A method and system for improving buffer compression in automatic retransmission request (ARQ) systems includes both a compander and decompander for further processing data. A received data string k bits in length is first companded according to a predetermined companding scheme. The companded data string is reduced to a length of k−1 bits for more efficient storage. Upon receipt of a request for retransmission, the stored companded data string is loaded and decompanded back to a length of k bits. Once decompanded, the data string is combined with a retransmitted data string to produce a single data string with an increased likelihood of being correct. By companding the data string before storage, a smaller memory block can be used for the storage of the data string.