There are two questions you need to answer:
With the current salary and work performance, are you satisfied that the company is getting their money's worth?
Is the employee happy because they are getting paid more and have a lighter workload and so are less-stressed and more relaxed? Or are they angry they aren't getting more money and working in a "protest mode" that will make them miserable long-term?
If the answer to 1 is "no", then you have to tell the employee that the raise was given with the expectation that performance wouldn't get worse and the employee has to either take a pay cut, increase their productivity, or leave.
If the answer to 2 is that the employee is happy, then let them know that you are okay with the situation and that you hope that they are more relaxed and less stressed and you will see what you can do about getting them another raise when policy next allows it.
If the answer to 2 is that the employee is not happy, then you have an actual problem. Someone who feels underpaid and unsatisfied because they are not living up to their full potential because they want to punish you for underpaying them is not going to be a stable situation. Expect the employee to quit if you can't find a way to get them more money. Give some thought to whether they're really worth more money and, if so, try anything you can to get an exception.
If you can't get them more money and they are unhappy, they will probably be looking for a new job very soon (if they aren't already). All you can do is try to make them happier with the situation with some social engineering. It may help to get a better idea of what they want their career path to look like and show some empathy. Building a better rapport with them may make them more satisfied. Let them know that you are okay with their level of productivity and don't want them to be miserable or get burned out.
If you can't pay them what their work is worth and they can find someone who will, them leaving is probably best for all concerned. If you really, really don't want them to leave, you need to find a way to pay them what they're worth.
But if they were being overworked before because they really wanted a lot more money, then it will never work out. They'll either be unhappy because they're underpaid or they'll burn out. If this is the case, you can try explaining to them that it is best that they keep their reduced workload and you will try to keep things low-stress for them as well.