In this work, a method for solving the voltage stability margin maximization problem considering optimal reactive compensation (ORC) is proposed. It is shown that the reactive components of the left eigenvector are equal to zero at the local optimum. The method was formulated through direct methods, and a decoupled solution is proposed. The ORC problem was solved analytically for test systems. The treatment of reactive generation limits of PV buses and the existence of infinite solutions with the presence of branches with zero resistances is discussed. In addition, reactive generation planning was defined by optimal reactive generation (ORG). The method was applied to IEEE test systems to validate the ORC solutions. The ORC and ORG solutions can be used as preventive actions in operating and planning of power systems to avoid voltage collapse. © 2008 IEEE.