Should grading take all students' performance into account?
I'm going to give this from a student perspective, so take it with a grain of salt. But I can say that I would hope I was graded independently of any of my peers on a given assignment*. Simply put, I want to be evaluated on my progress relative to the course objectives. I'm not interested in my progress relative to everyone else's.
* That being said, once the independent grade is assigned, I don't care about or mind any post-grading corrections (a.k.a. "curves"). But again, that's after my exam is independently graded - so I can at least see the raw grade first.
If the goal is to help students learn, then you should grade against an absolute standard (often called a rubric), and you should not grade by comparing students to each other. Experimentally, it has been found that if students believe their grades are under their own control, they will learn more. If students believe they cannot control their grades (because it depends on classmates' performance) then they will learn less. The difference in attitudes is known as a locus of control in psychology. According to the locus of control research, grading against an absolute standard will help students.
If you goal is to limit the number of students who pass, you might chose differently from what I suggest. But I don't agree with that goal.
It sounds like you are describing a grade curve. That would mean you adjust everyones grades to reflect their performance relative to the rest of the class. Grade curves usually only skew upwards (IE you wouldnt lower someones grade because everyone else did well, but you would raise it if everyone else did poorly.) Whether or not this is right for you depends on the course, your tests and your students. I can say for sure that this is a common thing to do and would not be at all out of place if you were to make that choice. However unless an unusually large number of students is failing your course, it probably isnt necessary if you would rather not do it.