In psychology, compensation is a strategy whereby one covers up, consciously or unconsciously, weaknesses, frustrations, desires, or feelings of inadequacy or incompetence in one life area through the gratification or (drive towards) excellence in another area. Compensation can cover up either real or imagined deficiencies and personal or physical inferiority. The compensation strategy, however, does not truly address the source of this inferiority. Positive compensations may help one to overcome one's difficulties. On the other hand, negative compensations do not, which results in a reinforced feeling of inferiority. There are two kinds of negative compensation:
Overcompensation, characterized by a superiority goal, leads to striving for power, dominance, self-esteem, and self-devaluation.
Undercompensation, which includes a demand for help, leads to a lack of courage and a fear for life.
A well-known example of failing overcompensation, is observed in people going through a midlife-crisis. Approaching midlife, many people (especially men) lack the energy to maintain their psychological defenses, including their compensatory acts.
In his book Study of Organ Inferiority and Its Physical Compensation (1907) he describes this relationship: If one feels inferior (weak) he / she (usually) tries to compensate for it somewhere else.
Adler's motivation to investigate this was from personal experience. He was a very sickly child. He was unable to walk till he was four because of rickets. Then he was victim of pneumonia as well as a series of accidents.
Adler also "transferred" this idea of compensation to psychic training.
Cultural implications 
Narcissistic people, by compensation theory, mute the feelings of low self-esteem by:
- talking "highly"
- contacting "highly admired" persons
Narcissistic children try to compensate for their jealousy and anger by:
- fantasizing about power
(see studies of Melanie Klein)
Christopher Lasch, an American historian and social critic wrote in his book The Culture of Narcissism (1979) that North American society in the 1970s was narcissistic (had narcisstic colour). The narcissistic society:
- worships consumption
- fears dependency, aging, and death.
Therefore it is "fascinated" with fame (by Lash).
Consumption has been put forward as a means of compensation (see study by Allison J. Pugh: From compensation to 'childhood wonder'). Examples:
- use of goods to convey human relationships.
- parents make up for "bad" conditions (poverty, abuse ...) they lived in
- parents make up for "bad" conditions (divorce, ...) they caused children to live in
Psychological Compensation as a Plot Device in Literature 
Compensation is often used to accent plots in storylines to highlight character flaws. Authors can make a statement on values by resolving the psychological compensation characters use in the plot.
- Claude S. Fisher: Comment On "Anxiety": Compensation In Social History
- Christopher Lasch (1979). The Culture of Narcissism: American Life in an Age of Diminishing Expectations. New York: Norton.
- Allison J. Pugh: 'From compensation to 'childhood wonder': Why parents buy.