Companies

Google and Apple Settle Lawsuit Alleging Wage Fixing

Four major tech companies were accused of agreeing not to poach each other's employees in order to drive down wages

Four major technology companies settled a lawsuit that alleged they conspired to keep salaries low in Silicon Valley only weeks before the high-profile trial date, Reuters reports.

About 60,000 tech employees filed a class action lawsuit against Apple, Google, Intel and Adobe in 2011 accusing those companies of agreeing not to hire one another’s employees in order to drive down salaries. The plaintiffs cited emails from top executives like the late Apple CEO Steve Jobs and former Google CEO Eric Schmidt in which they discussed an agreement not to poach each others’ workers and thus enter a salary war.

In one particularly damning email, Schmidt tells Jobs that an employee recruited from Apple to Google will be fired per their agreement—an email that Jobs forwarded to an Apple human resources executive with the comment: “:)”

The companies admitted to having a no-hire agreement but denied that they did so to lower wages. Other companies refused to participate in such agreements: Facebook’s COO Sharyl Sandberg refused to agree to such terms with Google in 2008, according to documents. Heading into trial, the employees were seeking $3 billion in damages.

Apple, Google, Intel and Adobe settled a civil suit in 2010 facing the same charges they did in the class-action lawsuit. At the time, the U.S. Justice Department noted that “cold calling” or companies recruiting from competitors’ ranks was best for the worker: “This form of competition, when unrestrained, results in better career opportunities.”

The trial for the class-action was scheduled for the end of May. The plaintiffs and the companies will disclose the principal terms of the settlement on May 27.

[Reuters]

E-Cig Execs Are Actually Thrilled With New FDA Regulations

“It’s a great day,” says Christian Berkey, CEO of Johnson Creek, a leading maker of electronic cigarette liquid based in Wisconsin.

Berkey was referring to the FDA’s issuance Thursday of proposed federal regulation of electronic cigarettes, a nascent industry that has grown to nearly $2 billion a year in U.S. sales. The move extended the FDA’s authority to regulate new tobacco products, including electronic cigarettes, pipe tobacco, and hookah, among others.

The FDA will take comments from various stakeholders on the rules over the next 75 days, and it could be a year or more before the regulations take effect, but today’s proposed rules were a big step toward bringing the e-cig wild west under control. Currently, there are no federal rules governing e-cigarettes (though many states prohibit the sale to minors).

“People worried the regulations would be unreasonable and onerous,” says Berkey. “What we are seeing is they are not.” Upon seeing the FDA’s proposed rules today, the businesses are cheering. They see the proposal as a signal that the agency plans to take a business-friendly approach.

Craig Weiss, the President and CEO of NJOY, a popular e-cigarette maker, was even more ecstatic in a press statement: “By resisting calls to regulate ahead of – and indeed in opposition to – the science and data, today the FDA has brought NJOY a giant step closer to achieving its corporate mission of obsoleting cigarettes.”

“I would say that there were certain people that went into this thinking the FDA would be a foe — an irrational, illogical opponent to these devices,” says Miguel Martin, president of Logic Premium Electronic cigarettes, another top e-cigarette manufacturer, “[But] they’ve hit the ball right down the middle of the fairway. It is early, I might change opinion,but the original set up on the process seems extremely fair.”

The proposed regulations would ban the sale of e-cigarettes to minors and in vending machines where minors are allowed, require labels that list the ingredients and warn of the addictive properties of nicotine, and require companies to register new products with the FDA with a rigorous application process before they can put them on the market.

The FDA has not yet proposed to ban flavors, which some anti-smoking advocates say appeal to kids, nor have they banned internet sales or advertising of e-cigarettes. And the FDA has given electronic cigarette companies a two-year window after the regulations go into effect to keep their products on the market while they apply to register new products.

Currently, it is illegal for e-cigarette companies to make health claims that their products are healthier than regular cigarettes or can help people quit—a question that needs more thanks to a court decision ruling in 2009. But in today’s deeming regulations, the FDA opened a pathway for companies to make health claims by submitting supporting research to the FDA.

“I suspect that many companies are going to take a run at that,” says Martin.

