How is that different from being graded in other subjects in school? You don't get an A in calculus because you tried to answer the question, you get a grade based on how good you answer the question.
I'm fine with coaches grading on performance. It's a proxy for effort + talent like a lot of things, and as non-geniuses know effort extends outside the classroom proportional to your talent. If you can't even get a 20 minute mile, you're going to have to put in more effort outside the classroom, which might involve refusing to eat 100% of mom's delicious huge dinner or doing "exercise studies" (i.e. working out outside of class).
Whether gym class should be required is another discussion. I don't think it should be (and that easily filters out most people complaining about being graded for performance anyway) and it's a pretty poor attempt at managing rising obesity rates.
Growth spurts wreak havoc on coordination ability, and it's entirely beyond the person's control.
(We're not even talking about the fact that you don't get a grade based on how well you answer the question in calculus, either. You get graded on understanding, and steps involved, even if you get the wrong answer. Or at least you get graded that way in sane school systems)
What if your testosterone wants you to run, jump and play with your friends instead of sitting and reading calculus books?
I don't know why you'd grade kids at all on anything but their participation. Punishing a kid for being weak or poorly coordinated serves only to make them resent getting exercise.
The equivalent would be grading the running technique, pacing etc.
Back to the time constraint. Some teachers would FAIL students who were consistently unable to complete a mile in under 10 minutes. Effort was irrelevant. I wasn't a heavy kid, but routinely crossed the finish line bright red, gasping for breath, and light headed.
So yes, putting your student's future academic and career prospects in danger due to lower than "average" athletic ability is utter madness.