I heard someone once say “government is not an employment agency”. Government exists to provide services to the public, who pay for it with taxes. It employs people to the extent it needs to in order to manage the services it provides. They are necessarily related.
I’m not sure it should be a question of salary vs. services, but a balance of the services you must offer and the staff required to manage those services. The City of Reno has had two rounds of layoffs, and is in the process of literally restructuring the organization (departments strategically re-organizing or eliminated). We hope that we will be a leaner and stronger organization when the dust settles. I think the key is to go back to the basics. What core services is your government there to provide? Once you determine what you need to offer, and get public input on what citizens think is important, then you can honestly look at the staff resources required to maintain those functions.