diff --git a/src/lib/diagram/mermaidState.ts b/src/lib/diagram/mermaidState.ts
index 65d91e5a..03c12629 100644
--- a/src/lib/diagram/mermaidState.ts
+++ b/src/lib/diagram/mermaidState.ts
@@ -23,13 +23,22 @@ export class MermaidState {
       type?: string;
       transition?: string | Specification.Transition;
       end?: boolean | Specification.End;
+      compensatedBy?: string;
       onErrors?: Specification.Error[];
+      usedForCompensation?: boolean;
     },
     private isFirstState: boolean = false
   ) {}
 
   sourceCode() {
-    return this.definitions() + '\n' + this.transitions();
+    const stateDefinition = this.definitions();
+    const stateTransitions = this.transitions();
+
+    const stateDescription = stateTransitions.reduce((p, c) => {
+      return p + '\n' + c;
+    }, stateDefinition);
+
+    return stateDescription;
   }
 
   private definitions(): string {
@@ -41,7 +50,7 @@ export class MermaidState {
     );
   }
 
-  private transitions(): string {
+  private transitions(): string[] {
     const transitions: string[] = [];
 
     transitions.push(...this.startTransition());
@@ -49,11 +58,10 @@ export class MermaidState {
     transitions.push(...this.eventConditionsTransition());
     transitions.push(...this.errorTransitions());
     transitions.push(...this.naturalTransition(this.stateKeyDiagram(this.state.name), this.state.transition));
+    transitions.push(...this.compensatedByTransition());
     transitions.push(...this.endTransition());
 
-    return transitions.reduce((p, c) => {
-      return p + '\n' + c;
-    });
+    return transitions;
   }
 
   private stateKeyDiagram(name: string | undefined) {
@@ -178,34 +186,61 @@ export class MermaidState {
     return transitions;
   }
 
+  private compensatedByTransition() {
+    const transitions: string[] = [];
+
+    if (this.state.compensatedBy) {
+      transitions.push(...this.naturalTransition(this.state.name, this.state.compensatedBy, 'compensated by'));
+    }
+    return transitions;
+  }
+
   private definitionDetails() {
+    let definition: string | undefined;
+
     switch (this.state.type) {
       case 'sleep':
-        return this.sleepStateDetails();
+        definition = this.sleepStateDetails();
+        break;
       case 'event':
-        return undefined; //NOTHING
+        // NOTHING
+        break;
       case 'operation':
-        return this.operationStateDetails();
+        definition = this.operationStateDetails();
+        break;
       case 'parallel':
-        return this.parallelStateDetails();
+        definition = this.parallelStateDetails();
+        break;
       case 'switch':
         const switchState: any = this.state;
         if (switchState.dataConditions) {
-          return this.dataBasedSwitchStateDetails();
+          definition = this.dataBasedSwitchStateDetails();
+          break;
         }
         if (switchState.eventConditions) {
-          return this.eventBasedSwitchStateDetails();
+          definition = this.eventBasedSwitchStateDetails();
+          break;
         }
         throw new Error(`Unexpected switch type; \n state value= ${JSON.stringify(this.state, null, 4)}`);
       case 'inject':
-        return undefined; // NOTHING
+        // NOTHING
+        break;
       case 'foreach':
-        return this.foreachStateDetails();
+        definition = this.foreachStateDetails();
+        break;
       case 'callback':
-        return this.callbackStateDetails();
+        definition = this.callbackStateDetails();
+        break;
       default:
         throw new Error(`Unexpected type= ${this.state.type}; \n state value= ${JSON.stringify(this.state, null, 4)}`);
     }
+
+    if (this.state.usedForCompensation) {
+      definition = definition ? definition : '';
+      definition = this.stateDescription(this.stateKeyDiagram(this.state.name), 'usedForCompensation\n') + definition;
+    }
+
+    return definition ? definition : undefined;
   }
 
   private definitionType() {
@@ -349,7 +384,7 @@ export class MermaidState {
     return this.stateKeyDiagram(source) + ' --> ' + this.stateKeyDiagram(target) + (label ? ' : ' + label : '');
   }
 
