The effect of digital processing on speech intelligibility was studied in hearing-impaired listeners with moderate to severe high-frequency losses. The amount of smoothed phonemic compression in a high-frequency channel was varied using wide-band control. Two alternative systems were tested to compensate for upward spread of masking (USOM) and to reduce modulations in the high-frequency channel effectively. Consonant-vowel-consonant tests were conducted in a group of 14 subjects using eight different speech-processing settings. Speech intelligibility improved significantly with compression, mainly due to positive effects on the initial-consonant score. Surprisingly, listeners with a smaller residual dynamic range tended to profit less from compression. Compensation for USOM gave an additional improvement of vowel intelligibility. In background noise, consistently negative effects of speech processing were found. The combined use of phonemic compression and USOM compensation is promising in conditions without background noise.