The 2008 shift in our organizational structure directly affected our employees in Brazil. The new Natura Management System began to be implemented based on three pillars: processes, culture, and leadership. This had a sizable impact on our employees, initially causing some discomfort. The first signs of improvement, however, can already be noticed, as the climate is recovering in the administrative department, the area that was most severely affected by the restructuring. The main purpose of the changes was to make the company less cumbersome and more agile and efficient in decision-making, with fewer levels of corporate hierarchy and greater proximity to consumers and the market. We mobilized and engaged the organization as a whole to galvanize this process.

We have been working on this adjustment since early 2008, and it has prompted an 8.6% reduction in the number of employees in Brazil – from 4,798 in 2007 to 4,386 in 2008 – without affecting production or sales. The corporate structure of Natura in Brazil, previously centered on departments, is now based on a model of business units and regional units, which promotes a more independent, direct, and decentralized approach.

Our employees are key to corporate progress. Each one contributes in his or her own way to our growth. Moreover, they also play an important role as change agents in society, whether by developing initiatives that involve our value chain or by working as volunteers on projects that are in tune with our Values and Beliefs. Consequently, it was essential for us to take proper care of the professionals that were laid off. We created a special severance package, including a cash payment, an extension of medical insurance, and help finding a new job. We also set up a Career Center with Internet access and administrative support, staffed by specialized consultants, to help people network and find employment. This program is expected to last six months and, since its launch in January 2009, some 25% of participants are already in new positions.

This round of layoffs was accompanied by a wave of hirings, the result of the process to regionalize Natura’s business, which created job openings not only in São Paulo but also in other states and regions of Brazil. To fill these positions, we first gave the laid-off employees the opportunity to relocate. In Latin America, the operations where the most jobs opened were in Peru, Colombia and Chile, since they had experienced an increase in sales.





Some of the disruption caused by the restructuring process is reflected in the employee turnover rate. In Brazil, the turnover rate reached 12.4%, compared to 9% the year before, with operations personnel most affected. The model of semi-autonomous cells, which was set up in 2006, completed an evaluation and maturity cycle in 2008. The semi-autonomous cells eliminated a hierarchical level and created a structure in which the employees report directly to the plant manager, greatly improving autonomy. The professionals who could not adapt to the new model and did not perform well ended up leaving us.



Work Environment

Natura’s organizational climate score remained stable at 72% in 2008. In the foreign operations, it grew in most countries, particularly in Argentina, where it increased 11 percentage points to 80%. In Brazil, the favorable response rate among employees dropped back to 69%, influenced by the result in the operating area, despite the positive results in the administrative and sales areas. In 2009, we will work hard to reverse this situation.

There is evidence of improvements in topics such as quality of life and training (in this case, strongly driven by the sales area), and although our challenge to improve the quality of our relationship with employees is clear, the points needing attention are in the action plan we are implementing. The improvement opportunities are related precisely to topics such as leadership, quality of the decision-making process, and relationship, which are the core aspects of our new organizational model.

Developments such as the new leadership team, the implementation of management by processes at the business and regional unit, strengthening relationships and the quality of decision-making, and the strengthening of the organizational culture will contribute to our continuous development of the favorable response rate with all stakeholders. We believe that this is not about raising a few percentage points, but about changing our employees’ perceptions.



Efforts toward reaffirming our culture will play an important role in the work environment, particularly when it also becomes a process within the company, tied to the engagement with and management of the quality of relationships. The comprehensive diagnosis made with employees in 2008 will result in actions aimed at the different groups in 2009.

Diversity

For us, diversity is a very important value, and the topic merits even more attention when it comes to employees. We do not have a final position on how we should encourage diversity particularly in view of our ambition of becoming a large global company open to the multicultural influences of the regions and peoples that are part of our community. Therefore, the data presented below follow the market reference practices and do not reflect action focused on the topic. However, in 2008 we had a consistent plan for contracting disabled workers at Natura Cosméticos and managed to increase their numbers on our staff by 50%.

