Flying in the Face of a Culture Clash

Fasten your seat belts; there may be turbulence ahead when Alaska Airlines and Virgin America combine two divergent company cultures. A merger between the two airlines was announced on April 4, 2016. Virgin America is described as innovative and hip, while Alaska Airlines is a bit more under the radar with a dependable brand image. The airlines' origins couldn't be more different. Alaska Airlines' roots go back to 1932 when a depression-era fur trader began offering flight service from Anchorage in a tiny three-seat plane. Relative newcomer Virgin America was founded in 2007 by rock-and-roll billionaire Richard Branson to "make flying fun again."

While both air carriers have loyal patrons, passionate Virgin America fans are expressing dismay about the forthcoming merger on social media. One FAQ on the Alaska Air website addresses the hot button of Virgin America's "fly" safety video – but fails to answer if Alaska will create its own choreographed safety dance. Even Virgin Group founder Richard Branson admitted sadness that his U.S. airline is merging with another carrier.

Virgin America has prided itself on the passenger experience. Virgin's Airbus fleet boasts mood lighting, electrical outlets in the leather seats with seatback touch screens that allow you to stream Netflix or even send a drink to another passenger. Contrast that with Alaska Airlines' barebones Boeing jets with an old-fashioned safety card and magazine in the earth-toned seat back. Alaska's only "cool" factor may be the Starbucks coffee service. While Alaska Airlines lacks VA's flashy amenities, the Seattle-based company is well-regarded for reliability, exemplified by its 20-minute bag guarantee.

What the airlines have in common is a history of customer satisfaction. In the Wall Street Journal's Middle Seat scorecard of the largest U.S. airlines, Alaska has been ranked #1 or #2 for the past six years. The carrier has also rated highest in the J.D. Power Airline Satisfaction Study eight years in a row. Virgin America has been ranked the #1 U.S. airline in the 2012-2015 Airline Quality Rating report, and has been named Best Domestic Airline by both Travel + Leisure, and Condé Nast Traveler from 2008-2015.

Once combined, Alaska will become the fifth largest U.S. airline, ousting JetBlue, which lost out on the bidding for Virgin America. Some argued that JetBlue was a better fit culturally, and could have greatly expanded east-coast routes. The Alaska-Virgin union will instead create a west-coast low-fare powerhouse.

Management consultants Hay Group claim 91% of mergers and acquisitions fail due to cultural differences. Notable examples of oil-and-water mergers include the Nextel/Sprint merger (casual khaki culture meets buttoned-up bureaucracy), AOL/Time Warner (unruly internet upstarts versus conservative media fiefdoms), and Daimler/Chrysler (no-nonsense Germans contrasted with free-wheeling Americans). While culture clashes were certainly not the only factor in the downfall of these seemingly mighty alliances, they certainly played a significant role.

The Alaska Airlines-Virgin America deal won't even close until January 2017. The newly created website assures passengers that Virgin America's premium inflight experience won't change – for now. Can Virgin can convince Alaska to up its game? Flyers will have to check in Q1 of 2018 to see if they are greeted with ambient lighting, contemporary tunes, and fresh flowers.

Readers, do you think Alaska Airlines and Virgin America will be able to merge their dissimilar company cultures? Comment and let us know!

Where are They Now? Updates to the 4 Biggest Stories of 2015 (So Far)

So far, 2015 has been a year with many businesses and hiring trends making headlines daily. Cities have raised their minimum wage, companies have made unique (and sometimes controversial) personnel decisions, and court decisions have thrown some companies' entire existence into jeopardy. These stories continued to be front-page news. Here are the updates for the biggest four stories of 2015 so far.

Walmart Gives 500,000 Employees a Pay Raise
When the retail giant notorious for low pay decided to raise the hourly wage for 40% of its workforce, it was applauded for following successful companies with high wages. The company estimated it would be spending an additional $1 billion in increased pay and revised training programs. Almost 6 months later, Walmart is experiencing weak second quarter earnings and has predicted that extra expenditures in pay will decrease its earnings per share by 24 cents in 2015. However, Walmart is confident investors will see a payoff for higher pay; same-store retail sales were the highest in 3 years and the company had its third straight quarter of higher traffic (CNBC, 8/18/15).

