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Extrinsic And Intrinsic Compensation On Indonesian Tax Auditors Accounting Essay

In the context of Indonesia, domestic revenue from tax has been regarded as the backbone of national income. Among many functions in the Directorate General of Taxes, tax audit is a primary tool to detect and deter noncompliance taxpayers which subsequently increase voluntary compliance on tax liabilities fulfillment. Because of the above reality, the need to have a qualified, motivated, and satisfied tax officials particularly tax auditors is emerged nowadays. Public sector reformation process in Indonesia which is characterized by the introduction of competitive structure of compensation in terms of intrinsic and extrinsic was an interesting topic for the writer to elaborate. The objectives of this study are twofold. First, determine the relationship between compensation and tax auditor job satisfaction. Second, determine which particular compensation elements affect significantly to tax auditor job satisfaction. The result of correlation and regression analysis show that both extrinsic and intrinsic factors affect significantly and positively to job satisfaction. However, comparatively intrinsic compensation has stronger relation than extrinsic ones. Interesting finding is that, pay didn't render significant influence on job satisfaction. Intrinsic compensation which gives significant and positive influence is interesting task while for extrinsic reward is working condition. Supervisor, coworkers, and promotion affect moderate influence on job satisfaction from the context of extrinsic compensation. Although it's not the focus of the study, control variables which delivered significant influence are education and job location, while gender affects moderately. Implications of the study for decision makers in the context of Indonesian tax human resource department have been discussed. Several limitations about current study are also stated.

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Keywords: Job satisfaction, intrinsic compensation, extrinsic compensation, tax auditor



1.1. Background

As a developing country, Indonesia requires sufficient national revenue to support its development process. As the natural resources such as crude oil, copper, tin, gold, silver, and other nonrenewable resources gradually declines in production, the reliance on other sources of income becomes higher. One prospective source that reflects the autonomy of a nation in financing its development process would be tax income. Data from Indonesian Directorate General of Taxes (DGT) from 2001 until 2009 has shown that the contribution of revenue generated from tax to domestic income has reached more than 65% (Kinerja Penerimaan Pajak, 2010). It indicates that in the future, the country would consider tax income as its primary revenue source.

In order to generate optimal tax revenue, the need to have a reliable, efficient and professional tax administration is a must. Previously, the tax institution was regarded as a red tape and rigid bureaucrat due to its coercive power to collect tax. To support the wind of reformation process, DGT has launched the modernization program with three main objectives: to have high taxpayer compliance, high public trust in tax organization, and high productivity of tax officers (Rizal, 2010). Compare to other government institution, DGT has been given the privilege in terms of budget and flexibility in human resource practices to continuously improve its performance. Given the responsibility of collecting large amount of tax money, not only the infrastructure such as information and technology has been modernized but also reformation in terms of strategic human resource management has been implemented to support the attainment of organization objectives.

Specifically, the initiative intends to improve the productivity and integrity of tax officers by rendering the DGT with greater flexibilities to manage its human resource (HR) management policies. As a government institution, human resource practice in the DGT should comply with standard civil service system which has long been perceived as ineffective in motivating its employee and establishing accountability for the work result. For this rationale, flexibility to implement strategic human resource management based on organization needs is an important factor for transforming DGT into a high performance revenue collection agency and indeed DGT was chosen as a pilot project for modernizing the whole country human resource management system (Rizal, 2010).

Based on the authority given the government, several actions and programs has been established which are the actualization of human resource management practice, begins with the staff selection process, setting up new compensation system, adequate training in tax management for tax officers, establishing new job classification system based on competencies and workload, and finally formulation of a comprehensive system for performance evaluation.

Among many systems in Directorate General of Taxes, tax audit is the most prominent tools for ensuring taxpayers compliance on the tax regulations. Centre for Tax Policy and Administration (2006) defined that "tax audit is series of examination to determine whether a taxpayer has correctly assessed and reported their tax liability and fulfill their respective obligations". Audit performance will be assessed by the quantity of audit accomplished and quality of audit result. The demand of having qualified and reliable tax audit are getting higher and higher due to the increasing number of tax revenue targeted from the audit process, the demand to professionally deter and detect noncompliance taxpayers, and the awareness of delivering better services to the citizens. From the perspective of human resource management, tax audit department have conducted several actions which objectives is to improve the motivation of tax auditor and subsequently increase the organization performance as a whole. Those actions are:

Incentives improvement and better grading measurement for the tax auditor

Providing training and education for the tax auditor in terms of business process and audit software

Modernizing and enhancing information and technology required for audit procedure and also linking online databases with the independent party that provide business data

From the administration of tax laws point of view, tax audit has been regarded as an important function. In the process of detecting and deterring noncompliance taxpayers, tax auditors oftentimes required to interpret complex regulations, carry out extensive examinations of taxpayers' books and financial records, and at through intensive interaction with the society, finally they should behave and act as representation as the tax organization as a whole (Centre for Tax Policy and Administration, 2006).