In 2008 we had a consistent plan for contracting disabled workers at Natura Cosméticos in Brazil. Therefore, we exceeded the legal requirement of 5% of disabled workers in our staff and achieved a rate of 5.4%. The Apprentice Promoter project continued in 2008. It was launched in 2007 and characterized the beginning of the strengthening of our efforts to include disabled professionals in the commercial area, continued in 2008. Of the seven relationship managers contracted in that year, all remain with the company and, in 2008 there were new hirings for other positions. In the other areas, we sought to keep the levels stable and work on the development of the workers contracted in the previous years for them to have possibilities for professional development.



In 2008 the percentage of disabled workers increased despite the reduction in the absolute number. We verified that 41% of the disabled workers who left Natura did so voluntarily, reinforcing the need for a greater focus on the development process and retention of these professionals. The others left Natura due to performance issues.

In addition to the 39 workers trained in the Basic Skills program for disabled workers, in 2008 we trained nine sponsors in Brazilian Sign Language (Libras). The sponsors are professionals trained to communicate in Libras and, therefore, facilitate the inclusion of hearing-disabled workers at Natura.



In all of our operations, salary levels are above the legal minimum compensation levels in their respective markets. In Brazil, the inclusion of salaries paid at the plant in Belém, state of Pará, where market compensation is lower than in São Paulo, caused a reduction in the proportion between the lowest salary paid by Natura and the Brazilian statutory minimum salary.



In 2008, collective bargaining agreements provided employees with an average salary increase of 9%. The female administrative group received a higher than average salary increase, which can be explained by the growth in sales bonuses in 2008, which increased 21% in relation to 2007.

The collective bargaining agreements signed with the unions include all our workers, as determined by Brazilian legislation. Although the procedures for notifying operational changes in advance are not specified in the agreements, Natura’s history practical has always been to communicate possible changes in advance and clarifying issues to all the professionals involved.

In the Brazilian operation, the relationship between the Human Resources area and union representatives is shaped in meetings to discuss previously determined agendas. Currently, we have a relationship with three unions and we do not have a formal process for identifying situations in which the right to exercise freedom of association and collective bargaining may be at risk. However, our Ombudsman´s Office works as an open channel for receiving these allegations.



Local hiring

We do not have a formal policy for local recruitment for senior management positions in our foreign operations. However, in all the countries where we operate, a large part of these functions is exercised by native professionals as a way to better adapt our business to the characteristics of each market.



Compensation and Earnings of Executives

The recent organizational restructuring, which resulted in the adoption of a management model serving more independent business and regional units, required Natura to review its compensation structure so as to expand the variable component through adjustments in Employees’ Profit Sharing.

For a group of senior executives responsible for Natura’s long-term strategy, we tied the consistent gains not only to the short-term results generated but also, and primarily, to the commitment to our long-term strategy by means of the Stock Option Program of Purchase or Subscription of Shares in order to stimulate the assumption of risks and the necessary entrepreneurism and engagement.

The changes proposed by the Committee of People and Organizational Development and approved by the Board aimed to ensure the sense of ownership and involvement, strengthening the relationship between compensation and gains and the creation of value for the company, and also between healthy growth and the balanced distribution of profits whenever profitability allows.

According to the new dynamics of the Program, as from 2009, the granting of the option to purchase or subscribe to shares is associated with the executive’s decision to invest at least 50% of the amount received from profit sharing in the acquisition of Natura’s shares. The options granted may be exercised after a vesting period of four years (grace period to achieve maturity) and are valid for eight years. During this time, these acquired shares are unavailable for sale and associated with the options, that is, the sale implies the loss of the options. Until last year, the vesting period was three years and the Plan expired within six years and did not require the purchase and maintenance of the shares. With the new term, the executive has more
time to choose the best moment to exercise his or her options and Natura reinforces the long-term commitment with
senior executives.

Our strategy for the Stock Option Program of Purchase or Subscription of Shares is for the program to represent, on average, 50% of the compensation and earnings mix of senior executives. Considering all these stakeholders, the plan has been reaching this proportion, leveraged by the appreciation of the shares since Natura went public in 2004. The potential of the plans exercised in 2008 has already started to drop below our target in this strategy. The Program’s history is as follows: since 2002, we have granted 17,519,981 options and 21% of these options was cancelled due to executives leaving.

