UPDATE 1-U.S. agency to compensate some staff after performance reviews found discriminatory

Mon May 19, 2014 5:46pm EDT

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WASHINGTON May 19 (Reuters) - The U.S. consumer bureau said on Monday it would compensate employees who received less-than-stellar performance ratings in 2012 or 2013 because its system put certain groups such as blacks, Hispanics and older workers at a disadvantage.

An internal Consumer Financial Protection Bureau analysis found that black and Hispanic employees were less likely than white workers to receive the top score in ratings used to set pay raises, Director Richard Cordray said in an email to staff.

Employees who were over the age of 40, who worked in one of the bureau's field offices rather than its headquarters, or who had less than one year of experience at the consumer agency also received lower ratings than their counterparts, according to a summary of the analysis that was released on Monday.

Under the system, managers rated employees on a scale from 1 to 5, with 5 representing top-notch work. The ratings were used to determine both merit raises and lump-sum bonus payments.

Cordray said after seeing the results of the analysis, bureau officials decided to compensate employees who received ratings of 3 or 4 - which indicate solid and high performance, respectively - as if they had received the top score.

"We will make appropriate adjustments to employee compensation to ensure that we erase the remnants of any statistical disparities caused by our performance management system," Cordray said in the email to staff.

A bureau spokesman said compensating employees who received lower ratings in 2012 or 2013 was expected to cost between $5 million and $5.5 million. The bureau did not disclose how many people would receive payments but said about 100 people who have left the bureau would be included.

Bureau officials found preliminary issues with the ratings in January, and the problems were revealed publicly in March. The consumer bureau, or CFPB, announced then that it would revamp its performance management system.

Members of the U.S. House of Representatives' financial services committee have been pushing for more information about the disparities. Two bureau officials and a representative of the agency's union will testify about the problems on Wednesday.

Lawmakers created the consumer bureau as part of the 2010 Dodd-Frank law and charged it with overseeing a broad swath of consumer financial products. Officials scrambled to hire employees, write new rules and investigate wrongdoing in a short period of time after the bureau was established. The rating system was designed to reward the highest-performing people.

"The performance management system implemented by the CFPB was based on best practices and, on paper, it had considerable merit," the bureau said in its analysis.

"It is clear that the system was too sophisticated for a new agency like the CFPB, which was experiencing a high level of rapid growth and organizational pressures as it worked to build itself out starting from scratch," it said. (Reporting by Emily Stephenson; Editing by Cynthia Osterman)

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