Free travel passes and cheap train tickets are being given to London Midland passengers hit by cancellations and delays after the Government stepped in.
The package, worth £7m, was imposed after months of problems on routes which cover London, Birmingham, Northampton, Crewe and Liverpool.
Season ticket holders with the company will receive free travel passes for five days. Another 500,000 extra cheap advance tickets will also be handed out.
The free tickets will be available to all monthly and annual season ticket holders, and weekly ticket holders affected by disruption.
The cheap tickets will be made available over the next two years for passengers travelling on key London Midland routes.
The company has been battling a major driver shortage in recent weeks, forcing it to cancel almost 1,000 trains since October.
Transport Minister Norman Baker said: "London Midland has cancelled or delayed hundreds of services in recent months.
"On repeated occasions, they were not able to provide enough drivers and some services had to be cancelled, with severe delays to services, and they have fallen short both of everyone's expectations and their franchise obligations.
"Securing these benefits for passengers represents a firm yellow card for London Midland and some financial benefit for those who have been hardest hit by their poor performance.
"I am confident London Midland has now rectified their driver shortage but the company need to be clear that we will continue to monitor their performance closely and take firmer action if necessary."
The deal also confirms the franchise will end in September 2015, to ensure the firm has enough time to resolve the driver problems permanently.
London Midland will also have to spend millions improving the resilience of their trains and at least £2.25m on measures to help passengers - mostly in the West Midlands which was affected worst.
Its parent firm, the Go-Ahead Group, released this statement: "Following a period of consultation over the last couple of months, London Midland has agreed a package of benefits with the Department for Transport to compensate passengers for cancelled trains and delays to services.
"We acknowledge the impact that this has had on our passengers and we have now put measures in place to ensure we have sufficient drivers to operate our services.
"We also welcome the confirmation that the London Midland franchise has been extended until September 2015 which gives us the opportunity to provide longer-term investment in our services for the passengers' benefit."
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