Following complaints of widespread discrimination, the Consumer Financial Protection Bureau is overhauling its system for evaluating employee performance.

The financial watchdog’s performance-appraisal system resulted in “systematically lower ratings” for black and Hispanic employees, employees over the age of 40, employees located in field offices and those employed at lower pay scales, according to a report on the performance-appraisal system published by the agency earlier this month.

CFPB is now working with its union, the National Treasury Employees Union, on an alternative system. But in the meantime, CFPB is scrapping the system entirely and moving to a simplified two-tier, “pass-fail” rating system for the next two years.

“The good news is that NTEU has worked with the CFPB and we’ve agreed to move away from this current system,” said NTEU President Colleen Kelley, in an interview on the Federal Drive with Tom Temin and Emily Kopp. “And for two years, while we rebuild a system that is seen as fair and credible and transparent — and we’re going to do that together, we’re going to jointly work together to design that — it will be a pass-fail system.”

Since the appraisal system affected employees’ compensation, the agency is also taking the step of giving employees that were rated lower on the now-scrapped system retroactive pay “to ensure that we erase the remnants of any statistical disparities” caused by the previous system, the agency’s report stated.

Widespread racial and age disparities

NTEU received numerous grievances from CFPB employees alleging the old system lacked transparency and was often unfair, Kelley said.

“A number of employees felt they were not fairly evaluated — whether they alleged it was from discrimination or from a performance perspective and there were both of those,” Kelley said.

In fact, CFPB’s own internal analysis — conducted in January and published in a report earlier this month — revealed “broad-based statistically significant disparities for employees based on a wide range of characteristics.”

For example, average ratings for white employees were concentrated in the 4-to-5 range on a five-tier scale, while ratings for black employees were concentrated around a rating of 3.

The scale ranged from “1” for unacceptable to “solid performer,” “high performer,” and “role model” for levels 3, 4 and 5, respectively.

Racial disparities in CFPB performance ratings were first reported by American Banker in March.

In another disparity, average ratings for employees under the age of 40 consistently outpaced those for older employees. Employees working at the agency’s Washington, D.C., headquarters were also rated, on average, higher than their field-office counterparts, and the same was true of nonunion employees compared to those covered by the union.

Performance ratings tied to compensation

The report called those findings “sobering” and said CFPB officials were “still in the process of examining the root causes of the disparities.”

At CFPB, employee compensation was tied to the outcome of the performance evaluations — and fell outside the scope of the standard governmentwide General Schedule system.

The agency said employees who came up short on the since-scrapped system will be paid retroactively up to the level they would be eligible for if they were rated at the highest tier of the old system.

“This remediation plan is the only way we can reasonably ensure that all statistical disparities caused by the previous performance management system are erased,” the agency said in its report. “Accordingly, we strongly believe that this decision is the soundest and most prudent action we can take to remediate these issues and better foster the culture of diversity and inclusion we aspire to and that our employees want and deserve.”

Kelley said the majority of the CFPB workforce is eligible for retroactive pay.

Revamped system to focus on employee development

The agency and NTEU have been working on devising a permanent evaluation system since January.

“The only way in NTEU’s view to address something like this is to acknowledge that the system that’s evaluating employees has to have the input of the employees who will be subjected to it, and that was really not part of how the initial system was designed,” Kelley said.

The focus of the revamped system will be on performance improvement and career development, “rather than some number rating,” Kelly said.

That’s also the thought behind the interim pass-fail system, which offers managers “much less discretion, much less subjectivity,” she said.

The agency conceded its original system may have been 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.”

Between fiscal 2012 and the end of 2013, the agency grew from 663 employees to more than 1,300, according to the report.

“In retrospect, applying such a complicated performance management system and tying compensation to that system at such an early stage in our history was overly ambitious, even if well intentioned,” the agency report concluded.

As for when a new system will be rolled out, NTEU wants “to give the agency time to do this right,” Kelley said.

“This won’t be a one or two-meeting thing,” she added. “This will be a very long process and that’s why I was very pleased CFPB recognized that they need a two-year period. This is not something that can happen in just a couple of meetings or a couple of months.”

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