The proposals are really just a starting point. Mitchell Zeller, the director of the Center for Tobacco Products at the FDA, called the proposed rules “foundational” today in a call with reporters, signaling that future regulations could ban or restrict things like internet sales, flavors, or advertising. And after the first two year grace period, e-cigarettes will still be subject to potentially long application processes for new products that might hurt business, say manufacturers.

“It’s not time for a victory lap,” says Martin. “A lot can change.”

 

 

Why Buffett Should Vote ‘No’ on Coke

Berkshire Hathaway Inc. CEO Warren Buffett Interview
Warren Buffet Chris Goodney—Bloomberg/Getty Images

The discussion over inequality is all the rage these days, and it’s been given a new wrinkle with the hoopla over Warren Buffett’s abstention from a vote over Coke’s new compensation plan, which would award billions of dollars to Coke managers in Coke stock if they hit certain performance targets. Buffett told CNBC that he opposed the idea, but wouldn’t directly vote against it, because he loved the company, which was run by “great people” (which, it must be said, includes his son, who sits on the firm’s board). Traditionally, Buffett has opposed stock buyback plans because, as he said in a 1999 letter to shareholders, “repurchases are all the rage, but are all too often made for an unstated and, in our view, ignoble reason: to pump or support the stock price.”

I couldn’t agree more, and I wish he’d gone further and actually voted “No” to the Coke proposal. Even more than in the late 1999s, buybacks are all the rage right now. University of Massachusetts professor William Lazonick, who studies the effects of buybacks on corporate compensation and inequality, recently put out a paper showing that between 2003 and 2012, 449 of the S&P 500 companies gave out more than half of their earnings, some $2.4 trillion, on buying back shares of their own company. While this might seem like a vote of confidence, it’s hardly coincidental that his research shows that buybacks also tend to go hand-in-hand with lower future earnings and bull markets. Companies don’t buy back stock in down markets because they believe that the market has undervalued their great products and ingenuity; they do it in bull markets because they want to bolster their own pay at a time when underlying growth is sagging.

It’s a strategy being carried out today at companies like Apple, which just announced more share buybacks even as it announced lower earnings, and at Yahoo, which has offset an underwhelming growth story by buying back stock. It’s happening at Coke, too, and most of the country’s largest blue chip firms. It’s no wonder that execs want to be paid in stock – buybacks almost always bolster share prices over the short term, and investment income like stock makes you a lot richer than earned income from actual labor. It also decreases the amount of the economic pie that goes to labor versus management.

All this worries me. If you chart the rise of share buybacks against R&D spending in corporate America since the 1980s, the lines make a perfect X. We are very clearly bankrupting our future growth here. As Lazonick puts it, “Since the mid-1980s, corporations have funded the stock market rather than the market funding corporations.” Not to mention workers, or jobs (most large American corporations have had zero net job growth here at home over the last 30 years, even as corporate pay has risen to nosebleed levels). No wonder Thomas Pikkety’s book on inequality and the triumph of capital over labor is at #1 on Amazon.

Ladies’ Home Journal Folds After 131 Years

Ladies' Home Journal
Ladies' Home Journal

Despite a 131-year history and circulation of over 3 million, the magazine laid off its entire editorial staff and announced that its July edition will be its last

Ladies’ Home Journal will cease publishing, parent company Meredith said Thursday. The July edition will be the last monthly issue, and then the magazine will become a special interest publication sold on newsstands but not through subscriptions, Ad Age reports.

The women’s magazine has existed for 131 years and has a circulation of 3.2 million, according to the Alliance for Audited Media. It was one of the original so-called Seven Sisters magazines for women that included Better Homes and Gardens, Family Circle, Good Housekeeping, Red Book, Woman’s Day and the since-defunct McCall’s. At its peak in 1968, it had a circulation of 6.8 million. Meredith bought the publication in 1986.

Ladies’ Home Journal‘s ad pages had fallen 23 percent this year. “It’s not a consumer issue, it’s an advertising issue,” Meredith spokesman Art Slusark told Ad Age. Ladies’ Home Journal was “more challenged than our other titles because it wasn’t a category leader.” He also said that the magazine had a higher median reader age than many of its other publications.

