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## Executive Compensation More Closely Linked to Performance 

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. 

## Compensation Paid to Directors and Corporate Executive Officers of Daiwa Securities Group Inc. in FY2011 

<img src='content_image/254417.jpg'>

Notes: 

1. No performance-based compensation was paid in this fiscal year. 

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. 

## Internal Control System and Internal Audit 

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. 

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. 

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. 

