Recent work in intergroup relations stresses the role of two fundamental dimensions, competence and warmth, which organize the perception of social groups. A pattern often encountered in people's ratings is one of compensation in that a group that is evaluated higher than another group on one of the two fundamental dimensions is also judged lower on the other fundamental dimension. Based on Social Identity Theory, the present work extends previous research on compensation by examining boundary conditions as well as underlying psychological processes. Two studies involving experimental and correlational evidence, minimal and real groups, and different kinds of conflict, reveal that compensation is more likely when the groups are in asymmetrical relation and share a cooperative view of the intergroup setting. Our data also suggest that, among members of low status groups, compensation is associated with social creativity. In contrast, and in line with the ‘noblesse oblige’ effect, members of the high status group would seem to rely on compensation as a means to appear non‐discriminatory.