late 14c., "action of compensating," from Latin compensationem (nominative compensatio) "a weighing one thing against another, a balancing," noun of action from past participle stem of compensare (see compensate). Meaning "what is given in recompense" is from c.1600; meaning "amends for loss or damages" is from 1804; meaning "salary, wages" is attested from 1787, American English. The psychological sense is from 1914.
compensation com·pen·sa·tion (kŏm'pən-sā'shən)
A process in which a tendency for a change in a given direction is counteracted by another change so that the original change is not evident.
An unconscious psychological mechanism by which one tries to make up for imagined or real deficiencies in personality or physical ability.