement. It is this philosophy which is the prime motovator of the "us vs. them" employee/employer relationship. It may offer your business a temporary (read: quarterly) profitability uptick. On the downside, it will certainly lead to employee unhappiness (read: Take this job and shove it.), lower ROI (RO-wage-I) , increased tension, lower quality. This is where it becomes most evident to the customers of the firm. When employees live in the "us vs. them" model, their incentive to produce the finest possible quality changes from "the best we can do is good for the company" to "I have only to do as well as is necessary to keep my job". Most employees suffering under the "us vs. them" philosophy spend their time thinking not about how they can improve the firm, but instead in guarding themselves from the next place their employer is going to try to take "just a little bit more" from them.
The problem with talking about morals in the context of paying workers, is that morals tend to be absolutes.
Yes. Morals are absolutes. The problem with ignoring absolutes is the concept of creeping moral relativism ... a much larger and overarching argument than this discussion merits, because ...
If it is immoral to pay a worker less than he "merits," it might logically follow that struggling businesses have no "moral" right to cut wages to survive.
... although the morality of merit based pay is an absolute, the amount of remuneration is not. From the pool of available wages, those who merit a greater share should receive a greater share. To argue in the context of what a firm can afford to pay is to step sideways from the argument by introducing the concept of market factors. Most companies, at some time during their lives, experience a shortfall in earnings. If, past whatever time period the employees are willing to suffer a bit to preserve the health of the firm, there will be insufficient wage capital available to pay in accord with the prevailing market rates of the industry, then the firm should cease to exist. On the other hand, most long-term employees, at least in my microcosmic experience, are willing to suffer throught these periods when they realize that, in the longer view, they are being fairly compensated based upon their merit.