The entire editorial staff for Ladies’ Home Journal was laid off, and production of the new special issues is moving from New York City to Des Moines, Iowa where Meredith’s corporate headquarters is based.

[Ad Age]

Earnings

Amazon Posts Massive Sales, Small Profit

Amazon Holds News Conference
Amazon CEO Jeff Bezos David McNew—Getty Images

First quarter sales increased 23 percent compared to last year, but only represented a modest financial gain, given CEO Jeff Bezos' long-established policy of reinvesting Amazon’s revenue back into the company to keep prices low

Amazon continues to generate enormous revenue even as it posts just modest profits. The online retailer’s sales rose 23 percent year-over-year to $19.74 billion in sales in the first quarter of 2014, beating analyst estimates of $19.43 billion. The company posted a profit of $108 million for the quarter, or 23 cents per share, in line with analyst expectations.

CEO Jeff Bezos has a long-established policy of reinvesting Amazon’s massive revenue back into the company to keep consumer prices low and launch new initiatives. Just this quarter the company inked an exclusive deal to bring HBO shows to its Prime video streaming service, launched the Fire TV set-top box to compete with Roku and Apple TV and introduced a Dash, a shopping device that people can speak into to order groceries without visiting Amazon’s website.

More critically to Amazon’s near-term future, the company also raised the price of its Prime subscription service by $20 to $99 per year. The change occurred late in the quarter so it likely didn’t have a huge effect on the company’s earnings.

Amazon stock, which is off early year highs as part of a downward trend in the tech sector, rose just slightly in after-hours trading.

Fast Food

America’s Most Terrifying Mascot Is Getting a Total Makeover

vintage interior with brick wall

McDonald’s is giving its long-time mascot a makeover. Ronald McDonald, the iconic clown that kids love and adults find quietly menacing, is getting a more modern look. The character will now sport a yellow vest and cargo pants instead of a jumpsuit, as well as a red-and-white striped rugby shirt. He’ll also don a red blazer and bowtie for “special occasions,” the company says. The outfits were crafted by Broadway theatrical designer Ann Hould-Ward, who said in a press release that designing clothes for the fast-food mascot was “one of the highlights of [her] career.”

Expect the redesigned Ronald to be a more active presence on social media. McDonald’s plans to use the #RonaldMcDonald hashtag to allow the character to engage with online audiences, and the company has posted a video to YouTube of a Ronald photo shoot that shows him trying on his new threads. McDonald’s also confirmed that, yes, there will be selfies involved.

Ronald McDonald first appeared in 1963 in local McDonald’s ads in Washington D.C. and was named the brand’s national spokesman in 1966. Perhaps bringing more attention to his fixed, broad smile can help lift McDonald’s out of its current funk. The fast-food chain posted disappointing quarterly earnings this week, with same-store sales in the U.S. dropping more than analysts expected.

Technology and Media

Facebook Rolls Out a New Plan To Crush Twitter

Mark Zuckerberg arrives for a keynote session on the opening day of the Mobile World Congress in Barcelona, Feb. 24, 2014.
Mark Zuckerberg arrives for a keynote session on the opening day of the Mobile World Congress in Barcelona, Feb. 24, 2014. Simon Dawson—Bloomberg/Getty Images

Facebook launched FB Newswire, which aims to be journalists' social media resource for breaking news

Facebook announced a new service Thursday designed to make it the primary social media resource for journalists covering breaking news, a direct shot across the bow at Twitter.

FB Newswire is a tool accessible via Facebook that features an updated stream of newsworthy and embeddable public content. This includes photos, videos, and status updates about categories ranging from hard news to lifestyle to celebrity to sports. Journalists can grab that content to use it in their own stories across the web.

Newswire is powered by Storyful, bought by Rupert Murdoch’s NewsCorp for $25 million in 2013, which promised users that it will be vetting all of the content it is providing.

Thus far, FB Newswire has provided content on stories ranging from Kim Kardashian’s views on the Armenian massacre:

To Obama taking pictures with a robot:

Twitter, one of Facebook’s primary competitors, has come to be known as a major breaking news resource for the media. It has built that news-friendly model with strategic hires and tool integration.

