Sensorineural hearing loss results both in a reduced sensitivity to sound, as well as suprathreshold deficits, such as loudness recruitment and degraded spectral and temporal resolution. To compensate for loudness recruitment, most hearing aids apply level-dependent amplification, such as multi-channel wide dynamic-range compression. However, the most appropriate choice of parameters, such as the time constants and the number of channels, has been controversial. Speech intelligibility has been often considered as an outcome measure and it has been difficult to delineate the effects of hearing-aid signal processing on the representation of signals, due to the complex spectro-temporal structure of speech. In the current study, hearing-aid compensation strategies were evaluated using synthetic stimuli in psychoacoustic experiments with hearing-impaired and normalhearing listeners. A computational model of the auditory signal processing was used to assess the effects of linear amplification and multi-channel fast-acting compression on spectral and temporal masking. Improvements in the decay of forward masking were predicted with both types of amplification due to the increased audibility. On the other hand, spectral masking was reduced with compression, but not linear amplification, due to the increased signal-to-noise ratio across frequency. The results provide insights into the effects of hearing-aid amplification on basic auditory processing.