Click here to see Number of Stocks per Plan.


Click here to see Appreciaton of the Plans.


In this period, we had a ceiling established by the Board of 0.6% a year and 3% of Natura’s total shares. The new model, which is more aggressive than the previous one, provides for a grant limit of 0.75%, totaling a maximum of 4% of Natura’s shares. In December 2008, the volume of options owned by executives represented around 1.1% of the company’s shares and reached 1.6% after the adoption of the 2009 plan. The Board also established that the annual profit sharing amount, which is the basis of the long-term incentive program, may not exceed 10% of net income. With these limits, Natura has a consistent and well-controlled system that avoids the recent distortions in executive compensation seen in other countries.

See below the compensation amounts of the main groups of professionals and the number of options distributed to Natura’s senior executives over the past few years:



To learn about the entire Stock Option Program of Purchase or Subscription of Shares, please visit www.natura.net/investidores.

The variable component, whether a short-term compensation or long-term earnings, represents a larger portion for senior executives in relation to other employees because we believe in the joint creation of value. In addition to the well-defined limits, all variable compensation is tied to the effective attainment of targets, that is, the surpassing of minimum growth expectations annually established by management. The system of performance indicators that measure this performance covers the three sustainability dimensions.

In 2008, the following indicators were taken into consideration:

  • Economic – consolidated EBITIDA and the financial result of foreign operations;
  • Social – organizational climate survey and consultant satisfaction survey;
  • Environmental – the consumption of water and carbon emissions.

General compensation guidelines

All foreign operations of Natura follow the same policy, only with adjustments in the amounts and earning potentials adapted to local markets. Even the changes by merit and promotions are limited to around 3% of total payroll and are always tied to performance evaluation programs and adherence to the company’s essential competences.

We are constantly focused on the changes in the external environment and annually compare our salary grid with reference markets, such as competitors in the consumer goods segment, Brazilian multinational companies, listed companies or companies that have compensation strategies that are similar to ours. For some years now, we have maintained an aggressive policy that places the total compensation of the many groups of employees at a level that is above the market average so as to share the generation of wealth with all of those that help, independently and entrepreneurially, make our value proposition possible.

Our main differential in relation to the market is the variable compensation and earnings model, which is adapted to the characteristics of each group of employees and executives, with form of payment, amounts and targets that cater to the reality of each activity. Also with respect to this issue, the Board established the limit for distribution at 3% of operating income for non-executive employees. The variable compensation has been representing for administrative and operational staff three to four additional monthly salaries a year. Since July 2008, another innovation has allowed employees from the production areas to receive Profit Sharing every six months, which allows for a quicker access to the variable compensation, particularly benefiting lower-income professionals. Natura also offers a set of fringe benefits to operational employees that beats the market average – learn more about this in the Benefits section.

Additionally, Natura has a pension plan that is open to the employees from all areas. However, this benefit is focused on non-executive employees who earn between R$4,400 and R$13,100, a group in which savings accumulation is lower. Eighty-three percent of these employees joined the plan. This is a subsidized savings account in which the employee invests up to 5% of their salary each month and Natura contributes with 60% of this amount.



Also, with respect to base compensation, we opted for the payment of 14 monthly salaries per year in Brazil, whereas the legal requirement is for 13 salaries, particularly benefiting the lower-income professionals particulary and promoting a culture of saving money. Our sales force, in turn, receives a bonus every cycle (21-day period), which is proportional to the results achieved. For these professionals, the 14th
salary is replaced by the sales bonus, a specific variable
compensation model.

Performance analysis

All Natura’s employees in Brazil and in the foreign operations who have been hired for more than three months regularly receive performance and career development reviews, which allow them to identify their current stage of evolution in the organization. This process is annually conducted and its objective is to verify whether the targets stipulated for the employee have been achieved. If they have not, an analysis is made in order to identify what can be done about it. If necessary, the employee may be reallocated to another area and another function. This information is also used by the company as a basis for professional development programs.

