I've gone through this transition once before... now every manager has a budget that pays exactly enough for a bell-curve distribution of his small team.
Now you have a choice of reducing the bottom 10%'s raise by even more to give some of the previously "middle-ranked" employees a bigger raise, or you can take away from your best performers to bring the bottom 10% into the middle-ranked category. Because your team is small, both swings are rather large, and quite unfair.
You still can't win, because "borrowing" the budget from another manager goes back to the old stack-ranking horse-trading show of trying to determine whose team has better performers.
The only way around it is to have only VP-level budgets, and allow managers to assign any ratings they feel are correct, with some adjustment of expectations by their directory. Then, the VP spreads the larger budget accordingly.
It yields variable, but more fair, rewards.