This paper presents a decentralized compensator design procedure for large scale systems. By using a coordinate transformation method, interconnection terms in t도 subsystem are decoupled and a decentralized observer is designed independently as a form of Luenberger-type for each subsystem. And the decentralized compensator which can select the observer and controller gain independently is designed as a form of observer based controller for each subsystem. The proposed method has a simplicity and conciseness in the aspects of the determination of coordinate transformation matrices and the derivation of the separation principle which is adopted independently for each subsystem.