Daiwa Securities Group Annual Report 2012 Compensation for directors and corporate executive officers is  determined by the Compensation Committee. It generally has  three components; basic compensation, performance-based  compensation, and stock-price-linked compensation. Comprehen- sive criteria used in calculating performance-based compensation  include consolidated ordinary income and ROE, as well as other  factors such as which of the management goals outlined in the  Medium-Term Management Plan have been met. 2. The above compensation amounts include a total of ¥94 million in stock acquisition rights granted as stock options to directors and corporate executive officers. 3. Compensation paid to the six outside directors totaled ¥80 million. 4. Seven directors also served as corporate executive officers; their total compensation is included in the “Corporate Executive Officers” category. The Internal Audit Department directly audits major Group  companies. Major Group companies also have internal auditing  departments of their own, which are subject to monitoring and  alignment by the Internal Audit Department. The Group’s internal audits, in following a common Group  internal audit policy and audit plan formulated on a risk-by-risk  basis, are managed and monitored primarily by the Internal Audit  Department. The internal audits that Group companies perform are  monitored and directly audited as required by the Group in view of  the status of control over the Group and collaboration within the  Group. The Group seeks to raise corporate value by conducting  internal audits that pay special attention to the legal and regulatory  compliance and risk management position of Daiwa Securities Co.  Ltd. and the Group’s overseas securities business sites as a  global financial instruments business operator, and Daiwa Next  Bank, Ltd. as a bank. To maintain oversight and ensure the proper and efficient con- duct of Group internal auditing activities, the Internal Audit Depart- ment holds periodic meetings and collaborates in auditing activities  with the internal auditing segment of each Group company, and  maintains contact and coordination with the Group’s Audit Commit- tee and accounting auditor. The department also reports the results of internal audits to an  Audit Committee. This Audit Committee, comprised of members  of the Board of Directors of Daiwa Securities Group Inc., in turn  has the authority to conduct internal audits in collaboration with  the Internal Audit Department and have the department perform  its research. In recognition that management is responsible for maintaining an  effective internal control system to ensure the sound and proper  execution of business, the Group, under the main initiative of Daiwa  Securities Group Inc., has established a system for managing the  Group’s major business risks. The Group also maintains this inter- nal control system for ensuring “business effectiveness and effi- ciency,” “reliable financial reporting,” “compliance with laws related  to business activities,” and “asset preservation.” The Internal Audit  Department verifies the internal control system. This department,  established independently from all other departments and reporting  to a full-time corporate executive officer, ensures internal audits to  act as an important function of raising Group value through the  creation of sound and efficient internal controls. The department’s  internal auditing plans and the results of internal audits are reported  to and approved by the Group Internal Audit Committee, which is  directly under the control of the CEO of Daiwa Securities Group Inc. Internal Control System and Internal Audit Compensation Paid to Directors and Corporate Executive Officers of Daiwa Securities Group Inc. in FY2011 Executive Compensation More Closely Linked to  Performance Directors Corporate Executive Officers Total Amounts based on resolution of the  Compensation Committee Recipients Amount Recipients Amount Recipients Amount 9 persons ¥107 million 14 persons ¥424 million 23 persons ¥531 million 35 Notes: 1. No performance-based compensation was paid in this fiscal year.