Compensation is the opposite of increasing contrast. It is lowering contrast. When you dilute the developer a LOT and develop the film for an extremely long time, you actually lift the shadows while compressing the highlights, which is the essence of compensation.
Lots of confusion out there.
To increase contrast you either increase developing time, or keep the time the same while increasing temperature. You can also make a stronger blend with less dilution to increase contrast.
If you dilute the developer more, you will lower contrast, and have to develop the film even longer to increase contrast. It is counter productive in increasing contrast.