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Facing criticism, AOL chief reverses change in 401(k)

CEO Tim Armstrong had to make an apology.

Peter DaSilva/The New York Times/File

CEO Tim Armstrong had to make an apology.

NEW YORK — Tim Armstrong, chief executive of AOL, did an about-face Saturday, reversing an unpopular change in the media company’s employee benefits program and apologizing for publicly singling out two families’ health care issues as a cause of those changes.

AOL had recently altered its 401(k) program, switching its matching payments to one lump sum at year’s end instead of throughout the year.

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The change would have disadvantaged AOL employees, especially those who left the company before Dec. 31. On an internal call last Thursday discussing the new policy, he attributed the change partly to soaring medical costs associated with two families’ “distressed babies.”

In an e-mail to employees late Saturday, Armstrong announced the company’s reversal.

“The leadership team and I listened to your feedback over the last week,” Armstrong wrote. “We heard you on this topic. And as we discussed the matter over several days, with management and employees, we have decided to change the policy back to a per-pay-period matching contribution.”

Under Armstrong’s leadership, AOL has transformed itself from an Internet portal to a diversified media company. His strong bets on video advertising, in particular, have improved the company’s financial performance.

But the commotion surrounding AOL’s benefits program was the second time in the last year that Armstrong has had to apologize for his actions or comments at internal meetings.

During a tense meeting in August with employees at AOL’s troubled Patch unit, a collection of local news sites, he fired an employee who was taking photographs of him during the meeting. He apologized four days later.

AOL recently sold a majority stake in Patch to Hale Global, a turnaround firm.

In the current incident, Armstrong came under criticism for what numerous AOL employees thought were insensitive remarks on the company’s increased medical costs. To make his point, he cited specific health care examples.

“We had two AOL-ers that had distressed babies that were born that we paid a million dollars each to make sure those babies were OK, in general,” he said, according to a transcript of the call provided by an AOL employee.

Numerous AOL employees were displeased that Armstrong had singled out two co-workers, although without mentioning their names. His comment drew substantial attention and criticism on social media.

By Saturday, Armstrong and AOL management announced that the company was reversing the change to its 401(k) policy.

“I made a mistake,” Armstrong said Saturday. “I apologize for my comments last week at the town hall when I mentioned specific health care examples in trying to explain our decision-making process around our employee benefit programs.”

The mea culpa came as Deanna Fei, a novelist and the wife of Peter Goodman, an editor at AOL’s Huffington Post, disclosed that she was the mother of one of the babies that Armstrong had highlighted. In an essay for the online magazine Slate, Fei blasted Armstrong’s remark.

“Isn’t that the whole point of health insurance?” Fei wrote, referring to the neonatal intensive care her daughter received.

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