We are on a "Graded System"
Honors
High Pass
Pass
Fail
but it doesn't really matter because everyone studies as hard as they can. At least for me it isn't about "I want honors in x class, and only pass this class". I basically study as much as humanly possible, and if I get honors so be it, but my primary goal is just trying to pass. The grading system really is secondary.
Nothing really changes with a grading system, everyone is motivated and wants to do well, so we all study hard. Not to get a P or H or HP, but because we enjoy what we are doing.
Again, this is just at my school (Cincinnati) and my opinion.
BTW, Cincinnati is about as non-competitve as you can get. Notes, books, graphs, and charts that all the classmates make are there for the asking, and a lot are emailed out when something helpful is found. The grading system is based on the Top 10% of the class for H, Next 5% for HP, (OR 90% of the points, 85% for HP, etc) so you can have the entire class get honors (although passing is still hard to get). There really is no reason to compete other than you if are a bizatch.