Reduction in rank may refer to two separate concepts:
Reduction in rank (Latin gradus deiectio meaning position degradation) was used as a Roman military punishment. [1]
The Uniform Code of Military Justice Subchapter III, non-judicial punishment, § 815. Article 15, commanding officer's non-judicial punishment, authorizes commanding officers to "in addition to or in lieu of admonition or reprimand" impose "reduction to the next inferior pay grade, if the grade from which demoted is within the promotion authority of the officer imposing the reduction or any officer subordinate to the one who imposes the reduction." Additionally, an officer of the grade of major, lieutenant commander, or above is authorized to impose "reduction to the lowest or any intermediate pay grade, if the grade from which demoted is within the promotion authority of the officer imposing the reduction or any officer subordinate to the one who imposes the reduction, but an enlisted member in a pay grade above E-4 may not be reduced more than two pay grades."
Uniform Code of Military Justice Subchapter VIII, Sentences, provides that:
§ 858a. ART. 58a. SENTENCES: REDUCTION IN ENLISTED GRADE UPON APPROVAL
(a) Unless otherwise provided in regulations to be prescribed by the Secretary concerned, a court-martial sentence of an enlisted member in pay grade above E-1, as approved by the convening authority, that includes--
(1) a dishonorable or bad-conduct discharge;
(b) If the sentence of a member who is reduced in pay grade under subsection (a) is set aside or disapproved, or, as finally approved does not include any punishment named in subsection (a)(1), (2), or (3), the rights and privileges of which he was deprived because of that reduction shall be restored to him and he is entitled to the pay and allowances to which he would have been entitled for the period the reduction was in effect, had he not been so reduced.
(2) confinement; or
(3) hard labor without confinement;
reduces that member to pay grade E1, effective on the date of that approval.