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AOL Tries to Blame Benefit Cuts on Pregnancies

February 13, 2014

On Thursday, February 6, AOL CEO Tim Armstrong discussed a change in the way the company matches employee contributions to their 401(k) retirement accounts that had been made in October of 2013. The company would match contributions in a lump-sum at year’s end, rather than paycheck per paycheck. This meant that employees who left the company before December 31 of any year would not get any contributions for that year. But the change would affect all employees during their tenure at AOL because they would lose the benefit of dollar-cost averaging of investments throughout the year. By not having those matching funds to invest bit-by-bit over the year, each account stood to lose thousands of dollars each year.

Armstrong cited the costs of caring for two “distressed babies” whose neonatal care ran up medical bills of one million a piece as a reason for the change. Armstrong’s announcement caused a furor. Some people complained that he had violated employee privacy, even though he did not name the families in question. Surely if you knew which of the AOL employees or employees’ spouses were pregnant, you knew to whom he was referring. Privacy aside, why was he picking on two expensive pregnancies in a work force of about 4,000 employees? Did they really make that much of a difference?

Deanna Fei, wife of an AOL editor and mother of one of the babies, wrote a first person account of hers and her daughter’s ordeals in Slate. She questioned why Mr. Armstrong was publicizing a cut in employee benefits on the heels of an announcement that AOL had just had its best quarter in years.

On Feb 7, The Washington Post’s Wonkblog noted that Mr. Armstrong described AOL’s quarterly earnings as “Olympian… It’s the best results we’ve put in in the last decade. We had double-digit revenue growth, double-digit profit growth overall, and we announced our sixth consecutive quarter of consumer traffic growth overall.”

A negative in AOL’s profitability picture stemmed from costs related to layoffs including at PATCH, AOL’s attempt at getting into local news. AOL has sold PATCH, but not before it lost $200 million dollars. The failure of PATCH had a far greater impact on AOL’s bottom line than two “distressed babies”. A one hundred times greater impact to be exact.

In addition to the two “distressed babies”, Armstrong also tried to blame Obamacare, stating that it would increase AOL’s health care costs. But, according to Wonkblog, a consulting firm’s study said that premiums for large companies should go up by less than one percent. Even taking Armstrong’s estimate of the cost of Obamacare–$7.1 million–at face value, that is still quite below the losses at PATCH.

So what’s up? Simply put, employers, especially corporate employers, are to be presumed bastards unless proven otherwise. They seek to pay as little as they can, while at the same time expecting employees to take care of their health and their family’s health and save for their retirements. The propaganda spin is that they are giving the workers more freedom to control their affairs and are expecting them to exhibit more personal responsibility at the same time. In other words, workers have more freedom to invest in Wall Street, whether they know how to do this or not, and must take more responsibility for their health care and retirement by shouldering more of the cost, even though real wages have been stagnant since about 1970. The truth is that corporations just want more and more profit for investors and salaries for executives at the workers’ (and consumers’) expense.

CEOs in the United States are an especially bad lot. According to the AFL-CIO, chief executives of the nation’s largest companies earned an average of $12.3 million in total pay last year — 354 times more than a typical American worker, as reported in CNN Money. Armstrong is not in the top 100, but his level of compensation — 12.1 million — is very near the average. I would expect him to cry FOUL if the AOL Board of Directors voted to significantly lower his compensation to save costs.

There was a time, many years ago, when layoffs, and cuts in wages and benefits came when a company was losing money, when it was in danger of having to shutter its doors, or perhaps go through a bankruptcy reorganization. But for years now, we have seen Wall Street reward healthy companies that made such cutbacks. Stock price is everything. (Ironically, AOL’s stock price, which rose to $51 after the good earnings report on Thursday morning fell to $47.15 after Armstrong tried to justify the benefit cuts at the close of regular trading on Thursday.)

