Basically there are two ways to figure loot, well actually there are three ways.
1. A random roll on an item that dropped.
2. A system in which players acquire points for activities they attend and they they are able to purchase loot with those points.
3. A merit system, under which loot is assigned to players based on the discretion of the supreme leader (or worse yet, supreme leaders).
Generally speaking the merit system makes for a stronger guild (or LS), because whoever makes the decisions usually does it based on who needs upgrades most and attends the most.
However, the drawback of the merit system is that it will be biased, no matter how hard one tries for it not to be, it will be biased. Of course any kind of point system is biased as well, but at least that bias is based on math, and not on the decision of a signle person.
Of course it is possible that I got it all wrong and the FFXI Merit system is something entirely different.