-  private stateDescription(stateName: string | undefined, description: string, value: string) {
-    return stateName + ` : ${description} = ${value}`;
+  private stateDescription(stateName: string | undefined, description: string, value?: string) {
+    return stateName + ` : ${description}${value !== undefined ? ' = ' + value : ''}`;
   }
 }
diff --git a/tests/lib/diagram/mermaidDiagram.spec.ts b/tests/lib/diagram/mermaidDiagram.spec.ts
index ab60430a..6f18f32f 100644
--- a/tests/lib/diagram/mermaidDiagram.spec.ts
+++ b/tests/lib/diagram/mermaidDiagram.spec.ts
@@ -19,8 +19,8 @@ import fs from 'fs';
 
 describe('MermaidDiagram', () => {
   it('should create mermaid diagram source code', () => {
-    const expected = fs.readFileSync('./tests/examples/jobmonitoring.json', 'utf8');
-    const actual = new MermaidDiagram(Specification.Workflow.fromSource(expected)).sourceCode();
+    const jsonSource = fs.readFileSync('./tests/examples/jobmonitoring.json', 'utf8');
+    const actual = new MermaidDiagram(Specification.Workflow.fromSource(jsonSource)).sourceCode();
     expect(actual).toBe(`stateDiagram-v2
 SubmitJob : SubmitJob
 SubmitJob : type = Operation State
@@ -59,4 +59,28 @@ JobFailed : Action mode = sequential
 JobFailed : Num. of actions = 1
 JobFailed --> [*]`);
   });
+
+  it(`should handle compensated by`, () => {
+    const jsonSource = fs.readFileSync('./tests/lib/diagram/wf_with_compensation.json', 'utf8');
+    const actual = new MermaidDiagram(Specification.Workflow.fromSource(jsonSource)).sourceCode();
+
+    expect(actual).toBe(`stateDiagram-v2
+Item_Purchase : Item Purchase
+Item_Purchase : type = Event State
+[*] --> Item_Purchase
+Item_Purchase --> Cancel_Purchase : compensated by
+Item_Purchase --> [*]
+
+Cancel_Purchase : Cancel Purchase
+Cancel_Purchase : type = Operation State
+Cancel_Purchase : usedForCompensation
+Cancel_Purchase : Action mode = sequential
+Cancel_Purchase : Num. of actions = 1
+Cancel_Purchase --> Send_confirmation_purchase_cancelled
+
+Send_confirmation_purchase_cancelled : Send confirmation purchase cancelled
+Send_confirmation_purchase_cancelled : type = Operation State
+Send_confirmation_purchase_cancelled : Action mode = sequential
+Send_confirmation_purchase_cancelled : Num. of actions = 1`);
+  });
 });
diff --git a/tests/lib/diagram/wf_with_compensation.json b/tests/lib/diagram/wf_with_compensation.json
new file mode 100644
index 00000000..627fcf4b
--- /dev/null
+++ b/tests/lib/diagram/wf_with_compensation.json
@@ -0,0 +1,74 @@
+{
+  "id": "newItemPurchaseWorkflow",
+  "version": "1.0",
+  "specVersion": "0.8",
+  "name": "New Item Purchase Workflow",
+  "states": [
+    {
+      "name": "Item Purchase",
+      "type": "event",
+      "onEvents": [
+        {
+          "eventRefs": [
+            "New Purchase Event"
+          ],
+          "actions": [
+            {
+              "functionRef": {
+                "refName": "Invoke Debit Customer Function",
+                "arguments": {
+                  "customerid": "${ .purchase.customerid }",
+                  "amount": "${ .purchase.amount }"
+                }
+              }
+            }
+          ]
+        }
+      ],
+      "compensatedBy": "Cancel Purchase",
+      "end": true,
+      "onErrors": [
+        {
+          "errorRef": "Debit Error",
+          "end": {
+            "compensate": true
+          }
+        }
+      ]
+    },
+    {
+      "name": "Cancel Purchase",
+      "type": "operation",
+      "usedForCompensation": true,
+      "actions": [
+        {
+          "functionRef": {
+            "refName": "Invoke Credit Customer Function",
+            "arguments": {
+              "customerid": "${ .purchase.customerid }",
+              "amount": "${ .purchase.amount }"
+            }
+          }
+        }
+      ],
+      "transition": "Send confirmation purchase cancelled"
+    },
+    {
+      "name": "Send confirmation purchase cancelled",
+      "type": "operation",
+      "actions": [
+        {
+          "functionRef": {
+            "refName": "Send email",
+            "arguments": {
+              "customerid": "${ .purchase.customerid }",
+            }
+          }
+        }
+      ]
+    }
+  ],
+  "functions": "http://myservicedefs.io/graphqldef.json",
+  "events": "http://myeventdefs.io/eventdefs.json",
+  "errors": "file://mydefs/errordefs.json"
+}
\ No newline at end of file