How does the pool take into account the miner's higher difficulty set point that would correlate to a lower submitted hash rate and the payout share?
It pretends like one proof of work mined at difficulty 32 is 32 proofs of work at difficulty 1. So the payout is fair, but there is a little more variance at higher difficulty. As far as I know this is how all the pools handle variable difficulty.
If you want to know more about that I'd suggest you check out organofcorti's blogpost about it:
http://organofcorti.blogspot.com/2012/10/71-variable-pool-difficulty.htmlCool, thanks for the insight, and I'll run through that blogspot ...