A compaction policy imposing soft limits to optimize system efficiency is used to select various rowsets on which to perform compaction, each rowset storing keys within an interval called a keyspace. For example, the disclosed compaction policy results in a decrease in a height of the tablet, removes overlapping rowsets, and creates smaller sized rowsets. The compaction policy is based on the linear relationship shared between the keyspace height and the cost associated with performing an operation (e.g., an insert operation) in that keyspace. Accordingly, various factors determining which rowsets are to be compacted, how large the compacted rowsets are to be made, and when to perform the compaction, are considered within the disclosed compaction policy. Furthermore, a system and method for performing compaction on the selected datasets in a log-structured database is also provided.