EFFECT OF COMPENSATION ON EMPLOYEE MENTAL HEALTH THROUGH WORK STRESS IN MICROFINANCE INSTITUTIONS

This study examines how compensation influences employee mental health through work stress in microfinance institutions. The research was conducted at PNM Mekaar Arjasa Unit, Kangean Island, involving 43 employees using a census approach. Data were collected through structured questionnaires and analyzed using Partial Least Squares–Structural Equation Modeling (PLS-SEM). The results show that compensation does not directly affect mental health but indirectly influences it through work stress. Fair and adequate compensation reduces work stress, which improves employees’ psychological well-being. Conversely, imbalanced compensation increases emotional pressure and weakens mental health. These findings confirm that work stress acts as a mediating mechanism linking compensation and mental health. The study contributes to the Job Demand–Resources framework by emphasizing the psychological role of compensation in high-pressure microfinance environments. Practically, the findings suggest that compensation policies should be integrated with stress management strategies to maintain employee well-being and organizational stability