Retirement

There’s a Dangerous New Way to Get a Quick Loan

Getty Images

Americans ratcheted up borrowing from retirement accounts during the recession and have never stopped. Here's why these should be loans of last resort

Lingering fallout from the Great Recession includes the high rate at which workers with a 401(k) plan borrow from that pool of savings, imperiling their future retirement security.

At the end of last year, 18.2% of participants in a defined contribution plan had loans from their plan outstanding, according to new data from the Investment Company Institute. That rate has held above 18% since 2010, having jumped from 15.3% in 2008.

More workers also have taken hardship withdrawals since the financial crisis, further evidence that some at least have come to view their 401(k) plan as a piggy bank—not a retirement account. Hardship withdrawals have held steady the past few years, occurring in 1.7% of plans last year, up from 1.3% in 2008.

Loans seem to be the top choice for families plugging holes in their budget. The average loan balance is around $7,000, representing about 12% of the typical remaining 401(k) balance of $59,000. That’s a big chunk of savings that isn’t available to grow during the period it has been borrowed. You’ll pay yourself interest when you settle the debt, but not enough to replace years of lost growth in a rising stock market. In many cases, the loans never get repaid and become subject to penalties and income tax.

Loans are easily the biggest source of “leakage” from retirement plans. About one in four American workers with a 401(k) plan expect to tap their retirement account for current expenses. This leakage tops $70 billion a year, equal to nearly a quarter of annual contributions, research shows.

The issue is so concerning that experts are looking for reasonable alternatives to 401(k) plans. Some believe funds borrowed from a 401(k) should be insured so that in the case of a worker who loses a job any money borrowed from the 401(k) plan would be replaced—not permanently lost, penalized and taxed.

In general, 401(k) plan loans should be avoided—or used as a last resort. They are not as costly as some pundits would have you believe. But failure to repay is all too common. Default rates on 401(k) plan loans have roughly doubled since the financial crisis and account for about $37 billion a year leaving retirement savings accounts.

 

 

Paying for College

The Next Massive Bailout: Student Loans

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Christopher Futcher—Getty Images/Vetta

A new repayment option is really about student debt forgiveness. It's been popular, and is getting very expensive for taxpayers.

A few years ago, I began interviewing adults at least 10 years out of college and who had never managed to pay off their student debt. Some were past the age of 50 and headed slowly but surely for personal bankruptcy. Sadly, their stories were as common as they were upsetting.

Not much has changed. Outstanding student loans continue to balloon, and they now total $1.2 trillion nationally, according to the Consumer Financial Protection Bureau. Among students graduating in 2012, 71% had student loans averaging $29,400, according to a report from the Project on Student Debt. So while today’s grads may be part of the most educated generation in history they are also the most indebted twentysomethings the world has ever seen.

This isn’t good. Young people should be buying cars and setting up households—not boomeranging home to Mom and Dad and dedicating their income to loan repayment. Household formation is half the rate it was seven years ago, and most of that is due to the drag of student debt, the CFPB has concluded.

Government is trying to address the problem. There has been talk of refinancing student debt at lower rates. But that discussion has largely stalled. President Obama is pushing for a new funding model, where the amount of student financial aid available to universities is tied to things like their graduation rate and the initial salaries of their graduates. But the rating system, which might eventually hold tuition hikes in check, is at least a year away.

Another new initiative may be backfiring–at least at it relates to keeping college costs contained. Since 2011, student borrowers have been able to choose a plan that limits their amount due to 10% of discretionary income, which is defined as 150% above the poverty level—now at $15,730 a year for a two-member household. That means such a household would owe based on income beyond $23,595. If this household earned, say, $35,000 a year, it would make payments of about $100 a month.

For public employees and those working for a nonprofit, so long as they made regular payments the debt would be considered settled after 10 years regardless of how much was owed or paid back. For private sector employees the debt would be settled after 20 years. This payment plan, which is really more of a debt forgiveness plan, has proved so popular that enrollment is up 40% in six months and now includes 1.3 million Americans owing $72 billion.

