Payment in kind is compensation provided in the form of goods and services of value, rather than in cash format. The practice is ancient and it can be seen in a number of societies around the world. If someone will be compensated for goods or services in kind, this must be disclosed at the start of the transaction, offering an opportunity to decline.
One example is food and board. This is a form of payment often offered to people like ranch hands and live-in staff. Typically, the staff member receives a small wage as well, with the room and board being provided as part of the overall compensation package. Barter is another example; a farmer might, for example, swap eggs for vegetables.
Many companies offer payment in kind as part of their benefits package, in the form of bonds and other securities deposited into retirement accounts on behalf of employees. Companies can also offer shares in themselves to employees as a form of compensation. The company discount offered to many retail employees is another example. In all of these cases, compensation is not being provided in legal tender, but the provider of goods and services is still receiving something of value.
Companies may be able to offer better benefits if they can use payment in kind. For example, a company may not be able to offer very high wages as a startup, but it can offer shares that may accrue value. Likewise, people who work for restaurants, cafes, and bakeries typically receive staff meals, which allows their employers to provide them with benefits without going bankrupt on payday.
When payment in kind is offered, it must be of comparable value to the cash which someone would have received. Sometimes there are advantages to accepting payment in this way. For example, people who take shares in a company may find that those shares appreciate in value and later become worth much more.
This phrase is used in a special sense when it involves bonds. A bond that offers payment in kind pays out interest in the form of more bonds, instead of cash. In some cases the interest may simply be added to the principal. The terms of the payments are disclosed at the time of purchase.
