<![CDATA[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]]>
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