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My dear friend
As far as I can understand the management doesn't want her around for whatever reasons and this is just an excuse to force her out. Ask her to take the cue and start looking elsewhere.
Negotiating with the management when they have decided otherwise (as is evident from scaled down increment to an over achiever) won't serve any purpose. Trying to understand the reasons for management decision is also a fruitless exercise. Management can always quote non productivity or under productivity through appraisal to justify their actions. Productivity is a relative term and it is difficult to measure it.
Hope this helps

From India, Delhi

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