Insurance companies and Obamacare, in our for-profit health care system, bear part of the blame. Medicare for All, which would put all Americans in the same risk pool, would greatly water down the cost effects of a relatively few catastrophic medical cases. But since we have a “profits before people” scheme of health care in this nation, Medicare for All was never seriously considered in the so-called health care reform. But given that the medical costs, both of insurance premiums and the costs related to the two “distressed babies” pale in comparison to the losses by PATCH, we once again have the issue of the employing corporation trying to foist the consequences of its mistakes on the backs of its workers. Corporations try to convince the workers that they have to do with less, not because of bad business decisions by the company—Armstrong was a founder of PATCH and talked AOL into buying it—but because of women who can’t give birth right (distressed babies), political hatchet jobs over health care (Obamacare), and what is the problem for every business that gives health benefits: people who insist on getting old and sick instead of staying young and healthy and forking over cash to the insurance companies for benefits they don’t actually have to use (health care costs in general).

But PATCH is an example of problems ongoing at AOL and in American business in general. AOL’s rosy earnings reports have more to do with making money through cutting costs than by making something that people want to buy. According to an article by Zero Hedge, AOL made money for its investors by giving out a special $1.1 billion dividend, and buying back $600 million worth of stock last August; fewer outstanding shares mean those that remain are worth more, via the law of supply and demand. Six months after Armstrong became CEO in 2009, AOL announced it would cut 1/3 of its workforce. So the latest costs in laying off PATCH employees before selling the division, is just business as usual for AOL. (Given this “jobless recovery” AOL is not alone in using the layoff tactic in good times and bad, and being very slow to hire workers when the economy appears to be on the upswing.)

I signed a petition calling for Armstrong to reverse his decision soon after the story broke. Over the weekend, he did just that. I would like to think that the outcry from social media had a hand in the decision. Chances are the bad PR in the business media and the decline in stock price had much more to do with it. I nevertheless urge people to continue making and signing such petitions because they help spread news, if nothing else. CEOs and other “malefactors of great wealth,” to quote President Theodore Roosevelt, can be curbed if the people know when they are harming the people.

But petitions are just one small step that is good for identifying and demanding redress for individual wrongs, such as blaming two “distressed babies” for a blanket cutback in retirement benefits. Creating a more universally prosperous economy within our planet’s ecological limits will take much more work.


About the author: Kellia Ramares-Watson is an independent journalist in the San Francisco Bay Area. She is the author of the e-book Eating Poison: Food, Drugs and Health. In 2014, her commentaries will appear every other week (twice a month) in the Leftist Review. Different commentaries will appear on alternate weeks on the website Intrepid Report. She can be reached at theendofmoney[at]gmail.com. Follow her on Twitter @endofmoney.



3 Responses to AOL Tries to Blame Benefit Cuts on Pregnancies

  1. Kellia on February 19, 2014 at 6:36 pm

    I agree with both of you, but, as you will see in my next article — I just sent it in. Sorry to be late–I think it is time for something beyond early 20th century socialism. BTW, one of the things that made mid 20th century prosperity possible in the US was the devastation of other countries by WWII. We certainly don’t want that again!

  2. E.Brock on February 17, 2014 at 12:22 am

    We need to pass laws requiring a labor representative on the board of directors of medium to large corporations. Something, incidentally, most European countries have. Until that happens, decisions that screw the workers will be common, and even the trend. Labor is already severely weakened in the US and things don’t appear to be getting better. The Scott Walkers of the country are bound and determined to serve their corporate master (e.g. the Koch brothers) by weakening and eliminating labor rights.

  3. SteveH on February 16, 2014 at 5:59 pm

    Capitalism isn’t about people, it’s about profits. Importing socialist ideas in the ’30s and post WWII made the American middle class possible, but it’s in serious decline now. Those benefits (really just workers’ rights) have been the target of the right-wing since that fluffy vacuum, Ronald Reagan. Tim Armstrong’s net worth is estimated to be $400 million dollars. If he paid for the two babies himself, he’d never notice the minuscule (relative to his worth) cost, yet he tried to take it from his employees. The enemy is the capitalist mindset.

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