pretty cool thread (not making light of your situation) I like to read threads like this that pertain to actual business not why redmax is better than stihl 3000 times...
I would take all the cuts you want to make and tie them to production/quality. give the guys the opportunity to make the same pay while increasing revenue... I doubt production will go up 40% but maybe some type of happy medium? the guys are fat and happy now, let a few of the guys leave and find out what its like at other companies and hopefully word will trickle back or you'll be lucky enough to hire some back.. that will make a good statement to existing employees that its not better elsewhere I hope!