What AOL's CEO Meant When It Sounded Like He Blamed A Pay Cut On Sick Babies And Obamacare

So, once again, AOL CEO Tim Armstrong is having a rough day because of something he said on a conference call with thousands of employees.

In August, Armstrong got in hot water for firing an employee during a conference call.

Today, in another conference call with lots of employees, it sounded like Armstrong was cutting a benefit and blaming it all on Obamacare and two little babies.

But that's not what he meant to say, according to sources close to senior management.

Here's the story as those sources see it.

Last October, AOL human resources toured the company giving a presentation on how benefits would change in the new year. About 75% of AOL employees attended these sessions.

During the sessions, which included online videos and town halls, HR told employees that AOL was changing the way it matched their contributions to their 401ks.

A 401k is a retirement account. Employees can contribute up to 15% of their pre-tax salaries to them. Some employers, including AOL will match the amount employees contribute as a perk.

In 2012 and before, AOL would match the amount employees contributed to their accounts as they contributed it.

During those road shows, HR announced that from now on AOL would only match the amount employees contributed at the very end of the year.

That's not good news for AOL employees for two reasons. One is that their 401ks will not benefit from the year prior's market gains or losses. Since the market usually goes up, and since you can invest in nearly risk-free assets in a 401k, that's a pay cut. The other reason it's bummer for AOL employees is that if any of them quit before October of any year, they do not get any of that year's 401k contributions from AOL.

As it went on its road show, human resources was ready for AOL employees to complain about the benefit reduction.

Didn't happen. There were few complaints, sources close to senior management say.

Then, today, the Washington Post reported on the change - and said the "tweak was subtle, buried in the company's summary of its 2014 benefits."

AOL employees, suddenly told to be outraged, were outraged.

So, Armstrong decided to get on the phone with them and explain why the company made the change: because it is not a big rich company like other tech companies, such as Google which has such famous benefits.

According to sources close to senior management, Armstrong also wanted to use the call to persuade employees that, despite the pay cut, AOL is still a company that deeply cares about its employees.

To persuade employees of that, Armstrong decided he was going to tell them about how, in 2012, AOL had helped the families of two employees.

According to sources close to senior management, two AOL employees (not necessarily women) had new babies come into their families last year. Both babies were sick. The families got, from AOL, all the money owed to them through their healthcare benefits. It wasn't enough. AOL paid more - roughly $2 million more. $2 million "above and beyond" what was obligated. It was an act of generosity, the kind that's a no brainer between family. And that was supposed to be Armstrong's point, that, despite the belt tigtening on the 401k matching, AOL was still a family.

The problem is that Armstrong, who is considerd a good motivational speaker, is not always an articulate one. He can ramble on. He can interject odd metaphors. He can digress.

That's what he did today when he got on the phone with employees.

According to rough transcript of the call, written down by an employee and then sent to Kara Swisher, here is what Armstrong said:

We had a $7.1 million bill from the Obamacare act in general and we had multiple other things that happened at the company healthcare-wise. Two things that happened in 2012 we had two AOLers that had distressed babies that were born that we paid a million dollars each to make sure those babies were okay in general. And those are the things that add up into our benefits cost. So, when we had the final decision about what benefits to cut because of the increased health care cost, we made the decision and I made the decision to basically change the 401(k) plans because all companies are going in this direction, number one, and number two is it was a choice between having all the individual AOLers probably pay a couple hundred dollars a month in additional cost out of your paycheck or to basically have people who are leaving the company to not extend the benefit, which is a benefit, not all companies give 401(k) matching programs to people who are leaving the company.

Reading that transcript, you can imagine how employees reacted.

What they heard was that Armstrong was blaming a pay cut on Obamacare and sick babies.

And, frankly, maybe he was.

Certainly, sources close to senior management insist that he was not.

They say that Armstrong was just trying to say that, despite what the Washington Post wrote and despite the pay cut, AOL is still a family. They say the numbers came up because Armstrong wanted to speak to all employees the way he speaks to his senior staff.

If these sources close to senior management are being straight with us, then Armstrong has another problem: he keeps putting his foot in his mouth during these phone calls.

Perhaps he should hire someone who can help him talk to employees. Perhaps he should write out his remarks ahead of time, and get them reviewed by someone he trusts.