Bryan Caplan of the Econlog says it better than I can.
EconLog, The Economics and Philosophy of Pity Grades, Bryan Caplan: Library of Economics and Liberty: "students should get the grade they earned. And this has nothing to do with how much higher grades would benefit them. Students who demonstrate their knowledge of the material deserve high grades, and students who demonstrate their lack of knowledge deserve low grades, and that's all there is to it. In short, morally correct grading is about merit, not need."
I do not give away grades, you earn them :) Or at least that is my goal!