Due to the great differences between Chinese and Western languages, there must be some losses in literary translation, so translators must use compensation methods to minimize the loss. The Story of the Stone, which contains profound linguistic connotation and Chinese traditional culture, is a masterpiece of Chinese classical literature as well as an artistic treasure with great aesthetic value. However, the translation version has suffered losses in all aspects. In view of these losses, this paper applies the compensation theory to study the language, culture and aesthetic compensation of Hawkes’s English translation of The Story of the Stone as well as the compensation means for the perfect reproduction of the information transmission, cultural connotation and aesthetic effect.