Lawsuits Spell the End of the Sharing Economy?
A wave of lawsuits against companies that are part of the "sharing" or "gig" economy had their entire business model thrown into jeopardy. The suits claim that that companies like Uber and Lyft exploit workers by classifying them as independent contractors, not as employees, and therefore avoid paying benefits, health insurance, and other costs. Last week, a judge in California allowed drivers in a class-action lawsuit against Uber to proceed with their claim. If the drivers win, Uber could face a large settlement - and more devastatingly - a possible change to their business model, at least in California.

The Company with a Starting Salary of $70,000
In April, Dan Price, CEO of Gravity Payments in Seattle, decided that all 120 employees at his company would earn at least $70,000 a year. The choice was both lauded as a smart and generous business practice and also criticized as foolishness that would make the company unstable by eating into its profits. Just 3 months later, Price is seeing some fallout from his decision. Two of the company's "most valued" employees quit and although the company was signing on new clients from the positive publicity, some customers left, anticipating a rate hike.

Los Angeles' $15 Minimum Wage
Los Angeles became the largest city to pass legislation that would institute a $15 minimum wage and a familiar debate around the possible benefits or detriments ensued. The success of the Fight for $15 in Los Angeles, also spurred other cities to raise their minimum wage. New York plans to raise wages for fast food workers to $15 an hour by 2018. In the Bay area, an arms race of raising wages was triggered as Berkeley, Oakland, and Emeryville all increased minimum pay.

Readers, what do you think has been the top story this year? Comment and let us know!

The Digital Destruction of Middle-Class Jobs

When a new piece of technology is introduced, it's touted as the miracle solution to make work and life smarter, easier, and faster. Nearly every person carries around a small super computer in their pocket, the Internet keeps faraway family or coworkers connected, and mountains of data and information can be stored for time immemorial. Technological innovations claim to aid people in life and employees at work, but is the constant march of digital development actually destroying middle-class jobs?

The end of employees and the rise or robots is an apocalyptic prediction that has been forecast before, but never come to pass. However, the rapid advancement of tech could eliminate middle-income jobs that sustain many households, leaving workers without a digital skill set out of luck. Until about the year 2000, labor productivity and private employment grew together in the U.S. However, at the turn of the century, a gap emerged between productivity and employment: productivity continued to increase, while private employment decreased (see chart). Because of new technology, the economy and GDP were growing, but not coupled with job creation (Tech Republic, 8/19/14).

Since that time, new technologies created high-paying jobs – but only for a few and only for those with the right skill set. In the past, most middle-income households were sustained by factory or manufacturing jobs. In 1970, more than one quarter of U.S. employees worked in manufacturing (Bloomberg, 4/25/2014); those jobs accounted for only 8.8% of U.S. employment in 2013 (Economic Policy Institute, 1/22/15). The decline of U.S. manufacturing has several contributing factors: outsourcing and a surge of Chinese imports both contributed to the continual drop. However, manufacturing employment is falling globally in nearly every country, including China, (Bloomberg, 4/25/2014), due mainly to technology and the elimination of the need for industrial workers.

It is not just factory jobs being claimed by automation. About 47% of all present jobs in the U.S. are predicted to be computerized or automated within the next two decades (Oxford University, 7/17/13). Some service and white-collar positions are also expected to succumb to technology; accountants, retail salespeople, technical writers, and telemarketers, all have a high probability of being replaced by robots within the next twenty years (see chart, Business Insider, 7/23/14).

As middle-class jobs decline because of automation, others jobs do replace them; however, these are typically highly-skilled tech jobs or low-wage service jobs, leading to a polarized workforce. Those working in high-skilled jobs will benefit from high wages, while those working in low-skilled jobs will encounter the continuing trend of finding their earnings depressed. Additionally, technology allows companies to substitute labor for capital, which boosts productivity, but does nothing for wages, and concentrates wealth among a small group and resulting in ever-increasing inequality (University of Oxford, 2/2015).

