Kickback

What is a 'Kickback'

A kickback is the payment of something of value to a recipient as compensation or reward for providing favorable treatment to another party.

A kickback in the form of money, gifts, credit, or anything of value may be viewed as a corrupt practice that interferes with an employee or official’s ability to make unbiased decisions.

BREAKING DOWN 'Kickback'

A kickback can be legal or illegal. A common form of kickback, in the context of investing, is a commission rebate for investors who trade frequently.

Kickbacks and other forms of bribery increase the cost of doing business in countries around the world. Companies looking to supply products or services to countries known for corruption may find that they have to pay numerous employees in order to be considered for a contract. The perception that a kickback scheme will go unpunished, or that punishment will be light, is a primary driver for officials willing to take bribes. In some cases employees are poorly paid, and see the potential for additional financial compensation in the form of a kickback as a way to boost a meager salary.

Receiving a kickback does not necessarily mean that there is a quid pro quo arrangement between the kickback receiver and the kickback provider. Payments may be used to induce favor or to induce a positive recommendation of the provider. A government employee responsible for managing contractors on an infrastructure project, such as the building of a bridge, may receive a kickback for choosing one contractor over another. This may result in the most qualified contractor not winning the bid.

Kickbacks are often associated with procurement contracts. In the case of a government contract for office supplies, contractors and sub-contractors interested in winning the business are required to bid against each other. A contractor may reach out to a procurement officer and indicate that, if the contractor were to win, the officer may receive compensation. This could mean anything from cash to tickets to a concert.

In the United States, the Foreign Corrupt Practices Act makes it illegal for companies listed with the Securities and Exchange Commission (SEC), any company organized in the United States, or any citizen or resident to bribe foreign officials.

RELATED TERMS
  1. Bribe

    An illegal payment from one party to another, usually in return ...
  2. Real Estate Settlement Procedures ...

    This act was designed to protect potential homeowners and enable ...
  3. Contractors Professional Liability ...

    Liability insurance that provides coverage to contractors and ...
  4. Independent Contractor

    A self-employed taxpayer that controls his or her own employment ...
  5. Bid Deduct

    A feature of an owner controlled insurance program (OCIP) in ...
  6. Asset Liquidation Agreement (ALA)

    A contract between the Federal Deposit Insurance Corporation ...
Related Articles
  1. Entrepreneurship

    Should You Hire Contractors or Employees for Your Small Business?

    Learn the pros and cons of hiring independent contractors instead of regular full-time employees. Find out about a potential risk for severe tax penalties.
  2. Economics

    The Economic and Social Effects of Corruption

    Corruption results in inefficiencies in the operations of emerging economies, and prevents such economies from reaching the maximum level of development.
  3. Investing

    What are Business Ethics?

    Business ethics is the system of laws and guidelines by which business professionals and corporations operate in a fair, legal and moral fashion. It’s a broad topic, covering everything from ...
  4. Taxes

    The Purpose Of The W-9 Form

    Businesses use IRS form W-9 to gather information from vendors they hire as independent contractors.
  5. Taxes

    The Purpose Of The W-9 Form

    The W-9 form provides key data your clients need if you're an independent contractor. Just be sure you're not really an employee who should fill out a W-4.
  6. Investing

    Why These Industries Are Prone To Corruption

    Corruption is like life in that it exists pretty much everywhere the conditions are favorable.
  7. Taxes

    10 Things You Should Know About 1099s

    Independent contractors receive 1099 forms, rather than W-2s, as a record of income earned. Here are 10 important things to know about 1099 forms.
  8. Investing

    Are Corruption and Growth Conjoined?

    When you line up the corruption index with the fastest growing economies, the top 5 developed economies aren't above 70th place on the corruption index.
  9. Personal Finance

    6 Largest Government Contractors

    The corporations make big money from the government.
  10. Fundamental Analysis

    Ethical Investing: Corporate Governance

    By Amy Fontinelle Corporate governance looks at how companies manage themselves and their relationships with shareholders and stakeholders. Ethical investors want to make sure that corporations ...
RELATED FAQS
  1. How do business ethics differ among various countries?

    Find out why business ethics differ between countries, including laws relating to controversial topics that may differ from ... Read Answer >>
  2. Do contractors require subrogation clauses for their contract workers?

    Discover if general contractors require subrogation clauses when hiring contract workers and what form documents are most ... Read Answer >>
  3. Can mutual fund expense ratios be negative?

    Learn what an expense ratio is, and whether mutual funds, closed-end funds and exchange-traded funds can have negative expense ... Read Answer >>
  4. How is a bank guarantee different from a traditional loan?

    Read about the differences between a traditional bank loan and a bank guarantee, and why a third party might require a guarantee ... Read Answer >>
  5. Do financial advisors need to meet quotas?

    Learn why financial advisors who receive guaranteed salaries from their employers usually have quotas, and understand what ... Read Answer >>
  6. Can LLCs have employees?

    Discover how limited liability corporations (LLC) can have an unlimited number of employees and the legal steps required ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center