A couple of months ago I left consulting for a Director-level position with a team of five people (all new hires). About a week ago one of my employees (project lead) told me they feel overwhelmed by work and cannot deliver on the level they’ve been hired for. We’re talking about “downgrading” them one rank to allow for future growth into the role, but curious to hear if anyone had a similar situation and how you dealt with it?

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If the employee is raising a hand, it makes your job easier. You give them a runaway they can sprint on, and prepare for the next bigger runaway. There's nothing complex about this.
The other thing I'd learn from this is to consider deeper evaluation of candidates when hiring them at/for certain levels/roles.
Another thing to consider is whether you're short staffed (operating in a consulting mode but in industry), and that causes overburdened bunch of employees

Definitely, I was not a part of the hiring process here - I was given a (very senior) team.

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