Xp reduction

XP reduction (or XP penalty) describes a condition whereby the amount of XP you receive from an action or killing is reduced or nullified.

NPCs

Many NPCs in the game will reward a reduced amount of or no XP on a kill if a player's level exceeds a certain threshold. This is to encourage players to not farm easier targets and to seek out newer, more challenging locales in which to hunt.

Crafting

As a crafter advances in level, the XP gained from recipes suffer diminishing returns. For example, a level 15 crafter will gain no XP from a level 1 recipe. This reduction has no other effect, meaning, procced components and other effects remain in full effect.

Hegemony Reduction

When a player hits level 20 (player level or guild level), the power of his gear will determine whether and how much XP reduction will occur. This reduction is calculated on the number of pieces that a character is wearing that is considered hegemony gear. Note that hegemony gear does not strictly refer to hegemony gear sets, but includes some of the strongest armor in the game, whether found or crafted. For example, some top tier crafted armor is considered hegemony gear. The game only calculates armor, not weapons, when determining the XP reduction.

The reduction only comes into play when the monster that has been slain is below level 20. A common observation is that mutated lobsters will provide less or no XP to a hegemon upon death.