But are the dire predictions are a bit too apocalyptic? Is the technology boom all part of typical economic cycles that destroy some categories of jobs but open up a whole world of new employment? A few decades should determine whether technology replaces workers with robots.

Readers, do you think technology is creating or destroying jobs? Comment and let us know!

A (Practically) Perfect Parental Leave Policy

Last week, Netflix, a company used to receiving fanfare for its employee policies, announced that it would be offering new mothers and fathers the opportunity to take off as much paid time as they'd like in the first year of becoming parents. Netflix's new plan goes well beyond even generous parental leave policies of other companies like Google or Facebook, and far surpasses outstrips the majority of American companies which offer no paid parental leave. The streaming company announced the new plan in a blog post and has made the policy accessible to both men and women. Netflix's new plan may be spurring other companies to offer more generous parental leave: Adobe and Microsoft both expanded their policies shortly after Netflix's announcement. The policy seems practically perfect, and it could be, if implemented correctly.

The company's new plan states that new "parents can return part-time, full-time, or return and then go back out as needed,"without changes in pay in the first year of parenthood. This policy is coupled with Netflix's unlimited vacation plan, but not every employee benefits. The parental leave applies only to salaried workers, not the hourly employees working in the DVD distribution centers. Netflix won't disclose exactly how many employees are not eligible for the parental perk, but it has reported about 2,300 total workers, of which an estimated 400-500 are not eligible (NPR, 8/6/15).

America is only one of three countries in the world, and the only developed nation, which does not offer paid maternity leave (ABC, 5/6/15); so although groundbreaking compared to receiving no paid parental time off, Netflix's new policy ushers in its own set of challenges. Like unlimited vacation time, such a flexible policy means that some employees may be unsure of if and how they can take advantage of it. Without defined limits, employees may be hesitant to partake of this new perk, and if they do they may be resented by their bosses or coworkers for doing so.

New mothers may have a particularly hard time taking advantage of the policy without repercussions. Although the leave is open to both men and women, women are already under-represented in tech companies and if only women use their paid parental leave, while men tend to pass up the perk or take less time off, women could still be pushed in a "mommy track"at work, with fewer promotions and raises once they return to work, a cycle already typical for many women.

Netflix should be applauded for implementing a paid parental leave policy for its employees. The next step will be ensuring that company culture actually supports its usage.

Readers, what do you think of Netflix's new parental leave policy? Comment and let us know!

July Jobs Report

In July, U.S. employers added 215,000 new jobs, compared with an average monthly gain of 246,000 over the prior 12 months, according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployment rate remained unchanged at 5.3%. The labor participation rate was also unchanged at 62.6% in July, after declining 0.3 percent in June. Economists wonder if the report is good enough to keep the Fed on track to raise rates in September.

Industries that experienced the most growth in July included retail (+36,000), health care (+28,000), and professional and technical services (+27,000). Temporary help services showed little change from June to July (-0.3%) but is up 4.5% over July 2014.

Is it Time to "Ban the Box?"

Anyone who has applied to a job is probably familiar with "the box." Most applications require candidates to indicate if they've ever been convicted of a crime. Many people skim this section and check "No" without much thought. For the nearly 70 million Americans who have been convicted of a crime, however, that small box can be a huge hindrance in finding a job. Activists gathered last week to urge President Obama to "ban the box" when hiring for federal agencies or contractors, following the trend of many cities and states which have already removed criminal history from the application process. Even as job growth surges ahead, applicants with criminal records have trouble finding work. Is "the box" an unfair barrier to employment and would removing it from job applications help unemployed people with criminal records integrate back into the workforce?

Nine out of ten employers check databases for criminal records when hiring and advocates of banning "the box" claim that the use of background checks in the hiring process has systemically excluded applicants with criminal histories. Of nonworking men in the United States, 34% have a criminal record (The New York Times, 2/28/15). With nearly one in four Americans having a criminal record, "the box" could be hindering nearly 70 million people from finding work (NBC, 6/5/14).

The "ban the box" campaign has surged in the last several years. The initiative works to remove conviction history from the application process and delay any background check until later in the hiring process. Momentum for the idea has gained traction in the last several years: over 100 cities and counties have adopted the rule and a total of 18 states have also followed suit, including California, Colorado, Georgia, Illinois, Ohio, Oregon, and Virginia. Most of these laws apply to pubic employers; only seven states have removed the conviction history question for applications for private employers (National Employment Law Project, 7/1/15).