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Considering the function of tax audit department as a law enforcing entity and the process which is rigorous and requires highly professional and talented people, tax auditor were given better compensation compare to other position in the Directorate General of Taxes. From the government perspective, such compensation is regarded as a reward for the employee in exchange for their performance or actual work contribution which also has connection with professionalism and job satisfaction. Compensation or reward in this context is intrinsic which reflects employee's psychological mind sets that result from performing their jobs and extrinsic which includes both monetary and nonmonetary rewards (Martocchio, 2009).

Greene et al in 1985 stated that employees express satisfaction in relation to the rewards they receive; those whose rewards are equivalent on their performance will be motivated to deliver their best performance. They expect their compensation is fair and equitable that it provides them with tangible reward proportional with their skill and ability. Weighting proper proportion among extrinsic and intrinsic compensation would be a challenging part for human resource manager since public sector has some characteristics that differs from private sector. Incentive systems should properly meet the need of each organization instead of benchmarking from specific organization. Chenhall noted that what might be effective and efficient in one organizational context, might be ineffective or even counterproductive when implemented in a different organizational context (as cited in Weibel et al., 2009).

Scholars such as Perry, Wise, Buelens, and Van den Broeck stated that in the developed countries perspective, there is an opinion about people who work for public organization were not striving for a good income, instead they are interested in the job itself which is considered interesting (as cited in Weibel et al, 2009). Consequently, based on studies by Rainey and Francois, public sector needs to have a different compensation system compare to private sector by putting more emphasize on nonmonetary rewards such as good working environment, interesting, and challenging tasks in order to maintain or even improving the level of employee motivation (as cited in Weibel et al., 2009 ).

Compare to developed countries context, what makes it different with Indonesia or any other developing countries might be the level of prosperity that the government employees have. Asian countries especially Indonesia still has to struggle with reality that public servant compensation was not adequate enough even to support their basic needs. Maslow (1943) contended that once a person has been satisfied by a specific need and move toward higher need, lower need wouldn't be his priority again. It is highly likely that developed countries government employees has satisfied with their basic needs so that they would strive to higher needs which is intrinsic need, while the Indonesian government employee still have to fulfill shelter needs, education's needs, and others so that they put more emphasize on extrinsic needs instead of intrinsic needs.

1.2. Problem Definition

Considering the above explanations, this research basically wants to measure two things, the first is that whether there is relationship between compensation and job satisfaction in the context of Indonesian government employee particularly Tax Auditor in Directorate General of Taxes. Second, to determine which particular elements of compensation whether intrinsic or extrinsic are perceived to have significant factor on employee job satisfaction.

1.3. Research Objective

The need to determine whether any impact of compensation on job satisfaction in the scope of tax auditor is important since Indonesian Directorate General of Taxes was regarded as a role model for reformation process in the scope of Indonesian government. Weighing proper and adequate reward composition to be rendered to the employees is critical if the reward system is intended to function effectively (Byars & Rue, 2006). The fact that the tax organization has spent on average 37% budget on personnel expenditure within 3 consecutive years or equivalent with US$ 134.73 million, has given the signal that compensation strategy is significant to the attainment of Directorate General of Taxes objectives (Directorate General of Taxes, 2011-2012). The unique function of tax auditor in terms of law enforcing entity and service delivery were the best respondents in this research since it represents the majority function of government which is policy implementer and service grantor.

In addition, differentiating which factors have significantly influence the job satisfaction would further be a beneficial input for the government to design proper structure for employee compensation system. Dynamic process within the DGT in terms of strategic human resource implementation would be valuable sources for the government to determine whether to implement the new compensation system throughout the whole institutions or not. The resources in terms of fund to finance the human resource reformation process dealt with considerable amount of national revenue. The reformation process should be properly managed as the form of accountability to the citizens.


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This thesis is divided into five chapters. The first chapter explains background and objective of the research to Indonesian Directorate General of Taxes as targeted organization; the second chapter describes concepts of employee satisfaction and compensation in terms of extrinsic and intrinsic reward, hypothesis determined for research, and also theoretical framework utilized in the study; the third chapter elucidates methodology applied in the study which covers population, sampling , and measurement of the research; the fourth chapter presents the results achieved and evaluate the hypotheses, particularly it discuss relationship between compensation and job satisfaction also factors that influence job satisfaction; and lastly the fifth chapter defines conclusion, derive some implications for the targeted organization and outline some limitations of the research.



2.1. The Role of Human Resource Management

In order to achieve the organization objectives, organizations whether in the form of public or private sector were demanded to have a high quality human resource (Pynes, 2009). Effective organizations increasingly realized that among various factors that contribute to organization performance and human resource element has been considered as the most critical one (Mello, 2006). It acts as elements in every single process within organization starts from planning up until evaluation process by utilizing other resources. Organization concerns regarding human resource is demonstrated in the form of appreciating talent that employees have, improving their competencies, and also fulfilling the needs of their employees.

Human resource management in theory is a systematic function performed in organization that coordinates employee at the most effective use to achieve organizational and individual goals (Ivancevich & Glueck, 1989). Armstrong (2008) explained that human resource management is defined as a comprehensive and strategic planning that an organization has to manage the most valuable assets which is the people working there who contribute to the attainment of its objectives whether individually or collectively. In practice, organization most valuable investment is human resources, for example reports written by American government stated that almost 65 percent of national income has been spent to compensate employees (Byars & Rue, 2006).

