G4S is to donate £2.5 million to the Armed Forces as a “goodwill gesture” after thousands of military personnel were drafted in for London 2012 following a massive security blunder.
The private security firm was forced to apologise after failing to meet its £284 million contract to provide 10,400 staff for the Games.
As a result, the Armed Forces put an extra 4,700 on standby for the Games.
It emerged just two weeks before the opening ceremony the company could not provide enough guards and military involvement was further stepped up the following week as ministers decided to "leave nothing to chance" in the wake of the scandal.
In total, 18,000 personnel provided support at London 2012, including Army, Royal Navy and Royal Air Force staff, some of whom had their leave postponed.
Defence Secretary Philip Hammond said the donation would "go some way" to recognising the burden placed on the armed forces by the security shambles.
He added: "The Armed Forces provided more to the security and protection of the Games than had originally been planned, but as always they have carried out their tasks with professionalism and good humour.
"This contribution from G4S is welcome news for the Service Welfare funds and will go some way to recognising the inconvenience and extra burden that this commitment has placed upon our forces and their families."
The £2.5 million donation will go towards welfare amenities including sports equipment and to sports associations which have backed serving athletes, including rowing gold medallists Captain Heather Stanning and Lieutenant Pete Reed.
Chief of the Defence Staff General Sir David Richards said: "The Armed Forces are pleased to accept this donation from G4S. It recognises all the hard work and commitment Service personnel have displayed during the London 2012 Olympic Games. Together with G4S, the men and women of the Royal Navy, Army and Royal Air Force have delivered a safe and secure Olympics.
"It recognises all the hard work and commitment Service personnel have displayed during the London 2012 Olympic Games.
"I am glad that they are receiving the gratitude and recognition for the excellent work, not just from the public, but from those they are working alongside."
General Sir Nick Parker, Standing Joint Commander for Operation Olympics, added: "The day to day working with G4S has been exceptional and I would like to pay tribute to the G4S staff and volunteers. Working side by side I believe they are doing a very professional job in providing Olympic security."