The use of efficient motion compensation techniques is essential for low bit rate video coding applications. Geometric transformations have been proposed because they are able to compensate a wider range of spatial changes than traditional block matching algorithms. In spite of this, situations like uncovered background, masking between objects and changes in lighting conditions, are still difficult to compensate using just spatial transformations. In this work, the use of luminance transformations in motion compensation is studied. These transformations are combined with geometric transform and block matching motion compensation, using an hierarchical scheme. The proposed method achieves a compression efficiency superior than that obtained with conventional block matching motion compensation. The use of a spatial hierarchical block structure allows video encoding at low bit rates. Experimental tests were performed and some experimental results are presented. We also discuss the use of luminance domain transformations in motion and disparity compensation in low bit rate stereoscopic sequence coding and present some experimental results