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Emphasis on bottom line can destroy workers’ trust

On Feb., AOL’s CEO Tim Armstrong announced an unpopular change to the company’s 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 it’s 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 it’s 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 doesn’t disappear when he’s 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’. It’s taken out of their paychecks. But what about the rest of the money? Should we consider AOL’s contributions to employee health plans the employees’ money or something else?

If these contributions are the employees’ money to begin with, why aren’t employees allowed a direct say in how these contributions are changing from year to year? Why aren’t they negotiated as part of a contract rather than announced during open enrollment. I don’t know about you, but if that’s my money, shouldn’t I have a say in how it’s spent? Isn’t that the bedrock of what it means to call something mine – what happens to it is up to me?

There’s a reason we don’t have a say. It’s not our money. Instead, it’s 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 AOL’s 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 couldn’t say. But AOL employees’ reactions tell us that they didn’t get a say either.

This kind of leadership isn’t 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 there’s 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 I’d guess that’s part of the reason Armstrong called the family to apologize. He can’t 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 what’s fair for the organization, but if he doesn’t keep his employees’ trust, his organization is doomed. Or his tenure will be short.

Abraham Schwab is a medical ethicist and associate professor of philosophy at IPFW. He wrote this for The Journal Gazette.