I use a system similar to Vincent's - most NPCs are 2nd-4th level. Yes, I know a conceit of the D&D level-system framework was the vast majority of NPCs are 1st level but that never made sense to me and it seemed arbitrary just to elevate the PCs to "special" status. I also noticed that almost no published modules followed this paradigm; mid- and high-level modules were rife with mid- and high-level NPCs that were otherwise unexceptional. The NPCs scaled for no other reason than the PCs level increased.
Like Vincent, I prefer NPC opponents over monsters and in order to challege the PCs, there needs to be more higher-level characters running around. If you're a 1st-level PC starting out, you're going to pay your dues and its only things like Fate Points that put you above the rank-and-file. Once you hit 3rd-4th, you're on par with most of the world. Above that, you're pulling farther ahead.
In my campaign, 90% of the soldiers/guards, etc. are 2nd-4th level. That will be true at 1st level and at 10th, 15th, or 20th. Elite guards will always be higher level and special/unique NPCs can gain levels at comparable rates to the PCs.
I use the "learn something every day" approach for "non-adventuring" NPCs. Each NPC earns 1 XP/day. So for the 16-yr old newbie, they'll hit 2nd level around age 19. Soliders on campaign, nobles dealing with intrigue, thieves, etc. may advance faster since their occupations are more hazardous/strenuous.
On a non-Conan note, this method produces higher average-level NPCs for longer lived races such as dwarves and elves (avg. level 5-9) but plateaus at the higher levels. This always made more sense to me - dwarves and elves are still a force in the world because of their relative power level even if they don't have the numbers that humans and other lesser-lived races.
