The just noticeable distortion (JND) has been widely applied in perceptual image/video compression. Yet, the existing JND estimation models are not accurate enough, which results in the degradation of perceptual quality. In this paper, we propose a JND compensation based perceptual video coding (PVC) scheme to compress videos with better perceptual quality. Specifically, a block-level JND estimation model is proposed at first, which leads to this model can be employed in variable block-sizes based video coding directly. Then, considering the quantization distortion (QD), a QD&JND-based residue filter is proposed to suppress the residues in the encoder. To improve the quality of the reconstructed video, a QD&JND-based compensation scheme is developed in the decoder. Experimental results show that the QD&JND-based filter achieves bit rate saving significantly, and the QD&JND compensation scheme improves the perceptual quality of the compressed videos effectively.