Monday, February 10, 2014

The AOL 401K Lesson: Is HR Failing at Your Company?

The cost-cutting policy change at AOL intended to save a few million dollars a year (hey, free money to bottom-line) is yet another example of a failing human resources function in many companies. While there are many reasons to justify cutting corners in benefits to employees especially in an earnings-starved company like AOL, it was a poor decision, poorly executed. The decision has since been reversed after major adverse public reaction.
Courtesy: Lifehacker

The question HR executives happily titled as "Chief People Officer" need to ask is - what is their role? Is it to simply rubber-stamp and execute the policies that the CEO and other executives come up with?

I would argue that the head of human resources' job is to think from the employees' perspective and represent their interests in management meetings. Just as a good CMO thinks from the customer's perspective, the Chief People Officer must think from an employee's perspective. Bringing that perspective to the table is how a human resources executive earns a seat on the table.

Policies that appear to save money in the short term may cost a lot more in the long run.

Let's start with a very simple question: Why have a 401K program? 

There is no legal requirement to offer 401K. Even more, there is no requirement forcing you to offer 401K matches. Companies offer 401K as a perk because its something employees value. Rather than paying $4K more in salary to someone who earns $80K, its good for the employee and in the best interest of the company to offer a retirement plan encouraging employees to save.

Given that AOL has voluntarily set up this program with a match, what was the justification to change it? A few million dollars. For a company with more than half a billion dollars in sales, there are many other ways of saving money. And if the financial situation was really terrible, AOL could have taken the employees into confidence and made changes to this or other program in an open and transparent way.

In stead, AOL leadership appears to have chosen to break the employees' trust - many did not even know of these changes - and essentially market it to investors in an earnings call.

To me, this is an epic fail by HR - it was their job to stand up and explain to even the CEO (assuming he had made this decision single handedly which seems unlikely) the effect on morale on current employees. And the effect on their ability to attract top talent in future.

It seems we executives are very eloquent in explaining the market forces that drive executive compensation but when it comes to being able to explain the value of employee compensation many seem to think less is better.

I will wait for the day when HR awakens to its rightful leadership role earning a seat at the table by doing its job - valuing talent, explaining the value to the leadership team and putting programs and processes in place to execute on the talent strategy.

What can your company learn from this disaster?

  • Talent is Everything: In today's day and age, your people are your competitive advantage especially in high-tech. Companies spend millions acquihiring a few engineers - and your bone headed policies can turn away many more.
  • Value of Communication: Not only did AOL get the policy wrong, it was poorly communicated. How well are you at communicating your policies? What tools do you use? How do you know your employees know?
  • Value of Listening: The AOL employee whose baby was indirectly named by the CEO wrote a letter in Slate magazine. Why was it easier for her to do that than to email Tim? Did her manager reach out to her? When? Did HR reach out to her proactively? Why not?
  • Evaluate Invisible Costs: Sometimes we all fall for the free lunch. When an outside consultant comes up with a brilliant cost cutting idea by making expense reports harder to file or moving 401K payments or reducing cost of travel by making employees fly with stopovers etc. - always ask the question what will it cost in the long run? Does it make it more likely to attract and retain top talent? Will it burn out my employees? How will it effect morale and productivity?

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