(Bloomberg) — It was another rough week for Tim Armstrong and AOL Inc.’s HR department.
AOL’s chief executive officer had to backtrack on a 401(k) policy change, after his comments defending the idea fueled an employee outcry. Armstrong last week said AOL needed the retirement-plan tweak to help offset health-care costs, such as two employee pregnancies that resulted in “distressed babies” with more than $1 million each in medical expenses. Over the weekend, he reversed the 401(k) decision 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.”
The mea culpa was Armstrong’s second in about six 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. The CEO’s comments in the latest situation prompted the mother of one of the infants to criticize Armstrong in an essay she wrote for Slate.com.
“The hardest thing to bear has been the whiff of judgment in Armstrong’s statement, as if we selfishly gobbled up an obscenely large slice of the collective health care pie,” Deanna Fei wrote for the news and analysis Web site. “We experienced exactly the kind of unforeseeable, unpreventable medical crisis that any health plan is supposed to cover. Isn’t that the whole point of health insurance?”
A spokeswoman for New York-based AOL declined to comment beyond Armstrong’s memo.
PPACA to blame?
The uproar overshadowed AOL’s fourth-quarter earnings results, which were released Feb. 6 and exceeded analysts’ sales and profit estimates. In Armstrong’s memo, he said the performance “validated our strategy and the work we have done on it.”
Under the announced 401(k) change, AOL planned to match employees’ retirement contributions in one annual lump sum, instead of incrementally at each pay period. While the level would have stayed the same at up to 3 percent of annual pay, the switch would have meant workers who depart AOL before the payout would forfeit the matching money. Employees also wouldn’t have been able to benefit from investing the contributions over the course of the year.
After announcing the policy last week, Armstrong appeared on the CNBC cable network, where he blamed President Barack Obama’s health-care law for forcing cutbacks. Obamacare added $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.