diff --git a/api/src/main/java/io/serverlessworkflow/api/interfaces/State.java b/api/src/main/java/io/serverlessworkflow/api/interfaces/State.java
index ec12b4ff..a8b0a519 100644
--- a/api/src/main/java/io/serverlessworkflow/api/interfaces/State.java
+++ b/api/src/main/java/io/serverlessworkflow/api/interfaces/State.java
@@ -48,5 +48,7 @@ public interface State {
 
     List<Error> getOnErrors();
 
+    String getCompensatedBy();
+
     Map<String, String> getMetadata();
 }
\ No newline at end of file
diff --git a/api/src/main/resources/schema/end/end.json b/api/src/main/resources/schema/end/end.json
index 9c1c5e35..ebf3ceed 100644
--- a/api/src/main/resources/schema/end/end.json
+++ b/api/src/main/resources/schema/end/end.json
@@ -20,6 +20,11 @@
         "type": "object",
         "$ref": "../produce/produceevent.json"
       }
+    },
+    "compensate": {
+      "type": "boolean",
+      "default": false,
+      "description": "If set to true, triggers workflow compensation when before workflow executin completes. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/callbackstate.json b/api/src/main/resources/schema/states/callbackstate.json
index 599576a4..3cef4586 100644
--- a/api/src/main/resources/schema/states/callbackstate.json
+++ b/api/src/main/resources/schema/states/callbackstate.json
@@ -24,6 +24,11 @@
     "eventDataFilter": {
       "description": "Callback event data filter definition",
       "$ref": "../filters/eventdatafilter.json"
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/defaultstate.json b/api/src/main/resources/schema/states/defaultstate.json
index ec70d4a8..6d922e19 100644
--- a/api/src/main/resources/schema/states/defaultstate.json
+++ b/api/src/main/resources/schema/states/defaultstate.json
@@ -64,6 +64,11 @@
         "type": "object",
         "$ref": "../error/error.json"
       }
+    },
+    "compensatedBy": {
+      "type": "string",
+      "minLength": 1,
+      "description": "Unique Name of a workflow state which is responsible for compensation of this state"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/delaystate.json b/api/src/main/resources/schema/states/delaystate.json
index 39e62518..3d0eab4c 100644
--- a/api/src/main/resources/schema/states/delaystate.json
+++ b/api/src/main/resources/schema/states/delaystate.json
@@ -12,6 +12,11 @@
     "timeDelay": {
       "type": "string",
       "description": "Amount of time (ISO 8601 format) to delay"
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/foreachstate.json b/api/src/main/resources/schema/states/foreachstate.json
index 1496c143..897dabe1 100644
--- a/api/src/main/resources/schema/states/foreachstate.json
+++ b/api/src/main/resources/schema/states/foreachstate.json
@@ -38,6 +38,11 @@
     "workflowId": {
       "type": "string",
       "description": "Unique Id of a workflow to be executed for each of the elements of inputCollection"
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "oneOf": [
diff --git a/api/src/main/resources/schema/states/injectstate.json b/api/src/main/resources/schema/states/injectstate.json
index 1101b6e1..d0d10589 100644
--- a/api/src/main/resources/schema/states/injectstate.json
+++ b/api/src/main/resources/schema/states/injectstate.json
@@ -13,6 +13,11 @@
       "type": "object",
       "description": "JSON object which can be set as states data input and can be manipulated via filters",
       "existingJavaType": "com.fasterxml.jackson.databind.JsonNode"
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/operationstate.json b/api/src/main/resources/schema/states/operationstate.json
index 1775a568..8d8211a9 100644
--- a/api/src/main/resources/schema/states/operationstate.json
+++ b/api/src/main/resources/schema/states/operationstate.json
@@ -24,6 +24,11 @@
         "type": "object",
         "$ref": "../actions/action.json"
       }
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/parallelstate.json b/api/src/main/resources/schema/states/parallelstate.json
index 2f82264a..824f3ff5 100644
--- a/api/src/main/resources/schema/states/parallelstate.json
+++ b/api/src/main/resources/schema/states/parallelstate.json
@@ -27,6 +27,11 @@
       "type": "string",
       "default": "0",
       "description": "Used when completionType is set to 'n_of_m' to specify the 'N' value"
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/subflowstate.json b/api/src/main/resources/schema/states/subflowstate.json
index 8c6da3b1..4a208691 100644
--- a/api/src/main/resources/schema/states/subflowstate.json
+++ b/api/src/main/resources/schema/states/subflowstate.json
@@ -17,6 +17,11 @@
     "workflowId": {
       "type": "string",
       "description": "Sub-workflow unique id."
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/states/switchstate.json b/api/src/main/resources/schema/states/switchstate.json
index 8ce641cb..e421397d 100644
--- a/api/src/main/resources/schema/states/switchstate.json
+++ b/api/src/main/resources/schema/states/switchstate.json
@@ -32,6 +32,11 @@
     "default": {
       "description": "Default transition of the workflow if there is no matching data conditions. Can include a transition or end definition",
       "$ref": "../default/defaultdef.json"
+    },
+    "usedForCompensation": {
+      "type": "boolean",
+      "default": false,
+      "description": "If true, this state is used to compensate another state. Default is false"
     }
   },
   "required": [
diff --git a/api/src/main/resources/schema/transitions/transition.json b/api/src/main/resources/schema/transitions/transition.json
index c3008fb9..5ba61b51 100644
--- a/api/src/main/resources/schema/transitions/transition.json
+++ b/api/src/main/resources/schema/transitions/transition.json
@@ -18,6 +18,11 @@
       "type": "string",
       "description": "State to transition to next",
       "minLength": 1
+    },
+    "compensate": {
+      "type": "boolean",
+      "default": false,
+      "description": "If set to true, triggers workflow compensation before this transition is taken. Default is false"
     }
   },
   "required": [
diff --git a/api/src/test/java/io/serverlessworkflow/api/test/MarkupToWorkflowTest.java b/api/src/test/java/io/serverlessworkflow/api/test/MarkupToWorkflowTest.java
index c4a0b36c..6d770361 100644
--- a/api/src/test/java/io/serverlessworkflow/api/test/MarkupToWorkflowTest.java
+++ b/api/src/test/java/io/serverlessworkflow/api/test/MarkupToWorkflowTest.java
@@ -17,12 +17,14 @@
 package io.serverlessworkflow.api.test;
 
