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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."
Sounds like the ideal candidate.
I like AOL. It started the internet super-highway after all, and if not for it, we would all be on modems, gets our software by CD, yada-yada-yada.
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.
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.
Yoghurt
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.
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.