When You Have Honors Students in the Classroom

Because we are so short of faculty, I have a section of 30 honors students in my lecture class along with the 500 regular students. Although the 30 also have a recitation with some additional assignments, five-sixths of their grade is based on the same tests, quizzes, and short essay as the other students.
What grading scheme for each group would maintain equity while creating incentives for each group to put forth the maximum effort (a question in mechanism design)?
The honors kids are on average better students than the regular students, but there is a substantial overlap. I decided to make up the grade scale on each test based solely on the regular students’ performance; I then assign the honors grades based on how the honors students would have done if they were in the regular section. This way, the scale for the regular students isn’t raised by the honors students’ performance. The regular students don’t get discouraged and they exert the desired effort; and the honors students aren’t penalized by being compared only to each other (and thus are not penalized for having enrolled in that section). This might reduce incentives for the lazier honors students to exert the maximum effort, but I couldn’t think of a better scheme that solves all the problems I foresaw.