Professional Development

Training leaders is essential for our growth and is in line with our Values and Beliefs. Therefore, we intend to enhance our training initiatives in 2009 to include the new professionals who joined Natura in the past few years. In 2008, the main organizational development milestone was the progress in the formation of the Brazil Executive Committee (Comex) and Natura’s leadership team. The executives responsible for resuming Natura’s growth pace in Brazil were chosen. These 29 leaders were in charge of redesigning their own structures and playing a leading role in the change movement.

Additionally, in 2008 we continued the Leader Training Program, the main objectives of which are to support the development of Young talents and qualify them to assume increasingly more strategic positions within our company.

Overall there was a scheduled reduction in the training flow, particularly in the second half of 2008 when Natura’s focus was on the development of the organizational structure. The group that had most access to training was the sales force, particularly after the implementation of the Natura Consultant Adviser Program.



In the Latin American operations, in 2008 we had a total of nearly 50 hours of training courses per employee, with an emphasis on the administrative employees (70 hours). The highlight was the training program of the sales force in Argentina, where 80% of its employees attended more than 30 hours of training courses.



We also maintain the Natura Education Program, which grants scholarships to employees and their family members in Brazil. The objective of this program is to support continuous learning to ensure the employability of employees and guide them through the end of their careers. The program was continued as much as possible amid budget cuts.



In 2008, we offered 3,278 training hours in Sustainability General View, Environment and Integration courses. The contents are developed by Natura in partnership with experts. We chose not to develop specific programs on human rights in 2008 for security personnel but the topic will be addressed in the new training courses scheduled for 2009.



Leader Training Program

Training leaders is essential for our growth and is in line with our Values and Beliefs. Therefore, we intend to enhance our training initiatives in 2009 to include not only the training and renewal of leaders but also the more mature professionals who have joined Natura in the past few years.

In 2008 we continued the Leader Training Program, the main objectives of which are to support the development of employees and qualify them to assume more strategic positions within our company.

Comprised of four conceptual modules: Culture (Natura Way of Being), Innovation, Inspires and Performs, the Program is a learning proposal, with theoretical and practical activities. In addition to conveying concepts related to the needs of the business and people management competences, the Program leads to a personal transformation of participants based on individual and collective reflections.

Last year, 26 participants from the first group, worked as social consultants for the purpose of training the surrounding communities in Cajamar, Itapecerica and Alphaville, in Barueri, state of São Paulo. These participants will complete the Program in July 2009. In addition to improving the relationship with the communities, the Program also has strengthened the vision of sustainability of our leaders. Another highlight of the Program in 2008 was the inclusion of classes and discussions about Ethics and Philosophy and theater and dance performances, movies, and creativity workshops.

By the end of the project, the leaders are expected to practice leadership, experience the Natura Essence in practice, be able to innovate, and understand their role as social change agents.

Health and Safety

Despite our prevention efforts, the number of work-related accidents grew in 2008. This increase is due to the fact that we have more new employees and an initial training process that requires improvement.

To improve, we adapted and revised work safety management processes, using OSHAS 18001 as a model. We prepared specific standards and procedures to manage risk situations and relaunched the Near- Accident Program to encourage the communication of risk events and situations to our employees. The good news is that we reduced by 24% the number of work-related accidents recorded with outsourced employees and service providers, who often perform higher risk activities.

In 2009, in addition to continuing these initiatives, we intend to pay more attention to behavioral analysis, by means of internal audits and with the participation of managers; implement new basic safety rules; provide greater synergy between the work safety, training, operating, and medical service areas; and bring the engineering, work safety and operating areas closer together to prevent injuries and accidents in the development and use of new machinery and processes.

Our formal agreements with unions include the following topics: work protection measures, use of Personal Protective Equipment (PPE), prevention of accidents with machinery and equipment, Internal Accident Prevention Commission (IAPC), and communication of work-related accidents. All employees are represented in formal safety and health committees and in the IAPCs – each commission is created based on the number of employees and the risk of activities in the company.



