any compression done must either be applied to the individual files prior to tar'ing them together or to the entire tar file after adding the individual files

...or more usually by the tape drive hardware, specified by the device used to do the TAR activity.

Compression options as part of the command operate on the individual files added to the AR, and it shells out to a compression tool specified by a UNIX shell variable. I have only seen this on HP-UX, YMMV. I would not have thought that compressing the archive itself would be any use whatsoever since no other TAR utility (except the same flavour) would be able to do anything with it.