AOL's chief executive officer had to backtrack on a 401(k) policy change after an employee outcry that was fueled in part by Armstrong's own comments defending the idea. After saying last week that AOL would stop matching retirement contributions each pay period — opting instead to pay a lump sum once a year — the CEO blamed Obamacare and the medical expenses of two employees' pregnancies for forcing the change. He then reversed the 401(k) decision over the weekend in a memo to employees.
"We heard you on this topic," Armstrong, 43, said in the memo. "I made a mistake and I apologize for my comments."
Armstrong's mea culpa was his second in five months for a public controversy. In August, he sent a memo to workers saying he was wrong for firing a creative director in front of a room full of employees, as well as a thousand others who were listening on a conference call.
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The latest incident overshadowed AOL's fourth-quarter earnings, which were released Feb. 6. While the New York-based company exceeded analysts' sales and profit estimates, the 401(k) uproar made it harder for Armstrong to tout the results. In his memo, he said the performance "validated our strategy and the work we have done on it."
Annual payment
Under the proposed change to AOL's 401(k) plan, AOL would have still matched employee contributions at the same level — up to 3 percent of their paychecks. Still, by switching to a lump-sum payout, employees who left AOL before that date would forfeit the money. Workers also wouldn't have benefited from the contributions being invested over the course of the year.
After announcing the new policy to employees last week, Armstrong appeared on the CNBC cable network, where he blamed President Barack Obama's health-care law for forcing cutbacks. Obamacare created an additional $7.1 million in expenses for AOL, he said. Other companies — including United Parcel Services Inc., the fourth-largest employer in the U.S. — also have cited the law for cuts.
In a meeting with employees, Armstrong said the health-care expenses of two workers in 2012 played a role in his decision on which benefits to cut, Capital New York reported last week. The two employees had "distressed babies that were born," costing AOL $1 million each, he said, indicating that he'd rather give priority to health care over retirement among the company's benefits.
In his memo over the weekend, Armstrong said he shouldn't have discussed specific health-care examples at a meeting with employees.
Mother responds
The mother of one of those infants, Deanna Fei, skewered Armstrong in an first-person article posted today on Slate.com. Fei's daughter weighed 1 pound 9 ounces when she was born in October 2012 by cesarean section, just five months into Fei's otherwise routine pregnancy. The girl spent three months in a neonatal intensive-care unit.
Fei said that even now that her daughter is home and healthy, she can't take her presence for granted. "All of which made the implication from Armstrong that the saving of her life was an extravagant option, an oversize burden on the company bottom line, feel like a cruel violation, no less brutal for the ludicrousness of his contention," Fei, a novelist whose husband is an editor at AOL, wrote on Slate.com.
AOL's human-resources gaffes have been a distraction from Armstrong's broader goal: transforming a dial-up online service provider into an advertising-driven Web publisher. While the acquisition of the Huffington Post and TechCrunch sites have helped fuel ad sales, his effort to create a nationwide local- news service faltered. AOL agreed last month to sell the majority of that endeavor, called Patch, to Hale Global, an investment firm that specializes in distressed businesses.
PR gaffes
AOL competitor Yahoo! Inc. weathered its own HR controversy last year after CEO Marissa Mayer scaled back work-from-home benefits. Activist groups and workforce consultants criticized the move, saying it would make it harder to attract the best employees and keep them productive. Richard Branson, the billionaire founder of Virgin Group Ltd., weighed in on the issue, calling the change a "backwards step."
Mayer stuck with the new policy, saying it has been well received internally and helped the company develop products more quickly. Innovative new features are being created because workers from different disciplines collaborate closely, she said at a conference in May.
"That only happens when people come together," Mayer said.
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