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Backlash hits AOL CEO after 'distressed babies' remark

Chairman and CEO of AOL, Tim Armstrong, speaks during the launch of the HTC One smartphone in London February 19, 2013. REUTERS/Toby Melvill
Chairman and CEO of AOL, Tim Armstrong, speaks during the launch of the HTC One smartphone in London February 19, 2013. REUTERS/Toby Melvill

By Jennifer Saba and Lisa Richwine

NEW YORK/LOS ANGELES (Reuters) - AOL Inc Chief Executive Tim Armstrong tried to tamp down a backlash after he blamed a pension cut on costs stemming from two employees' "distressed babies," insisting that the Internet provider was focused on families.

Armstrong's comments on Thursday during a company town hall meeting about why it was cutting 401(k) contributions caused a fire storm on social media, overshadowing positive quarterly results from AOL. It marked the second recent instance when a gaffe by Armstrong left the CEO with some explaining to do.

During the meeting, Armstrong singled out two unidentified employees who had babies with health issues in 2012 and their impact on AOL health costs, which he said had also increased because of "Obamacare" health reforms.

"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," Armstrong said, according to the Capital New York, which first reported the details.

He said changes to the company's 401(k) retirement plan were made in the wake of President Barack Obama's healthcare law, which he said added $7.1 million in expenses for the online media and entertainment company.

After the town hall, Armstrong sought to clarify his remarks in a memo to AOL's 5,000 employees.

"I discussed the increases we and many other companies are seeing in healthcare costs," he wrote. "In that context, I mentioned high-risk pregnancy as just one of many examples of how our company supports families when they are in need. We will continue supporting members of the AOL family."

An AOL spokesman declined to comment.

Peter LaMotte, a senior vice president with Levick, a communications firm that specializes in crisis management, described Armstrong's note as a "non-apology."

"He could have easily set the record straight. All the letter said was 'you misunderstood me,'" LaMotte said, adding that an executive should never single out a specific group of employees when trying to make an example.

Armstrong's comment was satirized by the technology blog Valleywag, which posted a graphic counting Armstrong's multi million-dollar salary in units of distressed babies.

It was the second time that Armstrong found himself on the defensive after making spontaneous comments during company meetings. In August, Armstrong issued an apology after publicly firing a Patch creative director in front of a thousand employees.

Armstrong's comments came on the same day that the company reported better-than-expected results and its best year of growth in a decade. AOL reported $36 million in net income during the fourth quarter on $679 million in revenue.

Under Armstrong's leadership, shares of AOL have soared, gaining 53 percent in the last 12 months. The stock ended flat at $47.28 on Friday.

(Editing by Christian Plumb and Dan Grebler)

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