Pitchfork Award Nominee of the Day

Hi. It's Tim. You're fired.
Hi. It’s Tim. You’re fired.

Tim Armstrong, the chief executive officer of AOL, is by most accounts a very smart guy. As with any top executive he has had, shall we say, lesser moments, such as the time last summer when he fired the creative director of AOL’s Patch local news division in front of a room full of employees while a thousand other employees listened via conference call. In fairness, he is hardly the first tech company CEO to have temper tantrums.

But today, during AOL’s quarterly earnings call, Armstrong established a new standard: He announced to the world that two AOL employees had delivered unhealthy babies that cost the company $1 million each in medical bills. As a result, he said, he had no choice but to slash retirement benefits for the company’s 5,000 non-executive employees. He also groused that the Affordable Care Act (also known as Obamacare) had increased the company’s benefits costs by $7.1 million. Here’s what he said:

“We had two AOL-ers that had distressed babies that were born that we paid a million dollars each to make sure those babies were okay in general. And those are the things that add up into our benefits cost. So when we had the final decision about what benefits to cut because of the increased healthcare costs, we made the decision, and I made the decision, to basically change the 401(k) plan.”

frankenstein_mob_aniNow remember, less than a month ago AOL unloaded the long-suffering Patch local news division that Armstrong persuaded AOL to buy, and into which Armstrong poured at least $200 million (according to The Washington Post) and possibly more than $300 million (according to Bloomberg). Armstrong said he accepted full responsibility for the Patch fiasco and all those millions of dollars it cost the company.

He also accepted a quadrupling of his executive compensation. His pay package in 2012 compensation included a $500,000 cash bonus, $2.8 million in stock awards, $5.1 million in stock options, and incentive plan compensation of $2.8 million. That was on top of his $1 million base salary. In other words, his pay raise cost the company more last year than all the health care cost increases.

Two employees have sick babies that cost the company $2 million, and Armstrong announces to the other 5,000 employees and the world that they can blame those two employees and their sick babies for the reduction in their benefits. Classy.

Armstrong costs the company $200 million to $300 million or more in losses for his pet project Patch – most recently $13 million related to Patch layoffs, i.e. far more than the added costs of Obamacare — and he gets a huge raise. It will be interesting to compare the rise in AOL executive  compensation in 2013 with the savings Armstrong achieved by cutting his employees’ benefits.

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UPDATE: February 6, 2014: Armstrong sent a memo to AOL employees to explain, but not apologize, for his comments.

AOLers –

As we discussed at the town hall, we care about you and the company – a lot. This morning, I discussed the increases we and many other companies are seeing in healthcare costs. In that context, I mentioned high-risk pregnancy as just one of many examples of how our company supports families when they are in need. We will continue supporting members of the AOL family.

We provide a wide range of benefits – including our 401k plan – and conduct open information sessions each Fall on all available benefits as well as any changes being made. We will continue to do that.

The spirit of the town hall and the spirit of how we choose benefits are the same – we want to be open and transparent about the choices we make and why we are making them.

As I have said over and over again, our employees are our greatest asset. Let’s move forward together as a team. – TA

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UPDATE: February 9, 2014: The mother of one of those distressed babies responded forcefully with an article in Slate. It is impossible to read her response without concluding that the AOL chief executive was an A-HOLE.

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UPDATE: February 9, 2014: Although he stopped short of acknowledging that he was an A-HOLE, Armstrong sent another memo Saturday night:

AOLers –

We began our journey together in 2009, and for the last four years have had an employee-first culture. As I have said before, the ability to change is a strategic advantage for us. With benefit costs increasing, we made a strategic, financial decision last year to revise our employee matching 401K program from a per-pay-period contribution to a yearly lump-sum contribution. We then communicated this decision in the fall through multiple channels to every AOL office in the US.

Nota bene: This will come as a surprise to the many AOL employees who said they didn’t hear of the benefits “revision” until they saw Armstrong talking about it on TV. The memo continued:

The leadership team and I listened to your feedback over the last week. We heard you on this topic. And as we discussed the matter over several days, with management and employees, we have decided to change the policy back to a per-pay-period matching contribution. The Human Resource team will be in contact with all employees over the next week to explain the change and to answer any other benefits related questions you might have. We are proud to provide AOLers with a robust benefits offering that spans from exceptional healthcare coverage to 401K’s to AOL fitness programs and beyond. On a personal note, I made a mistake and I apologize for my comments last week at the town hall when I mentioned specific healthcare examples in trying to explain our decision making process around our employee benefit programs.

Thursday we announced an outstanding Q4 and end to our fiscal year. More importantly, it validated our strategy and the work we have done on it. AOL is positioned for future growth and our long-term strategy to be one of the world’s leading media technology companies.

Now, as we begin 2014, let’s keep up our momentum. Thank you for the great 2013 year and for your ongoing passion. And know that I am a passionate advocate for the AOL family – TA

It’s worth noting that Armstrong resisted apologizing for only two days this time around. When he publicly fired and humiliated the employee last August, he waited four days before being persuaded that he should apologize. Perhaps that’s progress.

Lessons:

  • If you have bad news for employees, whether companywide or individually, tell them first. Don’t let them hear about it via the media.
  • If you have a history of getting into trouble because of extemporaneous comments, discipline yourself to stay on topic. Or, hire a sniper to sit in the audience and shoot you if you start to ramble.
  • Never confuse “insensitivity” and “transparency.” Public transparency is never good when discussing personnel issues.
  • Never blame babies for anything. Or mothers. Or puppies. Even kittens.
  • When caught in a social media shit storm — when unfavorable attention goes viral and travels the world in seconds — do not wait days to respond.
  • When apologizing, resist the temptation to justify. RIGHT: I was wrong, what I said was wrong, I’m sorry, I’ve apologized to the injured party or parties in person, I’ve learned from my error, and in closing, I repeat, I’m sorry. WRONG: I love puppies. Puppies are my top priority. The puppy peed on my carpet, so I had to correct it. I’ve listened to your feedback, and in retrospect kicking the puppy might have been an overreaction. But I did it because I love puppies.

FINAL UPDATE, February 10: Andrew Ross Sorkin, writing in Dealbook, reported that Armstrong personally called the affected families and apologized. The real test, Sorkin wrote, is whether the offended parties thought his apology was sincere. Sorkin talked to Deanna Fei, who wrote the scathing response published by Slate, and she said:

“I accepted Tim Armstrong’s apology, and I take him at his word that he’s genuinely pained by the pain he caused my family,” she told me.

“He spoke to me on a very personal level, as a human being and a fellow parent, and I think his regret is heartfelt. I am profoundly grateful for the support that my family received from AOL during our medical crisis, and I think AOL does strive to take care of its employees.”

“I felt the need to point out the gross injustice of putting any individuals on the defensive for suffering a medical crisis and simply using their health benefits,” Ms. Fei added.

“I think it’s legitimate and necessary to have a public discussion about health care expenditures, but this has to be done with sensitivity and mindfulness of the human lives at stake.”