Yet there is no free lunch, and we now have what looks like a high stakes game of Whac-A-Mole. Every time we bat down one source of escalating tuition and student debt, another source rises up. Because of the forgiveness feature, students appear more willing to borrow; universities are advertising the forgiveness plan and seem poised to raise tuition to soak up the funds. Just like that we are back where we started—a lot of borrowing and little incentive for colleges to keep tuition hikes down.

And it gets worse. In this popular new arrangement, taxpayers get stuck with the tab. Already the future cost of the forgiveness feature is pegged at $14 billion. To keep students and colleges from running up too big a bill, President Obama is pushing to add a lifetime forgiveness cap of $57,500. That would help. But make no mistake: the next bailout is happening now. It may be more palatable than bailing out banks and car companies. But the costs are mounting.

 

TIME 100

Meet the Disruptors of the TIME 100

Jeff Bezos Launches Bezos Center For Innovation In Seattle
David Ryder—Getty Images

The Time 100 has featured its fair share of tech world disruptors, from Bill Gates to Steve Jobs to Mark Zuckerberg. This year is no different, with an impressive array of tech CEOs that range from a couple of Chinese mega-moguls to a pair of fresh-faced innovators fresh out of Stanford University. Here’s a breakdown of the people on this year’s list who are doing the most to change the world of technology:

Evan Spiegel and Bobby Murphy

Ages: 23 and 25

What they did: Launched the messaging app Snapchat, through which users send each other pictures that disappear after a few seconds. The app is changing the way we communicate—or at least, the way your kids communicate. The rapid growth of the app, which processes 400 million photos per day, is the latest sign that people are craving ways to connect through private networks online instead of broadcasting all their thoughts to their Facebook friends.

Who’s scared of them: Facebook, which offered to buy Snapchat for $3 billion last fall and got turned down. The company also launched a Snapchat clone called Poke, which flopped.

Pony Ma

Age: 42

What he did: Founded Tencent, the giant Chinese Internet company that runs everything from social networks to massive multiplayer online games. At more than $150 billion, its market capitalization eclipses large American tech firms like Intel and Hewlett-Packard.

Who’s scared of him: The Chinese government, whose strict censorship laws are harder to enforce on private messaging services like Tencent’s WeChat app. The government has forced WeChat to restrict certain words, but users can still communicate through images and audio in ways that are tough to regulate.

Tony Fadell

Age: 45

What he did: Known as the “father of the iPod,” Fadell spearheaded the development of Apple’s disruptive music device. Later, he launched the smart smoke detector company Nest, which was bought by Google for $3.2 billion at the start of the year.

Who’s scared of him: Well, smoke alarm manufacturers, obviously. More broadly, though, Nest and other companies that are developing products tied to the “Internet of Things” could threaten the manufacturers of all sorts of traditional appliances, from televisions to refrigerators to automobiles.

Jeff Bezos

Age: 50

What he did: What didn’t he do? Bezos’s Amazon began as an online book store and is now a grocery store, a music retailer, an entertainment company, a fashion outlet, and a web hosting service that keeps much of the Internet online. Most recently he entered the journalism business by buying the Washington Post for $250 million.

Who’s scared of him: Physical retailers like Wal-Mart, of course, but also a growing a number of his tech peers. Next on his list of targets may be Apple—Amazon is rumored to be launching a smartphone to compete with the iPhone later this year.

Jack Ma

Age: 49

What he did: Created the Chinese giant Alibaba, the biggest e-commerce company in the world. The company runs a merchant marketplace like eBay and an online payments service like PayPal, as well as a cloud computing service and other businesses. Its public offering in the U.S. later this year could be bigger than Facebook’s and bring an onslaught of Chinese tech firms to American shores.

Who’s scared of him: Probably everyone. Like Amazon, Alibaba has its hand in a lot of different businesses, and it’s increasingly making big investments that operate outside of China. For example, the company invested $215 million in a messaging app called Tango that is competing in the same sector as WhatsApp.

Travis Kalanick

Age: 37

What he did: Launched the upscale, on-demand taxi service called Uber, then expanded its appeal to the masses with a cheaper ride-sharing program.

Who’s scared of him: Traditional taxi companies, which have tried to claim that Uber’s service is illegal. Soon it may be FedEx or the U.S. Postal Service complaining—Uber is testing a new courier service in New York right now.

 

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