 import io.serverlessworkflow.api.Workflow;
+import io.serverlessworkflow.api.interfaces.State;
+import io.serverlessworkflow.api.states.EventState;
+import io.serverlessworkflow.api.states.OperationState;
 import io.serverlessworkflow.api.test.utils.WorkflowTestUtils;
 import org.junit.jupiter.params.ParameterizedTest;
 import org.junit.jupiter.params.provider.ValueSource;
 
-import static org.junit.jupiter.api.Assertions.assertNotNull;
-import static org.junit.jupiter.api.Assertions.assertTrue;
+import static org.junit.jupiter.api.Assertions.*;
 
 public class MarkupToWorkflowTest {
 
@@ -74,7 +76,7 @@ public void testSpecFreatureFunctionRef(String workflowLocation) {
     }
 
     @ParameterizedTest
-    @ValueSource(strings = {"/features/vetappointment.json"})
+    @ValueSource(strings = {"/features/vetappointment.json", "/features/vetappointment.yml"})
     public void testSpecFreatureEventRef(String workflowLocation) {
         Workflow workflow = Workflow.fromSource(WorkflowTestUtils.readWorkflowFile(workflowLocation));
 
@@ -90,4 +92,29 @@ public void testSpecFreatureEventRef(String workflowLocation) {
         assertNotNull(workflow.getRetries());
         assertTrue(workflow.getRetries().getRetryDefs().size() == 1);
     }
+
+    @ParameterizedTest
+    @ValueSource(strings = {"/features/compensationworkflow.json", "/features/compensationworkflow.yml"})
+    public void testSpecFreatureCompensation(String workflowLocation) {
+        Workflow workflow = Workflow.fromSource(WorkflowTestUtils.readWorkflowFile(workflowLocation));
+
+        assertNotNull(workflow);
+        assertNotNull(workflow.getId());
+        assertNotNull(workflow.getName());
+        assertNotNull(workflow.getStates());
+
+        assertNotNull(workflow.getStates());
+        assertTrue(workflow.getStates().size() == 2);
+
+        State firstState = workflow.getStates().get(0);
+        assertTrue(firstState instanceof EventState);
+        assertNotNull(firstState.getCompensatedBy());
+        assertEquals("CancelPurchase", firstState.getCompensatedBy());
+
+        State secondState = workflow.getStates().get(1);
+        assertTrue(secondState instanceof OperationState);
+        OperationState operationState = (OperationState) secondState;
+
+        assertTrue(operationState.isUsedForCompensation());
+    }
 }
diff --git a/api/src/test/resources/features/compensationworkflow.json b/api/src/test/resources/features/compensationworkflow.json
new file mode 100644
index 00000000..5f979f68
--- /dev/null
+++ b/api/src/test/resources/features/compensationworkflow.json
@@ -0,0 +1,86 @@
+{
+  "id": "CompensationWorkflow",
+  "name": "Compensation Workflow",
+  "version": "1.0",
+  "states": [
+    {
+      "name": "NewItemPurchase",
+      "type": "event",
+      "onEvents": [
+        {
+          "eventRefs": [
+            "NewPurchase"
+          ],
+          "actions": [
+            {
+              "functionRef": {
+                "refName": "DebitCustomerFunction",
+                "parameters": {
+                  "customerid": "{{ $.purchase.customerid }}",
+                  "amount": "{{ $.purchase.amount }}"
+                }
+              }
+            },
+            {
+              "functionRef": {
+                "refName": "SendPurchaseConfirmationEmailFunction",
+                "parameters": {
