Demagnetization effects in cross-shaped planar Hall effect sensors cause inhomogeneous film magnetization and a hysteretic sensor response. Furthermore, when using sensors for detection of magnetic beads, the magnetostatic field from the sensor edges attracts and holds magnetic beads near the sensor edges causing inhomogeneous and non-specific binding of the beads. We show theoretically that adding a compensation magnetic stack beneath the sensor stack and exchange-biasing it antiparallel to the sensor stack, the magnetostatic field is minimized. We show experimentally that the compensation stack removes nonlinear effects from the sensor response, it strongly reduces hysteresis, and it increases the homogeneity of the bead distribution. Finally, it reduces the non-specific binding due to magnetostatic fields allowing us to completely remove beads from the compensated sensor using a water flow 60 times smaller than a flow that failed to remove beads from an uncompensated sensor.