(1) A court-martial sentence of an enlisted member in a pay grade above E1, as approved by the convening authority, that includes a dishonorable or bad conduct discharge or confinement reduces that member to pay grade E1 effective on the date of that approval.

    (2) If the sentence of a member who is reduced in pay grade under subsection (1) is set aside or disapproved, or, as finally approved, does not include any punishment provided in subsection (1), the rights and privileges that the individual was deprived of because of that reduction must be restored, including pay and allowances.