Dorner was a former Los Angeles police officer who was fired and subsequently went on a rampage across Southern California. Authorities say Dorner shot and killed two police officers and a police officer's daughter and her fiance.
Mayor Antonio Villaraigosa and Police Chief Charlie Beck said it was a matter of public trust that a system be put in place to determine how best to issue the rewards.
"This is a unique situation," Beck said. "The normal process is for a reward to be offered by one authority that has their own procedures and, it often takes over a year to pay out.
"This was a different because it required the cooperation of other jurisdictions. It was an unprecedented $1 million reward. It was unprecedented and took a number of sources to come together to offer it. "
Beck said it was also unusual to have so many claims - at one point there were about two dozen people saying they would seek a share of the reward - and a number have taken the first legal steps to claim the reward.
A special trust fund will be created until a determination is made on how the reward should be divided, officials announced.
However, the rulings of the panel will not be binding on jurisdictions outside the City of Los Angeles where other procedures might be in place on how rewards are distributed.
Some of the groups who initially took part in the reward offer have since said they were withdrawing because the reward was initially offered for Dorner's capture and conviction.
Nonetheless, Villaraigosa said he wanted to pay the reward.
"We want to keep faith with the public," Villaraigosa said. "The intention behind this was good and they remain good. The fact of the matter is I saw what 50 members of my department had to go through. I was at the funeral of the police officers.
"I tell you, I was as outraged as everyone at what I saw. The reason we did this was to bring to an end an extraordinary situation. "
Under the criteria developed by the LAPD, claims must be made to the LAPD Detective Bureau by April 19.
The three judges are former federal Judge Lourdes Baird, former federal Judge Robert Bonner and former State Supreme Court Justice Carlos Moreno, who will review the claims and recommend how the reward money should be distributed.
Those specifically excluded from consideration include members of the news media, law enforcement officials, anyone acting as an agent for Dorner or government employees.
In addition, those making claims must agree to cooperate with law enforcement investigators.
After a decision is made on the rewards, authorities will announce the payments.
Two claims for the reward have been made, one by a man who was car jacked by Dorner and the other by a couple who Dorner held hostage in their condominium.
The carjacking victim is Rick Heltebrake, 61, a scout ranger at Camp Tahquitz, who Dorner stopped and stole the 2008 Dodge Ram truck Heltebrake was driving.
The couple, Jim and Karen Reynolds, said they came across Dorner in their cabin, who then tied them up and put pillowcases over their heads.
Both set of victims called 911 to report the crimes.
Kirk Hallam, the attorney for the Reynolds, said he was pleased Los Angeles was moving forward with the reward and was not adhering to the need to 'convict' Dorner in the reward criteria.
"What we are concerned with is there are a number of entities and we are not sure if they have signed on to this new procedure." Hallam said.
The city has already paid $40,000 to two newspaper delivery women, whose truck was shot up in Torrance by Los Angeles police officers guarding officials threatened by Dorner.