Compacting by instructional unit is best. A “unit” generally refers to an instructional period that revolves around a theme, chronological time period, or a set of academic objectives.
For example, to compact a sixth grade unit on Johnny Tremaine, the teacher would modify the curriculum for students who have either read the novel, or who could read and master the learning objectives more quickly than their classmates.
At the elementary level, teachers frequently compact a basic skills unit of instruction, such as the teaching of long division.