(1) A court-martial sentence of an enlisted member in a pay grade above E-1, as approved by the convening authority, shall reduce that member to pay grade E-1, effective on the date of that approval, when it includes:
(a) A dishonorable or bad-conduct discharge; or (b) Confinement.
(2) If the sentence of a member who is reduced in pay grade under subsection (1) of this section is set aside or disapproved, or, as finally approved, does not include any punishment named in subsection (1)(a) or (b) of this section, the rights and privileges of which the person was deprived because of that reduction shall be restored, including pay and allowances.