The arbitrariness is a risk. But the general idea is that there is a strong inertial bias against firing “enough”, and this grows exponentially with company size. Doing a PIP is extremely annoying when you are already sure you want to fire someone. So it’s not uncommon for underperformers to get moved around.

Essentially the individual incentives for managers are naturally to avoid making the tough decision, the idea is to put some more pressure to make the right call.

Your value of X% will vary but you hope it’s tuned by some research within the org.