AOL Reverses Course On 401K Match; CEO Apologizes

An anonymous reader writes "When we last checked in with Tim Armstrong, the AOL CEO was demonstrating 'Leadership with a Capital L' to employees of the company's Patch local news subsidiary by summarily firing an employee in the middle of a conference call for taking photos. Armstrong continued to serve up tasty material for tech bloggers this past week, blaming $7.1 million in extra expenses from Obamacare, and for $2 million in expenses for 'two AOLers that had distressed babies', for a decision to hold all matching funds for employee 401K programs until the end of each calendar year. After a small firestorm in the press, and a petition from AOL employees unhappy with both the policy change and the way it was presented, Armstrong reversed course, reinstating the per-period match and apologizing for mentioning the individual employee cases (TechCrunch is an AOL subsidiary). Incidentally, Armstrong was originally following in the footsteps of IBM, which made similar changes to its 401K program that went into effect last year."

Comments

Re:Distressed Babies?

[NicBenjamin]

How does this lead to two million dollars in expenses? Is he running his own insurance company for the employees?

It's possible. Self-insurance is a thing a lot of companies do. Granted that typically doesn't happen in health insurance, but it is possible.

It's slightly more likely that their insurer jacked up it's rates due to increased costs, or jacked up rates for no reason and claimed it was due to those costs.

What's most likely is that somebody told him about the "distressed babies," and he used that as a rationalization for being a dick on the 401ks.

abusing the 401k

[maynard]

There are some who argue that the 401k is a bad investment option.

http://www.fa-mag.com/news/the...

But note that by only disbursing matching funds on December 15th, IBM twists the arms of its employees to plan separation from the company at the most difficult time of transition. Right during the holidays and then a dead point for hiring in mid winter. They also incentivize employee harassment and unfair terminations prior to Dec 15th in order to cut costs by keeping what would have been 401k disbursements. And of course the funds are kept in an interest bearing or investment account controlled by the firm for a year, meaning those gains are lost to the employee.

I'd call that a terrible policy and one that any potential employee should carefully consider. Not only does it represent lost potential 401K gains, but much worse, it's an indication of how poorly management at the firm views its employees. Real 'company store' type stuff.

Re:abusing the 401k

[maynard]

http://wallstreetonparade.com/...

If you work for 50 years and receive the typical long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, almost two-thirds of your account will go to Wall Street. This was the bombshell dropped by Frontline’s Martin Smith in this Tuesday evening’s PBS program, The Retirement Gamble.

This is not so much a gamble as a certainty: under a 2 percent 401(k) fee structure, almost two-thirds of your working life will go toward paying obscene compensation to Wall Street; a little over one-third will benefit your family – and that’s before paying taxes on withdrawals to Uncle Sam.

Documentary here:

http://www.pbs.org/wgbh/pages/...

Re:abusing the 401k

[Anonymous Coward]

What conduct in the workplace constitutes 'making people want to quit'?

Former IBMer who was driven to quit, so I'll chime in here...

Small things first: they took away the water coolers and free coffee and put in these awful instant coffee pay-per-cup machines (Flavia). At the same time they banned people bringing in their own machines and putting them in the break room (that's a fire hazard, you know). Finally they took away the Flavia machines due to lack of use. Cafeteria food was terrible and very expensive. Team outings / holiday parties are virtually non-existent now. Laptops used to be replaced every two years, then three, now four. I would not be surprised if in the future IBMers are just expected to buy their own laptops.

The raises and bonuses were always pathetic and have been scaled back more and more. If you were 1 (a top performer, 10% or less of the work force), your bonus was somewhere in the neighborhood of 2-3% and your raise was roughly the same or less. And did I mention that raise/bonus money comes out of a company-wide pool now? So if your division/group is crushing it but revenue is slipping company-wide (which it has for years) you're not going to get a bigger pool of money than anyone else. And oh yeah, this year they announced that ONLY 1-rated performers get a bonus. Everyone else, you suck. I would not be surprised if no one gets a bonus/raise next year, seriously.

Speaking of raises, there are two kinds. Top contributor (if you got a 2+ or 1 rating; this year I guess it's just for 1-rated folks) and Market Based Adjustment. If you got a top contributor raise, it was pretty tiny for the most part. The MBA is used to get you to 100% of what they think the median salary for someone in your position and band level is. Last year they decided 90% was good enough. So in other words, if your salary is within 45% of where your position/band peers top out, no more raises unless you were a top contributor (and again, we're talking 1-3% here, and they might not even give you that next year).

