Agreed on the pay cut - even if temporary - and aligning incentives. Resignation frees them from a chance to correct their missteps. Just making a guess here, but I would think that, in general, good people who actually hold themselves accountable for screwing up understand the situation better than a replacement. Unless there is a pattern, it is probably in the org’s best interest to give that manager a shot at redemption, especially considering the glut of incompetent managers, the learning curve for competent managers, and the likelihood that a replacement would do a better job.

If an engineer screws up hugely, do you want get rid of them immediately and find a replacement, or evaluate whether or not they learned a very important and expensive lesson that may happen again with a replacement?