The Collaborative International Dictionary of English v.0.48:

Penalty \Pe"nal*ty\, n.; pl. Penalties. [F. p['e]nalit['e].
   See Penal.]
   1. Penal retribution; punishment for crime or offense; the
      suffering in person or property which is annexed by law or
      judicial decision to the commission of a crime, offense,
      or trespass.
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            Death is the penalty imposed.         --Milton.
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   2. The suffering, or the sum to be forfeited, to which a
      person subjects himself by covenant or agreement, in case
      of nonfulfillment of stipulations; forfeiture; fine.
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            The penalty and forfeit of my bond.   --Shak.
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   3. A handicap. [Sporting Cant]
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   Note: The term penalty is in law mostly applied to a
         pecuniary punishment.
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   Bill of pains and penalties. See under Bill.

   On penalty of, or Under penalty of, on pain of; with
      exposure to the penalty of, in case of transgression.
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WordNet (r) 3.0 (2006):

penalty
    n 1: the act of punishing [syn: punishment, penalty,
         penalization, penalisation]
    2: a payment required for not fulfilling a contract
    3: the disadvantage or painful consequences of an action or
       condition; "neglected his health and paid the penalty" [ant:
       advantage, reward]
    4: (games) a handicap or disadvantage that is imposed on a
       competitor (or a team) for an infraction of the rules of the
       game