For me, it doesn't make a difference at all what the percentages are. It obviously makes a difference to Slackr, which is why he said the quality is reduced, and which is why I asked him how exactly the quality of the grade/clerkship is reduced, just because he finds out several months to a year later on his MSPE that 30% of students got Honors on a clerkship. Decreasing the number of "Honors" grades given out doesn't magically change anything about how good or bad that clerkship was -- same attendings, same residents, same shelf, same observed H&P, same turning in of a written H&P, etc. and doesn't tell you anything about actual performance.
I was being slightly tongue-in-cheek, not literal, with my question to you, but you felt that at a certain large percentage of the class receiving Honors, it becomes more of a "trophy for showing up to tee ball" thing. So I'll reword my genuine question to you: At what percentage or range does that Honors grade start to retain useful meaning for you, and is not diluted/inflated? Or if you were a residency faculty member reading a MSPE, at what percentage/range of the class would you want a clerkship director to reduce Honors to, to have that grade in front of you retain useful meaning and not be diluted/inflated?
Honors is the name given to a clerkship grade - the highest clerkship grade, it's not an award. It's a grade given once a certain competency level has been reached. We use the RIME (Reporter, Interpreter, Manager, Educator) at our school. It's no different than in a basic science class where it's clearly defined at the beginning what the exact cutoffs are for each grade: 90 or greater = Honors, 80-89 = High Pass, etc. based solely on individual performance, not based on whether you're in an overall smarter or dumber class. You want grades to be assigned based on your performance as relative to other classmates, and not whether certain abilities have been achieved, which doesn't change with the specific class or with time. It has nothing to do with feeling "entitled" to get Honors.
If your view of grades was adopted, it would play into and legitimately justify the views of gunners and hypercompetitive medical student classmates who believe their grade is assigned based on where they fall relative to their classmates and not to a set of behaviors and actions.