+                  "customerid": "{{ $.purchase.customerid }}"
+                }
+              }
+            }
+          ]
+        }
+      ],
+      "compensatedBy": "CancelPurchase",
+      "transition": {
+        "nextState": "SomeNextWorkflowState"
+      }
+    },
+    {
+      "name": "CancelPurchase",
+      "type": "operation",
+      "usedForCompensation": true,
+      "actions": [
+        {
+          "functionRef": {
+            "refName": "CreditCustomerFunction",
+            "parameters": {
+              "customerid": "{{ $.purchase.customerid }}",
+              "amount": "{{ $.purchase.amount }}"
+            }
+          }
+        },
+        {
+          "functionRef": {
+            "refName": "SendPurchaseCancellationEmailFunction",
+            "parameters": {
+              "customerid": "{{ $.purchase.customerid }}"
+            }
+          }
+        }
+      ]
+    }
+  ],
+  "events": [
+    {
+      "name": "NewItemPurchase",
+      "source": "purchasesource",
+      "type": "org.purchases"
+    }
+  ],
+  "functions": [
+    {
+      "name": "DebitCustomerFunction",
+      "operation": "http://myapis.org/application.json#debit"
+    },
+    {
+      "name": "SendPurchaseConfirmationEmailFunction",
+      "operation": "http://myapis.org/application.json#confirmationemail"
+    },
+    {
+      "name": "SendPurchaseCancellationEmailFunction",
+      "operation": "http://myapis.org/application.json#cancellationemail"
+    }
+  ]
+}
\ No newline at end of file
diff --git a/api/src/test/resources/features/compensationworkflow.yml b/api/src/test/resources/features/compensationworkflow.yml
new file mode 100644
index 00000000..81506399
--- /dev/null
+++ b/api/src/test/resources/features/compensationworkflow.yml
@@ -0,0 +1,46 @@
+id: CompensationWorkflow
+name: Compensation Workflow
+version: '1.0'
+states:
+  - name: NewItemPurchase
+    type: event
+    onEvents:
+      - eventRefs:
+          - NewPurchase
+        actions:
+          - functionRef:
+              refName: DebitCustomerFunction
+              parameters:
+                customerid: "{{ $.purchase.customerid }}"
+                amount: "{{ $.purchase.amount }}"
+          - functionRef:
+              refName: SendPurchaseConfirmationEmailFunction
+              parameters:
+                customerid: "{{ $.purchase.customerid }}"
+    compensatedBy: CancelPurchase
+    transition:
+      nextState: SomeNextWorkflowState
+  - name: CancelPurchase
+    type: operation
+    usedForCompensation: true
+    actions:
+      - functionRef:
+          refName: CreditCustomerFunction
+          parameters:
+            customerid: "{{ $.purchase.customerid }}"
+            amount: "{{ $.purchase.amount }}"
+      - functionRef:
+          refName: SendPurchaseCancellationEmailFunction
+          parameters:
+            customerid: "{{ $.purchase.customerid }}"
+events:
+  - name: NewItemPurchase
+    source: purchasesource
+    type: org.purchases
+functions:
+  - name: DebitCustomerFunction
+    operation: http://myapis.org/application.json#debit
+  - name: SendPurchaseConfirmationEmailFunction
+    operation: http://myapis.org/application.json#confirmationemail
+  - name: SendPurchaseCancellationEmailFunction
+    operation: http://myapis.org/application.json#cancellationemail

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