im not sure the reputation system has ever been salvagable. It was a disaster from the moment it was introduced and it has gotten worse. People with currently high reps aren't going to like it, but my answer is shoot it in the head and start fresh with something rational.

5% is too low, IMO. One of the things you have to remember is that the reward is split between many. So on a post that makes 50 bucks with 100 voters, that's going to be like $2.50 split 100 ways. personally, i don't think cutting it in half and removing the reverse auction is a terrible idea. My understanding is that the initial adoption of the reverse auction was somewhat controversial.