David Bain will receive nearly $1 million in the next few days despite not meeting the Government's test for innocence.
The payout is unprecedented, prompting one legal expert to say the Government had put political pragmatism ahead of principles.
The sum is roughly equivalent to $195 for each day Bain spent in prison - a total of 13 years before his acquittal in a retrial in 2009.
Bain is not receiving compensation or an apology for his time in prison. A review by retired judge Ian Callinan, made public yesterday, found that Bain was not innocent "on the balance of probabilities" of killing five family members in 1994.
However, Justice Minister Amy Adams said the Government had agreed to pay Bain $925,000 in recognition of the drawn-out, costly process of deciding his compensation claim.
It was also designed to deter legal action. Bain's legal team had made it "absolutely clear" they would challenge Callinan's report.
The payment is ex gratia, meaning it is made for moral, rather than legal reasons, and has no bearing on Bain's innocence or guilt. He is expected to be given a lump sum within the week.
Speaking to the Herald yesterday, Bain said he was disappointed with the Government's decision.
"Quite frankly, the only thing I have to say is that Mr Callinan, Ms Adams and everybody that's been involved in the case to date have got it wrong: I am innocent," he said.
"That will always be my only comment and there's nothing else I have to say on the matter."
Defending the ex gratia payment, Adams said it was in no one's interests for the case to be dragged out further.
It was a one-off resolution to one of the most complex, unique and high-profile cases in New Zealand's history, she said.
"I think we can all recognise that this is a case like no other."
Christchurch barrister Nigel Hampton, QC, said the Cabinet had compromised on its principles.
"It's a curious case of political pragmatism overwhelming principle," he said.
"And that does worry me."
He contrasted the treatment of Teina Pora, who was last month awarded $2.5m. Pora's lawyer had hoped for up to $10m, accounting for inflation, his 20 years in jail and the fact he met the innocence test.
"They wouldn't divert from the principles in Pora, but here they have," Hampton said. "And one can only suspect it's because of the clamour [from Bain's supporters]."
Adams said the Pora case was "completely different". Deciding his compensation had taken only 15 months, compared with six and a half years for Bain. Resolving Bain's claim had required two separate inquiries, one needing peer review.
Lawyer Murray Gibson, who defended David Dougherty - another wrongful conviction case - also said he was surprised by the Bain payout.
In future, people could try to use it for leverage in compensation cases, he said. However, no case was likely to be quite like Bain's.
Long fight for compensation
: David Bain convicted of killing five family members in Dunedin.
June 2009: Conviction quashed in a retrial after Privy Council appeal.
Nov 2011: Canadian judge Ian Binnie investigates compensation issue.
Aug 2012: Justice Binnie concludes Bain should be compensated. Justice Minister Judith Collins seeks a peer review from Robert Fisher QC.
Dec 2012: Fisher review says Justice Binnie's report was inaccurate and cannot be used.
July 2013: Bain's legal team seek judicial review of Collins' handling of compensation claim.
Sep 2014: Amy Adams is made Justice Minister.
Jan 2015: Judicial review discontinued after confidential settlement between the Government and Bain's team.
Feb 2015: Adams says compensation process will start afresh, with all previous advice put aside.
Feb 2016: Herald reveals new report has found Bain is not "innocent beyond reasonable doubt".
Yesterday: Government announces compensation decision.