On Feb., AOLs CEO Tim Armstrong announced an unpopular change to the companys retirement plan. It was bad news.
He then put some of the blame for the change on two of his employees distressed babies because they cost the company about $1 million each. That was a bad move. Even if its true that those health care costs precipitated the change in retirement plans, he should have known better.
Not long after the announcement, Armstrong reversed course on the retirement plan. More importantly, he called the parents to apologize for singling out them and their children. But if its true that the health care for those infants created the problem, should he have apologized? And I wonder if it was a mistake to roll back the change in retirement contributions – the economic problem doesnt disappear when hes out of the limelight.
How companies should handle unexpected health care costs depends on whose money covers those costs. Some of the money is clearly the employees. Its taken out of their paychecks. But what about the rest of the money? Should we consider AOLs contributions to employee health plans the employees money or something else?
If these contributions are the employees money to begin with, why arent employees allowed a direct say in how these contributions are changing from year to year? Why arent they negotiated as part of a contract rather than announced during open enrollment. I dont know about you, but if thats my money, shouldnt I have a say in how its spent? Isnt that the bedrock of what it means to call something mine – what happens to it is up to me?
Theres a reason we dont have a say. Its not our money. Instead, its a separate company cost. When health care costs are higher than expected, the company covers the cost from somewhere else. In this way, addressing shortfalls in AOLs health care costs could come from anywhere.
They could come from retirement contributions, as Armstrong tried to do, but they could also come from executive pay or bonuses (totaling $12 million for Armstrong in 2012). Why did AOL try to shift the cost to retirement contributions and not executive pay or some other pot of money? I couldnt say. But AOL employees reactions tell us that they didnt get a say either.
This kind of leadership isnt limited to AOL, and it represents how organizational authority can go awry. Executives, from their positions of power, determine what is fair within their organizations. They respond to social pressure but only to the degree it will affect the bottom line.
Does Armstrong roll back his announcement without all the media attention from his distressed babies gaffe? Doubt it. But theres a lesson here about public perception, the bottom line and employee trust. If executives focus too narrowly on the bottom line, they lose employee trust. And Id guess thats part of the reason Armstrong called the family to apologize. He cant just tell his employees to trust him, he has to give them a reason to. He has to listen to them too. He may get to determine whats fair for the organization, but if he doesnt keep his employees trust, his organization is doomed. Or his tenure will be short.