Earlier this month Tim Armstrong, AOL CEO, changed the company’s 401(k) plan so employees would get a lump sum at the end of the year instead of regular contributions in each paycheck. The switch caused an uproar from employees because they would not get money if they left the company before year-end, and would potentially miss stock gains during the year.
Armstrong explained that AOL adopted this change because of a $7.1 million increase in health-care costs required to make the company comply with Obama care. During an interview, in an attempt to explain the company’s shift, Armstrong blamed the 401(k) change partly on a spike in health-care costs related to the difficult birth of two babies covered by the company’s policies. He stated that these “distressed babies” cost AOL $1 million each.
Realizing the effect his words had on the two mothers and other AOL employees, Armstrong later responded by reinstating the previous 401 (K) plan and indirectly apologizing to the two moms.
From a PR stand point, Armstrong made several mistakes in this situation that could have made this shift of 401 (k) program smoother.
First, let us address the CEO’s communication and employee relations. In an attempt to explain why the 401(k) was being altered, during an interview, Armstrong singled out two employees and ultimately blamed the shift on their high risk pregnancies. By doing this, he casts his employees as mere liabilities to the company. Just to be clear, ground employees are a company’s best asset and need to be treated as such. It is apparent that Armstrong has forgotten the direct connection between employee satisfaction and customer delight. In order to have happy customers, you must have happy employees. Consumers do not walk away from a business saying “The CEO is a nice man/woman.” In reality, customers walk away from a business with the memory of how they were treated by the cashier, clerk, server, etc. Instead of playing the blame game, Armstrong should have explained the big picture of why 401 (k) plans were being changed. With this said, AOL employees should have received a direct apology from him .
Second, the CEO’s less than timely reaction . In our society of innovative technology, everything is public. Because studies show that on a 7:1 ratio people prefer to hear/ see bad news more than good news, media channels jump on stories like this with little mercy on the subject (Center, Jackson, Smith & Stansberry). I will give credit where credit is due. Armstrong did apologize, and reinstated the 401 (k) plan. However, he only did this after remaining quiet for a few days, and realizing that this problem was not going away on its own. Instead of remaining quiet and allowing the media to tell his story, Armstrong should have made a public announcement stating exactly what happened. He also should have directly apologized to the two mothers he mentioned in the interview and all of the AOL employees. This would have helped regain employee loyalty as well as trust. By attempting to wait for things to cool off, and then taking action once he saw no other way out, his actions did not seem genuine.
If I were to advise Tim Armstrong on anything I would suggest three things.
1.Brush up on communication skills.
This entire incident did not happen because Armstrong is a jerk. I believe it happened because he did not know how to effectively communicate his thoughts. As my PR management professor says, “CEOs only speak one language, money.” CEOs do not understand how to effectively communicate with people, let alone their customers and employees. I would recommend that Armstrong get coaching on how to effectively communicate especially in the public.
2. Deal with issues head on.
Nothing resolves itself. He must participate and actively communicate with the public about what happened, and what he is doing to make sure it does not happen again. However, he probably does not understand this need because, again, he lacks essential communication skills.
3. Learn how to apologize.
No good apology is without three very important components, which Armstrong’s apology conveniently lacked, including the “I’m sorry statement,” what you did wrong, and how you are going to fix it.
Center, A., Jackson, P., Smith, S., & Stansberry, F. Public relations practices. (7th ed., p. 162).
Bartash, J. (2014, February 9). Aol chief offers mea culpa after 401(k) faux pas. Retrieved from http://blogs.marketwatch.com/capitolreport/2014/02/09/aol-ceo-retreats-on-401k-switch-after-uproar/