Mama, Don’t Let Your Babies Grow Up to Be Distressed

Posted on Feb 14, 2014 | 4 Comments
FootMouth

Photo credit: Jon Collier

At least he didn’t ban future procreation among his workers.

Last week, AOL Chief Executive Tim Armstrong told employees on a conference call why he was cutting their retirement benefits. “We had two AOL-ers that had distressed babies that were born that we paid $1 million each to make sure those babies were OK in general,” Armstrong said. “And those are the things that add up into our benefits cost.”

Condemnation, both inside and outside AOL, was swift and widespread. Writing in QuartzTim Fernholz summed up the general response, “How dare Armstrong (perhaps America’s most gaffe-prone CEO) single out these two women’s health care costs as a reason for cutting back on every employee’s 401(k)—especially when he’s personally on track to make $12 million this year?”

A mother of one of the “distressed babies” ventured into the fray herself. Armstrong “exposed the most searing experience of our lives, one that my husband and I still struggle to discuss with anyone but each other, for no other purpose than an absurd justification for corporate cost-cutting,” wrote Deanna Fei in an article for Slate.

Writing for The New YorkerAmy Davidson argued that Armstrong’s comments represented something beyond cheapness: His “rationale is really just a riff on how much higher profits would be if you didn’t have to hire human beings.”

Perhaps the closest to a defense of Armstrong—who later apologized and reversed the slated benefit cuts—came from Bloomberg’s Megan McArdle, who complained that the costs are real and that “our emotional reaction to anyone who dares to mention our expensive choices makes it very difficult to have a rational conversation.”

Peter Drucker may have been sympathetic to the dilemmas that companies face in an era of high benefit costs. But he surely would have considered Armstrong’s remarks to be symptomatic of a much bigger problem in corporate America.

“Managers are fond of saying, ‘Our greatest asset is people,’” Drucker wrote in Management: Tasks, Responsibilities, Practices. “But while managers proclaim that people are their major resource, the traditional approaches to the managing of people do not focus on people as a resource, but as problems, procedures and costs.”

Armstrong’s $12 million in compensation also wouldn’t have gone unnoticed by Drucker.

Indeed, he called it “morally unforgivable” for top executives to reward themselves with fat paychecks while making cuts in the ranks. “As societies,” Drucker observed, “we will pay a heavy price for the contempt this generates among the middle managers and workers.”

What do you think of Armstrong’s comments and the resulting dustup?

4 Comments

  1. Cbaugus
    February 14, 2014

    Armstrong’s comments are indicative of a society in which corporate executives operate from a position of narcissism in which they fully believe they should be earning paychecks and stock options larger than many will spend in a lifetime all the while cutting head count and reducing annual wage increases for their employees to some of the lowest levels in the last 30 years. There’s a huge number of CEO’s in this coutntry who should be ashamed of themselves – and we call that leadership!

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  2. Cbaugus
    February 14, 2014

    Anyone ever calculate how many jobs could have been saved in America if our CEO’s weren’t earning hundreds of times their average employee?

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  3. Maverick 18
    February 15, 2014

    Tim Armstrong’s “Blame it on the Babies” speech is a clear gaffe, and serious enough to lead to the conclusion that he flunks the course with respect to the four humanistic areas cited by Leadership Lessons from the Best Executives. Also, the gaffe was bound to call attention to Armstrong’s high compensation at a time when AOL was cutting employee benefits. The only acceptable way for an executive to deliver that message is demonstrate that cuts are needed to remain competitive, and the executive is willing to share the sacrifice. Not the case foe Tim.

    I concur with Drucker that it’s morally unforgivable for top executives to reap high rewards by cutting jobs and benefits. However, it is perfectly clear that shareholders, and we as a society, do not deem this sort of business immorality to be very important.

    Consider Mary Barra, the new GM CEO. GM has drawn accolades for choosing a female CEO, and even greater accolades for making her compensation package, about $14M, higher than her male predecessor. How soon we forget that GM was just bailed out by the Federal Government that took substantial losses on its GM stock, i.e. at taxpayer expense. Further, take a look at the window sticker on new Cadillac SRX crossover, a leading luxury crossover. Two-thirds content, engine, transmission and vehicle assembly all in Mexico. Why should US taxpayers be underwriting high executive compensation for the leader of a company, barely out of the woods, that sends US jobs abroad? Isn’t that immoral?

    Perhaps it’s time to pass a new rule whereby no employed person, whether CEO or football coach, can receive a compensation package higher than the President of the United States. That would certainly narrow the “income gap” in this country and make lots of cash available to trickle down to the folks innovating, designing, producing and performing.

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  4. Mike Grayson
    February 16, 2014

    According to Forbes, Mr. Armstrong’s salary from 2011 to 2013 was $1 million dollars. Additional income was related to stock options and a $500,000 bonus. The stock value had risen over 120% between 2012 – 2013. Mr. Armstrong doesn’t make the list of 100 highest paid CEO’s, even with the bonuses and options. AOL is a $2.6 billion dollar company. This fact was overlooked in this article. You can draw your own conclusions.

    It is clear that Armstrong didn’t give enough thought into how to communicate a fiscal problem to employees. He handled it badly and paid the price.

    I’ve recently read a great deal about about how companies need to care about their people, and I wholeheartedly agree. But let’s also accept the fact that many employees have a terrible attitude toward their company and work, which is just as harmful.

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