We present a new motion‐compensated hierarchical compression scheme (HMLFC) for encoding light field images (LFI) that is suitable for interactive rendering. Our method combines two different approaches, motion compensation schemes and hierarchical compression methods, to exploit redundancies in LFI. The motion compensation schemes capture the redundancies in local regions of the LFI efficiently (local coherence) and the hierarchical schemes capture the redundancies present across the entire LFI (global coherence). Our hybrid approach combines the two schemes effectively capturing both local as well as global coherence to improve the overall compression rate. We compute a tree from LFI using a hierarchical scheme and use phase shifted motion compensation techniques at each level of the hierarchy. Our representation provides random access to the pixel values of the light field, which makes it suitable for interactive rendering applications using a small run‐time memory footprint. Our approach is GPU friendly and allows parallel decoding of LF pixel values. We highlight the performance on the two‐plane parameterized light fields and obtain a compression ratio of 30–800× with a PSNR of 40–45 dB. Overall, we observe a ∼2–5× improvement in compression rates using HMLFC over prior light field compression schemes that provide random access capability. In practice, our algorithm can render new views of resolution 512 × 512 on an NVIDIA GTX‐980 at ∼200 fps.