New York City is one of the most recent cities to join the movement and recently passed the Fair Chance Act that will "ban the box" for any employer with more than four staff members. Like other laws, the criminal background check is delayed until later in the process and a job offer can be rescinded because of a conviction record. Private employers have also taken their own initiative: major companies like Walmart, Target, Starbucks, and Koch Industries have voluntarily decided to remove the box from their job applications.

Some are not convinced and worry that "banning the box" will complicate and lengthen the hiring process, erode workplace safety, and open up businesses for potential litigation. The National Retail Federation views the box as measure to ensure security and safety at work and claims that having background information at the beginning of the hiring process allows the employer to make an informed decision. Banning "the box" could result in employers coming to an offer stage and then withdrawing due to the background check, spending time and resources on a candidate who is not ultimately hired. The National Federation of Independent Businesses (NFIB) also opposed "ban the box" laws, saying that they stretch thin the resources that small businesses have when screening and hiring applicants, opening them up to liability in the future. Before Michigan passed its own measure, NFIB surveyed business owners and found that 88% of them were opposed to the law (NBC, 6/5/14).

Activists promoting the regulations have urged President Obama to sign an executive order to remove "the box" from job applications for federal agencies and contractors. The President has already asked Congress to pass a bill that would delay criminal background checks until further into the hiring process, but proponents are pressing him to act where he can during the remaining months of his presidency.

Readers, should "the box" be banned from job applications? Comment and let us know!

Does Corporate Profit-Sharing Spread the Wealth?

As the 2016 presidential primaries draw closer, many candidates have begun to outline their economic plans, all touting to aid workers and raise the middle class. Democratic frontrunner Hillary Clinton shared her own economic plan, the centerpiece of which is increasing employee pay and raising income levels. As part of her plan, Clinton hopes to remedy stagnant wage growth with a "Rising Incomes, Sharing Profits" tax credit, which would award a two-year tax credit to companies that offer profit-sharing programs to employees. But, does profit-sharing actually spread the wealth to workers or does it have unintended consequences that could actually hurt the very employees it's supposed to help?

Clinton's proposed plan gives companies a two-year tax credit equal to 15% of the profits they share. As an example, an employee earning $50,000 a year could receive an additional $5,000 in profit-sharing and the company would then receive a tax credit of $750 per worker. The credit would only be available to companies that offered profit-sharing widely to workers and would phase out higher-income employees from the program.

Corporate profits, although lagging in the first half of the year, are still at an historic high and profit-sharing aims to distribute some corporate profits back to workers in order to raise employee wages and give workers a stake in company performance. Proponents of the plan assert that employees become stakeholders in a company under profit-sharing arrangements: when a company does well, employees share in the gains. Advocates claim that having an investment in a company's performance can lead to higher productivity, stronger employee loyalty, and higher incomes. Companies with profit-sharing plans had average compensation levels 8 percent higher than other comparable companies (National Bureau of Economic Research, 2012).

One example of profit-sharing being a win-win for both employees and companies is WinCo, an Oregon-based, employee-owned supermarket chain. The company offers its workers an Employee Stock Ownership Plan (ESOP), and more than 400 front-line, non-executive employees have accumulated over $1 million in retirement savings; within the last seven years, WinCo has paid out almost $1 billion to retirees (Forbes, 11/5/14). The grocery chain is visibly successful with 98 stores across the nation and an expected $6 billion in sales in 2015.

However, others worry that the program could actually harm the workers Clinton aims to help. Although typically bonuses from profit-sharing are in addition to normal wages, companies could try to replace some of their payroll with profit-sharing, which would harm middle-class workers that rely on consistent paychecks. Corporate profits, although high, can be erratic; for instance, during the Great Recession, profits plunged 16% (Fortune, 3/30/15). Workers that depend on reliable income could be hurt by wages being tied to their organization's performance. Skeptics of the idea also claim that the boons of profit-sharing are mostly theoretical and not enough economic research exists to prop up the idea that profit-sharing plans boost wages of middle-income workers.

