Interesting ep. Was worried about the shoed-in sidekick from the trailers, but it all worked well in the end (although I doubt Oz would have actually been so "compassionate" about Vic).
I don't know if it is purely compassion. There are at least two other ways to see it at the outset. On the most surface level, as he says in the show, Penguin now "owns" this kid, who justifiably fears Penguin and what he will do if the kid fails to deliver. People in organized crime exploit this to their advantage all the time. Extracting interest from those they help or do favors for (in this case, not shooting the kid) is a cornerstone of their work. Penguin could have weighed the costs and benefits, and made a decision about the capability of the kid, and his own ability to ensure loyalty. Was Penguin really ready to shoot the kid, or was that interaction all part of his plan?
But I can see a deeper reasoning. From what we've seen, Penguin is largely alone apart from his professional relationships and the dysfunctional relationship with his mother (not sure about his brothers yet). The fact that he brings the kid to his home and mother suggests to me that he may be looking for someone to become a proxy family member. All people want to be appreciated and, in a sense, loved. Even if it is unconventional and based off of fear and intimidation, as with abusive spouses, this is a universal human trait. Penguin sees their similarities in terms of their background, and the trauma the kid experienced, and may see an opportunity to be a type of father figure.
Back to the compassion angle, I think it also plays to the opening scene where Penguin gets laughed at for idolizing a gangster he grew up with who did good for the community. This kid is an opportunity for the Penguin to leave a kind of legacy. Giving the kid the cigar seems like a direct reference to this. So the show demonstrates that Penguin is a complicated guy who does appreciate when others act compassionately, and it does seem that he wants others to recognize this in himself.
The fact that the writing is so smart, and the acting is so good with a three dimensional character like this leaves this all up to the interpretation of the viewer. But that's what I'm sensing right now.
