If an organization has to tell you how much it values you… you can be sure that it does not really value you much at all. It’s a bit of a bromide, but one I’m sure most everyone can relate to.
The 401(k) is supposed to aid in the retirement saving AND unshackle labor from a single employer’s pension… thus increasing the macroeconomic mobility of the labor market that the free market argument depends upon. However, AOL is leading the way to curtail the advantages of the 401(k) by matching only the employees that remain for the entire year. Apparently, just two women caused the restructure of 401k matching benefits to the entire AOL organization, or that is how their CEO Tim Armstrong characterized it on a CNBC interview. Additionally, Armstrong then cited 7.1 million in costs he directly associated with Affordable Care Act, or “Obamacare” for those inclined to display their partisan disdain. Implicit to Armstrong’s comments is the assumption that a robust discussion and consideration of alternatives was weighed amongst the various stakeholder groups. Specifically, Armstrong noted, “As a C.E.O. and as a management team we had to decide, do we pass the $7.1 million of Obamacare costs to our employees? Or do we try to eat as much of that as possible and cut other benefits?”
If human capital is truly a great asset, then a CEO and management team maintaining a culture conducive to producing the best output from your team is one of your key objectives, otherwise the manager is just a technician overseeing a process of instrumental drones. AOL’s board of directors should seriously reconsider the composition of the management team if their CEO’s actions and statements serve as counterfactuals to an objective of culture maintenance. Noting Armstrong’s conference calls, the organizational culture at AOL is likely one of a staff looking for the nearest exit after Armstrong then elaborated the reason for the benefit restructuring.
“Two things that happened in 2012,” he said, according to a transcript provided by an AOL employee and reported by CaptainNewYork. “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 OK 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.”
One can only imagine that some people might look towards their coworkers with new additions to their family noting that they may have just cost them some retirement savings.
Was it merely a question of cutting costs, by reducing benefits, or raising prices?
The choice of reduction to benefits versus raising prices are choices of direct actions. Cut this cost, then save this much… pretty straight forward. However, it is really not so direct at all. The costs associated with these decisions are generally based upon pre-negotiated contracts extending into the future OR utilizing costs of the past to project into the future. Either way, at some point one is projecting into the future. Due to the fact that the focus is on projections, the more indirect should enter into consideration. AOL’s narrative could have been considerably different…
If the cause of the increased costs was truly just two “distressed babies,” then the costs of an unhealthy staff (and their families) are substantial. AOL could have chosen to illustrate those costs as the pivot point to incorporate a companywide wellness plan. Changing corporate culture is something within the capabilities of able managers. The effort to effect change is not easy, but it is a worthwhile endeavor. A corporate culture that embraces wellness is much likely to retain staff, and they are more apt to report they want to stay with the organization.
It is unfortunate that AOL’s Armstrong demonstrates that he has little to offer in the way of leadership regarding personnel… particularly public firings, unless you think GlenGary Glen Ross was a firm you wanted to work… and not much in the way of management in most other areas either, as noted by the recent sale of his loss generating pet project Patch.
However, if employee compensation truly is supposed to deliver results… then 12.1 million just doesn’t deliver much . Another solution, one that might be much more proper to the results of Armstrong’s management record… absorb some of that 7.1 million by finding a new CEO. It is hard to envision that a firm could do much worse for… even just the paltry 5 million in pay. Also, it should be noted that AOL still is profitable, delivering 64 cents per share… but hey, next time someone announces they are expecting… congratulate them, but at AOL… one can’t help but wonder if they are wondering what that new baby might end up costing them.
Missed opportunities… what could have been the a new company initiative to build a positive corporate culture… became another example of upper management shortsightedness. If human capital is valuable to your firm… take the time to engage your stakeholders and search for opportunities in seemingly undesirable situations.