Let me rephrase the OP to see if I get the problem right. He has attendance issues AND wonders whether milestone XP has caused that and what sort of bennies should reward attendance.
I see XP as the WORST form of attendance reward. Why do characters need XP (I am postulating D&D where XP = power level)? In my opinion, they need it to (a) have a sense of achievement (b) reach a power-level higher so the stories told can slowly change. It's not just a question of becoming more powerful, as characters tend to meet level-appropriate monsters anyway. But, your 3rd level party should be daunted by a trip through the desert to bring back a special spice from an oasis, while your 15th level team will just teleport there (or give a scroll to an hireling to do that, they have more important, world-changing events to take part in).
If you deprive low-attendance players from XP, and they are motivated by (b)... they just lose effectiveness and can't take part in the story. They'll soon complain and it will divorce them more from the story and reduce their enjoyment of the game, making them less susceptible to attend.
If they are motive by (a), it might work to give XP to people attending, but I'd fear of having them being too squishy, because then they'll be an hinderance to the group and not an asset. So the feeling of achievement you get from reaching 10th level would be strongly lessened if everyone else is 12th and they are usually the ones to be revived at the end of each fight.
I'd say that an XP penalty for not showing up risks ENCOURAGING people to not show up.
Personnally, I use another type of benny: story involvement. If someone is attending, he's usually interacting more with NPCs, so as a GM I can get the hint of what the PLAYER enjoy and put more of it in the next adventures. People who can't attend as much see less stories revolving around their character (but can still have fun whenever they are here) simply because they lack the opportunity to establish their characters goal (I am playing thinking mostly of sandbox-type games).
That, and I am first and foremost playing with friends. So we attend because we want to hang together, and I don't need an incentive to see my friends when not GMing, so usually, when people are not coming, it's more a question of real life getting in the way than lack of motivation...
Edit to add: on the other hand, I also felt sometimes that story-based advancement encouraged PCs to avoid some tangents... It's not necessarily a problem as long as they have fun but I always found it disappointing...