I disagree with the whole premise of 'productivity => better pay'. I think it is much better and easier just to pay everyone in the same role the same (maybe with some company wide profit share) and then fire all the bad people as quickly as possible. You avoid all the politics of performance reviews, and the problems of how to rank the relative value of different skillsets. Incidentally, I believe this is the system that netflix uses?

Identifying the bad people usually pretty easy. The problem I find is that most people in software a pretty non-confrontational, so it is hard to get them to fire the bad people, even when they are obviously bad for productivity.