What went wrong with the evaluation meeting?

Riverside Health System had two goals for its annual employee performance evaluations: (1) to motivate employees to work hard and (2) to identify areas in which employees could improve Riverside Health. To support these goals, Riverside Health decided to implement a performance management system that required managers and their employees to simultaneously complete an evaluation of the employee’s activities throughout the year. The evaluation form contained seven separate areas in which the employee could be rated from “1—totally unsatisfactory” to “7—outstanding.” Then, managers would meet with each employee, discuss the individual ratings, and come up with a composite form that would be submitted for significant bonuses.
Although the amount of bonus changed each year, the potential bonus this year was a hefty 25 percent of base salary. The problem, as most employees knew, was that the hospital had only budgeted an average of 8 percent for the bonus payout.