When financial and economic realities reach the point that labor costs must be cut I believe a good option to consider is cutting hours (and pay) instead of people. Some people will have extreme hardship if the cut in hours and pay is significant, but once you get is a bad situation no answers are likely to be without problems. I would try to offer the cuts to those that want them first. I would likely take an unpaid sabbatical, if offered, and the organization was in financial trouble.
Another way of doing something similar is profit sharing (where costs go down when profits go down). You should be careful how such sharing is designed, it can create bad incentives if done incorrectly. Also by paying a portion of wages as bonuses that expense can be reduced when times are bad without layoffs.
According to the U.S. Bureau of Labor Statistics, the number of employees who normally work full-time but now clock fewer than 35 hours a week because of poor business conditions has climbed 72%, to 2.57 million in November 2008, from 1.49 million in November 2007.