One more thing about raises. Last year they decided to move out the date for raises by three months. So in addition to getting a pathetic raise you had to go 15 months without one. I believe this year they're moving it out another month. Again, I would not be surprised if next year no one gets a bonus or raise.

Finally, there's the 401k match. If you're not employed on December 14th, you get nothing. That is some grade-A bullshit and so far they're the only major company with the balls to insult their employees like that. That was the last straw for me and I (and several others) were able to leave and keep our match.

Excuses

[bmullan]

I believe there are companies that are using the excuse of the Affordable Care Act to lower benefits and thus save costs. If AOL hadn't used the excuse of the AFA then it would have been some other excuse. I don't suppose anyone saw the interview withe AOL CEO? Jeez that was an aweful looking work environment. There must have been a thousand people all sitting in from of keyboards on row after row of very long tables. The only interaction a person seems to have are to the person left or right of themself. I also noticed nearly everyone seemed to have their lunch in front of them (evidenced by take-out bags, a dish etc in view). Many tech workers any more are being asked to work like senseless drones at their jobs. I don't know where AOL employee satisfaction ranks but I see that AOL is NOT listed in the top 100 companies to work for in 2014: http://jobs.aol.com/articles/2...

"Excess insurance coverage"

[Anonymous Coward]

Um, yes. It's called "self insurance". For a large company, they will often outsource the administration to a regular insurance company but they pay the medical bills out of the company pocket. It makes sense because with ten thousand employees, you have enough of a pool to lessen the statistical variation percentage wise. So some years you spend a few percent more and some a few percent less. Insurance charges for this statistical pooling so the company can save money. I guess there were a couple of outlier expenses that broke the average. CEO shouldn't complain - while he expected cost savings, he agreed to take the risk.

http://safetynational.com/company.html?coinfo=Self-Insurance%3A+How+it+works All states allow and most require them to purchase coverage that "limits the amount a self-insured pays for claims from any one occurrence." So state regulations actually prohibited the AOL CEO from taking on too much cost risk in this area. TL;DR - he's a bleeding liar to suggest the two events were related.

AOL's David Shing, Professional Nothing

[McGruber]

On Gawker, Sam Biddle points out that while AOL claimed it couldn't afford its old retirement plan, it is able to afford "Shingy," who Biddle describe as a "professional nothing". Shingy's job title is "Digital Prophet," which means "he's gloating about the fact that he has a make believe job at AOL, unlike most tech charlatans, who try to conceal it":

This Man Is Representing AOL on Live Television

Re:Distressed Babies?

[fuzzyfuzzyfungus]

"CEO shouldn't complain - while he expected cost savings, he agreed to take the risk."

He also shouldn't complain because it makes him look incompetent (not that he is likely to even capable of experiencing the feeling of being seen as incompetent, of course). Apparently AOL has something in the neighborhood of 5,500 employees. I suspect that they skew young and reasonably healthy; but modest yearly changes in who's on chemo in a given year could trivially add up to 2 million+ swing. It's a big scary number; but it's only about a dollar per employee per day, across a population of that size.

If that qualifies as big, scary, risk, either you suck at risk management, your company has near-lethal liquidity problems, or various other bad things.

Re:Distressed Babies?

[ebno-10db]

From the WSJ:

The compensation of AOL Inc. AOL +0.28% 's chief executive, Tim Armstrong, nearly quadrupled in 2012 to $12.1 million, from $3.2 million in 2011

So by cutting his own pay by $10M, he could more than compensate for the $9.1M in extra expenses he claims. It would also bring his compensation into line with global standards. US CEO pay is somewhere around 400x the average employee's. The UK is a very distant second with around 45x. In almost every other developed country, it's between 10x and 20x. Very generously assuming that average employee compensation at AOL is $100k, $2.1M would put him at the generous end of global standards.

Sounds To Me

[Greyfox]

It sounds to me like AOL and IBM need a union. Bonus; if they trick some poor guy from India into coming over and working for them on a H1B, I bet the union could figure out how to hold the H1B if he ever decides to try to find other work.