Clinton's tax credit is only a proposal, and is likely only one of many that will come from a variety of presidential hopefuls in the coming months. But corporate profit-sharing is part of the larger debate around reversing wage stagnation and boosting middle-class workers.

Readers, would you want to work at company with profit-sharing? Is it a win for the economy and workers? Comment and let us know!

Black Friday in July: Retail Giants Battle for Online Sales

Seeing advertisements for blowout sales, slashed prices, and one-day deals might make some feel as if it's the beginning of the holiday sale season. The heat, however, makes it quite clear that Christmas is far off and instead online retailers have decided to recreate Black Friday in July. Amazon was the first to anoint July 15 as "Prime Day," a one-day online shopping event "with more deals than Black Friday," exclusively for Amazon Prime members. When the online retail giant announced their day of deals, Walmart quickly declared a rival sale with exclusive online "rollbacks," while Target also joined the fray with their sixth annual "Black Friday in July" week.

The three retail behemoths continually compete to capture the growing amount of sales made online as more and more people opt to make purchases on the web rather than at brick-and-mortar stores. For instance, in 2014 Cyber Monday outpaced Black Friday sales as predicted: total sales hit over $2 billion and were up 17% from the previous year (Fortune, 12/2/2014) while companies saw their Black Friday sales drop 11% (Fortune 11/30/2014).

E-retail sales are skyrocketing throughout the whole year, not just Cyber Monday. In 2014, web sales totaled more than $300 billion for the first time and sales were up 15% from 2013. The majority of sales are still made in brick-and-mortar establishments: E-commerce accounted for 6.5% of total retail sales in 2014 (Internet Retailer, 2/17/2015). However, that number is expected to grow continually and researchers predict that by 2018, e-retail will account for about 11% of total sales, nearly double the amount currently (Internet Retailer, 5/12/2014). Online sales will continue to be driven by Millennial consumers and mobile purchases. During Cyber Monday in 2014, sales made on mobile devices increased 30% from the previous year and accounted for 20% of total purchases (Fortune 12/1/2014). Mobile shopping accounted for 15% of digital commerce in Q1 of 2015 and accounted for 59% of time spent online shipping, overtaking the amount of time spent shopping on a desktop (Internet Retailer, 6/8/2015).

Walmart, Target, and Amazon are all trying to capitalize on consumers' increased online shopping by fabricating holidays in order to boost spending. As the master of online sales, Amazon took a cue from China's e-commerce goliath Alibaba which made the holiday "Singles' Day" into a huge sales day in order to bump online purchases. Alibaba generated more than $9 billion in sales just for that one day (Forbes, 11/11/2014). Amazon's Prime Day was ostensibly planned around their 20th anniversary, but is more about increasing its Prime membership before companies like Walmart and eBay launch similar programs this summer than celebrating the company's birthday.

Amazon's Prime membership is an essential factor in its attempt to beat out retailers that dominate with storefronts, such as Walmart and Target. For $99 a year, Prime members have free two-day shipping (with same-day shipping available in some areas) as well as access to Amazon's media library. In Q1 of 2015, Prime had 40 million members and those enrolled spent nearly 2.5xas a much annually as compared to non-members (Harvard Business Review, 7/13/2015). Consistently higher sales have prompted Walmart and eBay to announce similar subscription services of their own. However, Amazon has never been concerned about operating at a profit and loses up to $2 billion annually on its Prime shipping costs (Reuters, 1/2/2015). Amazon is more concerned with dominating online sales than remaining profitable, a strategy that its competitors may not have the luxury of pursuing.

Online sales will not overtake storefront spending anytime soon, but the skyrocketing growth of digital commerce has retailers already competing for customers. Whichever business corners the market first on online sales may have an advantage over competitors if retail ever becomes bigger than brick-and-mortar.

Prime Day Update: The initial reaction to Amazon's Prime Day sale on social media was less than glowing. Many users started to use the hashtag #PrimeDayFail to express frustration at the lack of discounts on enticing items. However, despite the online disappointment, sales soared for the retailer. Amazon's sales rose 93% in the U.S. and 53% in Europe (CNN Money, 7/16/15).

