Please read the scenario and make a comment on it

We all get the same raises
For the past two years, I have been rated as “Exceeds Expectations” on my annual reviews. I work hard and am very good at what I do. My question regards annual raises. My supervisor gets a “bucket” of funds available to distribute to his team as he sees fit. Since he would run a mile rather than have a confrontation with anyone, he gives everyone the exact same raise — even those who are rated “Below Expectations.”
Am I crazy for thinking my raise should be higher than people who are not performing up to expectations? When I asked him about it, he said he was giving everyone the same pay increase because he “didn’t want to make anyone feel bad.” Not surprisingly, I feel bad!
Please comment on this case and consider the following questions:
1. What theories of motivation are involved in the situation?
2. Is the manager acting reasonably or not? Why?
3. Would it be better to continue the current policy or eliminate bonuses completely? Why?
4. Have you had similar experiences in your company?
5. Do you believe this policy is a requisite cause of interpersonal conflict within the company?