In an effort to attenuate human–wildlife conflict and promote conservation of charismatic megafauna, compensation programs for wildlife damages have been implemented in many countries. Compensating pastoralists and farmers for damage caused by wildlife reduces hunting pressure on wild animal populations. However, it can also lead to a decrease in efforts to prevent damage and exacerbate conflicts with wildlife. Furthermore, compensation programs increase the return to agriculture and can therefore be viewed as a subsidy toward crop and livestock production. Such subsidies can trigger agricultural expansion (and habitat conversion), an inflow of agriculture producers, and intensification of agricultural production. Each of these impacts is shown to have potentially adverse effects on the wildlife population that compensation intends to favor. In some circumstances, the net effect on the wildlife stock could be negative. This calls for a careful assessment of local ecological and economic conditions before compensation is implemented. Incentive mechanisms that are directly tied to conservation outcomes (e.g., payments to locals based on the size of the wildlife population) should be considered instead of compensation programs.