So, if it isn’t what the HR people tell you you’re getting, what’s compensation?
In musical terms, compensation is an adjustment to string length made to allow for proper intonation – it accounts for the effects of strings being stretched when fretted.
A basic reality of fretted musical instruments is that frets aren’t placed in mathematically perfect divisions of the scale. Instead, they are placed according to a tempered system. Pianos are also tuned in this way.
The amount of compensation required to bring the greatest number of notes into tune with each other depends on a variety of factors, including string gauge, saddle height, nut height, fret condition, and the player’s touch. All of these things have effects, and so ‘setting intonation’ is the very last step in a setup.
It’s fairly easy to adjust compensation on instruments with adjustable bridges. The saddle is moved so that two notes on different areas of the fingerboard match. A common choice is to compare the 5th and 17th fretted notes – but do this with an electronic tuner! It can be very hard to determine by ear if both notes are exactly the same, but the display on an electronic tuner makes it easy.