Dear Gunjan,
Your fears towards the employee's behaviour is natural. A resignation can always be taken back by the employee.
Please address the concerns why he resigned and what is making him recall it.
He has already shared his intention to leave the firm. You should keep that as a view .
Can you imagine what will happen if you offer him a pay-cut? By all means, do not negotiate anything with this employee. Rather act as if, his leaving the firm, never mattered. Let everything be absolutely normal. Anyhow, his employment in this firm is numbered. If he is not leaving right now, it only offers you the time to look for replacement.
Please avoid any demotion or even a pay-cut as he continues with the firm. It will send terrible message to other employees. You don't want to scare your employees with the signals, that aren't for them.
On the top , imagine the morale of this employee, who will have to work in a different role at a lesser pay. Right now with a resignation he only showed, his unwillingness, it will only catapult to greater negativity. Do not risk him spreading this unwillingness to others.
As an employer , you value your employees till they value you in return. No employee is ever indispensable. Any response towards prevention of him leaving, might actually show the fears of the employer. Remain strong and grounded.
You only need the best from him, till he works. I second the suggestion for the contractual position for an year, with clear deliverables. Make it a win-win deal for both the parties.
Wish you all the best !