Benefits

Natura offers a wide range of benefits to its employees. In 2008, the highlights were the nursery, which was expanded to attend 175 children, and the outpatient clinic, which now has a new area and a new concept. It is now called Health Space and it is more focused on the prevention of illnesses and, also, on women’s health.

Based on the medical history of our employees, we have run awareness and prevention campaigns on health problems. In order to be more focused on women’s health, the clinic has a female doctor who provides online services to the relationship managers. There is also a women management program, which provides gynecological tests and checks the frequency in which the employee receives medical service.

We also offer a pension plan to the employees from all areas. This is a subsidized savings account in which the employee each month invests up to 5% of their salary and Natura contributes with 60% of this amount.

Complete List of Employees’ Benefits – Brazilian Operation
  • Natura Education Program
  • Building the Future Program
  • Subsidized Savings Account
  • Nursery for employees’ children up to 2 years and 11 months old (Until 2007, the nursery served children up to 3 years and 11 months old). The maximum age was reduced in order to meet the demand. Therefore, we managed to ensure exclusive breastfeeding up to the 6th month of life and the proximity with the mother without her having to quit her career)
  • Support to employees in adoption processes
  • Health plan
  • Dental care plan
  • Psychological/social service
  • Check-up for management-level employees: laboratory, biochemical and hematological tests, preventive diagnosis of cardiovascular diseases, imaging diagnosis, nutritional orientation, prevention tests for women and men, appointments with specialists and general practitioners
  • Medical services in the company’s facilities for the prevention of metabolic diseases (diabetes, cholesterol and triglyceride) and cardiovascular diseases (hypertension)
  • Partial reimbursement of expenses with medications for cardiovascular conditions, diabetes, kidney failure, oncology, hepatic diseases, neurological disorders, work-related musculoskeletal disorders, and psychiatric alterations
  • Telemedicine: electrocardiogram (EKG) via telephone in emergency cases
  • Outpatient clinic services: physiotherapy, global postural reeducation (GPR), nutritionist, acupuncture, therapeutic massages, gynecology, audiometry, all available in the company’s facilities
  • Work-related pathology prevention service: orthopedics, physiotherapy, GPR, brief psychotherapy and audiometry in the company’s facilities
  • Learning New Eating Habits Program with a nutritional service in the company’s facilities
  • Five products offered for free to management-level employees each month

In addition to these benefits, the employees are entitled, in the company’s facilities, to:

  • Buy five Natura products per month with a 40% discount in the VIP shop
  • Vacation Project
  • Professional orientation
  • Taking Care of Those Who Take Care Program: post-birth meeting
  • Daycare/exceptional children subsidy
  • Life insurance
  • Payroll loan
  • Cars for management-level employees
  • Family moment (with distribution of toys)
  • Pharmacy agreement for discounts on medications
  • Chartered transportation
  • Christmas basket
  • Sale of School Materials

Benefits Offered to Employees and Outsourced Employees1:

  • Course for pregnant women
  • Physical evaluation: performed before the beginning of a regular physical activity at the company’s gym
  • Runners Project
  • Gym Subsidy to Sales Promoters
  • Restaurant
  • Laboral gymnastics
  • Toys
  • Christmas basket
  • Chartered transportation
  • Fitness services, swimming pool and multi-purpose sports court at the Natura sports club (Cajamar and Itapecerica da Serra)
  • Services: seamstress, laundry, shoe repair, eyewear shop, insurance, post office, travel agency and book and movie rental.
1 Only for in-house outsourced employees.

Changes in communication channels

In order to be close to and maintain an open dialogue with our employees, we have communication channels to transparently inform them of all significant initiatives and facts. A new development in 2008 was the launch in October of the Natura Channel, a journalistic digital medium that improved the daily communication of our activities. There are 20 transmission points – 12 in Cajamar, four in Alphaville, and four in Itapecerica da Serra.

The main characteristic of the Natura Channel is to encourage the engagement of employees, who may suggest stories and do some interviews. We also changed the publication frequency of the Ser Natura Colaborador (To Be a Natura Employee) internal newsletter from monthly to special issues, which will be prepared whenever there is the need to publicize strategic topics, such as the results of the Organizational Climate Survey.