There's a lot of potential baggage here (some of which has definitely been brought up)

First off how do you gauge this? Is it someone who properly executes mechanics? Does someone who is new to an instance get that waived as he/she might not be expected to know them all? If it's DPS, how do you reconcile a returning player who might need to gear that drops to power up over a continual player who wants the gear for other purposes (GC seals, sell for gil, glamor, etc)

And, if it's mechanics, the subtleties of trying to determine if someone handled it incorrectly causing others to die would be harder for an algorithm to determine if DPS is included, or even the simple thing of "this person handled the mechanic correctly, but died anyway" That one can happen for stack markers where maybe you stack with the person, but no one else does, so you die. If it's a hybrid of both, then this can become an issue when it comes to healers as well as red mages and summoners. If one player does a lot to support and provide raises to other players, then that comes at an impact to their personal damage potential, which in turn would hurt their ranking for loot.

I do think that the loot system needs to be overhauled, but I'm not sure that performance based is something that's really workable as there are too many little things that can throw it off. However when it comes to the weekly loot limits, Omega and Ivalice raids this expansion, I'm in favor of that system being adjusted so that every clear you do gives you an item, and once per week a set number of those items can be traded for the loot item of your choice, and that doing so can only be done if you haven't already obtained loot, and would count as you getting an item from that instance if you haven't already obtained one for the week. This would keep people from having to do the sometimes 20-something runs of Omega trying to get a shaft, or the multiple runs of Rabanastre just hoping to see something you can use drop, and then hoping your not outrolled in the item.