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Bulletin of Management and BusinessBulletin of Management and Business

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.

The study demonstrates that compensation significantly influences employee work stress in microfinance institutions, with fair and adequate compensation contributing to reduced work pressure.Furthermore, work stress is a key determinant of employee mental health, impacting emotional well-being and psychological stability.Ultimately, work stress mediates the relationship between compensation and mental health, highlighting the importance of integrating stress management into compensation policies to foster employee well-being and organizational sustainability.

Future research should explore the impact of leadership styles and organizational support on employee mental health within microfinance institutions, considering the unique pressures faced by field workers. Additionally, investigating the effectiveness of specific stress management interventions tailored to the microfinance context, such as mindfulness training or peer support groups, could provide valuable insights for improving employee well-being. Finally, a longitudinal study tracking the relationship between compensation, work stress, and mental health over time would offer a more nuanced understanding of these dynamics and inform the development of sustainable organizational practices that prioritize employee psychological health and long-term performance. These investigations should consider the influence of demographic factors and individual coping mechanisms to provide a more comprehensive picture of the challenges and opportunities for promoting mental well-being in this demanding sector.

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