I don't know about degradation, but I have seen several compasses malfunction over time.
A compass is a mechanical system, after all. The needle can stick on the pivot point or on the case, and the liquid filled capsule can admit air bubbles that are large enough to interfere with operation.
Annual checks of compasses in kits, and function checks before trips, are SOP. If/when you get turned around, you have to *know* your compass is accurate to talk yourself through it.