Readers, do you online shop? Do "Black Friday in July" deals influence you to shop online? Comment and let us know!

New Proposed Overtime Rule Shifts Focus to Salaried Workers

In the ongoing saga of arguing whether raising the minimum wage would either benefit workers or harm businesses, certain industries and stakeholders battle more passionately than others as they are the ones most affected by these wage laws. When cities like Los Angeles institute higher hourly pay, employees in retail, food service, or personal care services are the ones who, according to proponents, would benefit the most, while the companies that employ them, according to critics, would suffer proportionately.

However, a new Department of Labor rule proposed by the White House last week has shifted the focus of the wage debate to salaried workers. The Obama administration's plan would more than double the threshold for overtime eligibility for salaried workers, making nearly 5 million more employees entitled to overtime pay and affecting nearly every corner of the labor force. If passed, the rule would guarantee overtime coverage for salaried workers earning less than $50,440 per year (currently the threshold is for those earning less than $23,660 per year). The proposal is planned to go into effect in 2016 and would make those earning less than $50,440 eligible for the standard overtime rate (time-and-a-half pay) whenever they work more than 40 hours per week.

The overtime law under the Fair Labor Standards Act was inducted during the Great Depression and the threshold has only been updated once in the last forty years. Four decades ago, the rule covered more than half of U.S. workers; now less than 8% of salaried employees are covered by the regulation (Los Angeles Times, 6/30/15). The overtime law has also not historically been tied to inflation, making a high salary in 1975 one that would leave a family of four below the poverty level in 2015. The new rule would either tie the threshold to future inflation or keep it to the 40th percentile of incomes.

When proposing the reform, Obama cited millions of workers who consistently work upwards of 40 hours a week, but are not paid for their extra time. Obama announced the proposed rule in a blog post where he lamented that "too many Americans are working long days for less pay than they deserve." Supporters of the rule claim that paying a premium for extra labor will help employers to either pay a higher salary or stop taking advantage of their workers for free labor. Some wished the new rule had gone further and were urging the White House to make the cutoff $69,000 per year. There is a 60-day period for public comment before the proposal is finalized, but debate about the subject is already delineating along familiar lines: proponents hail the rule as a win for workers and the economy, while critics are predicting dire consequences that would restrict workers' flexibility in their schedule, limit career growth opportunities, and strangle job growth.

The National Retail Federation has already submitted a condemnation of the new rule and others have insisted that it would force companies to reclassify salaried employees as hourly workers, thereby stripping them of benefits and flexibility. The NRF estimated that new overtime rule would cost restaurant and retail businesses $9.5 billion per year, and warned that employers would bend over backwards to avoid paying overtime, meaning that wages, bonuses, and hours might be cut to avoid having to pay time-and-a-half (NRF, 5/18/15). The White House has estimated direct costs to employers at $255 million per year (Los Angeles Times, 6/30/15).

Proponents argue that the new rule will fight stagnant wage growth and put more money in Americans' pockets, which could boost consumer spending (which has remained stubbornly flat) and the overall economy. The law would also curtail the practice of misclassifying workers as "managers" to avoid paying overtime, even though their job duties don't differ from non-managers, a practice that is especially prevalent in food service and retail. Advocates also hope to stop companies from taking advantage of free labor from employees and will either have to pay for the extra hours worked or make schedules fit into a 40-hour week.

Readers, do you support the new overtime rule? Why or why not? Comment and let us know!

June Jobs Report

A third straight month of strong job growth continued to boost optimism for the second half of 2015. The U.S. economy added 223,000 jobs in June according to the Bureau of Labor Statistics' Employment Situation Summary. The unemployment rate decreased to 5.3%, the lowest in seven years. However, economists worry that falling unemployment was prompted by Americans exiting the workforce, rather than more people finding jobs. The labor participation rate decreased to 62.6%, the lowest since October 1977.

Industries that experienced the most growth in June included professional and business services (+64,000), health care (+40,000), and retail (+33,000). Temporary help services increased by 0.7% and created 20,000 new jobs.

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