How do universities deal with loss in productivity post tenure?
The cynical answer is "nothing". But in truth there are other ways to monitor progress and dole out rewards/lack of reward. 


If your productivity drops off a cliff after tenure, you're unlikely to get promoted to full professor (US-specific), and get the associated salary increases etc. You may be comfortable with this (less service is a good thing!)
Some universities do 5-yearly post-tenure review. Doing poorly on such reviews can lead to loss of raises, reduced access to new space and facilities, increased service load (if you're not pulling in funding or teaching well for example), and so on. 


but ultimately, the final incentive is your own desire to perform. It's very hard to fire faculty. But administrators can try to kill entire departments.