There is an error in XPM library compilation when the "-ise_install_path" option is used during compile_simlib:
compile_simlib -simulator questa -directory output_dir -ise_install_path /opt/ISE/14.7/ISE_DS/ISE
This is a known issue in Vivado 2016.3.
The "compile_simlib" command does not work with "-ise_install_path" option for XPM library compilation.
For more details on this switch, please refer to (Xilinx Answer 64056).
This issue will be resolved in a future release of Vivado.