Aligning human resource practices with organization objectives is a necessary initial step, and compensation plays a significant role in contributing to the attainment of organization vision and mission. A study by Worldatwork and Watson Wyatt (2006) found that the primary reason for organizational high performance is the effective management of human resource. This involves providing employees with rewards that are proportional with their contributions (Mello, 2006). Compensation comprises of both the intrinsic and extrinsic rewards that employees receive for performing their jobs.

2.2. Job Satisfaction

There has been long and sparkling discussion about job satisfaction among management scholars and practitioners. According to Spector (as cited in Yang et al., 2011), the importance of exploring job satisfaction could be explained into two point of view. Humanitarian standpoint believes that people are entitled to be treated fairly and with respect, whereas jobs satisfaction is the reflection of good treatment. Another is utilitarian which laid down their believed in the existence of positive relationship between job satisfaction and organizational functioning. In this case, job satisfaction could improve positive employee behavior such as commitment to the organization and organizational citizenship behavior and at the same time minimizing their negative behavior such as turnover and absenteeism which would then expected to increase organizational performance.

Job satisfaction by definition could be regarded as how individual within organization feels about his or her job (Yang et al., 2011). They added that the reason why public managers should put more attention on job satisfaction because it could lead to a higher performance. However the relationship between satisfaction and performance has raised controversy among scholars themselves. Greene et al (1985) suggested that it's not satisfaction which leads to better performance instead the other way around.

In addition, Byars and Rue (2006) stated that job satisfaction is an employee's general attitude toward the job. Job satisfaction of employee is mainly depended on how organizational reward system works. Organization should consider appropriate system to distribute extrinsic rewards because it affects intrinsic reward and satisfaction of the employee. According to Byars and Rue (2006), five major elements of job satisfaction are:

Attitude toward the work group

General working conditions

Attitude toward the company

Monetary benefits

Attitude toward management

Furthermore, Greene et al (1985) contended that people express satisfaction in relation to the compensations they receive; those whose rewards are contingent on their performance will be motivated to perform. Employee satisfaction is obviously important to organizational effectiveness. One of the common measures and used by researchers to assess organizational effectiveness is job satisfaction. Studies have shown that satisfied employees are enjoying their working activity, learn new job tasks more readily, and less likely to file complaints than unsatisfied employees (Greene et al., 1985).

In relation with people motivation toward his occupation, Herzberg (1959) explains that "work satisfaction is the result of the presence of intrinsic motivation while work dissatisfaction is dependent on the presence of extrinsic factors". Questions arise from Herzberg explanations is the payoff from occupation that peoples have. This kind of payoff would vary across people's mind since some people might prefer higher compensation instead of working environments, security, opportunity for growth and advancement. Conversely, some people might prefer the other way around. The above question has connection with job satisfaction, and the ability to motivate the employee such that they give their very best performance is knowledge that every personnel manager within organization should have (Baah & Amoako, 2011).

In spite of the fact they might share the same human resource characteristics, public sector possess several unique features in terms of work context and job characteristics compare to private sector. Although it's not single factor that determines the job satisfaction, intrinsic reward which is represented in the need to serve his nation or community (altruistic need) has been considered as a significant influence for an employee to work in public organization (Halepota, 2008).

In addition, Georgellis et al (2010) contended that recruiting individuals who are intrinsically motivated or working toward the achievement of intrinsic compensation, is likely an effective way to improve organization performance and overcome incentive problems in the public sector. Employees who are intrinsically motivated tend to deliver a high level of organizational commitment and more productive which subsequently increase organization performance (Crewson, 1997). The same context also applies that public sector employee which has higher level of intrinsic motivation compare to private sector, would have better intrinsic job satisfaction level and also committed to the organization they work for (Dilulio, 1994).

2.3. Compensation

According to Derlin and Schneider, Miller, Solly and Hohenshil (as cited in Waskiewicz, 1999) compensation has been considered as primary factors in the study of job satisfaction by scholars in interdisciplinary studies. Although they interchangeably used different terms between reward and compensation, basically both terms share the same meaning. Waskiewicz added that reward is a representation what an individual wants when he engaged in an activities or work. Clifford research in 1985 revealed that, rewards are significantly related with job satisfaction and professionalism. He supported the idea in which job satisfaction of professionals could be derived from what they perceived about their job or in other words, job satisfaction is influenced by job rewards. He further concluded that there actually exist strong relationship between work satisfaction and intrinsically rewarding work.

As discussed earlier, compensation includes two kinds of aspect: intrinsic and extrinsic nature. The combination between extrinsic and intrinsic compensation describe organization's total compensation system. Intrinsic reward by definition resulted from the content or involvement of the job itself (Herzberg, 1987), for example the challenging and interesting task, variations and autonomy in work assignment, constructive feedback, and the feeling and also the prestige and feeling of accomplishment attributed to the task. It relates with internal feelings of the individual (Byars & Rue, 2006). Furthermore, intrinsic factors are the most powerful motivators of work effort (Shields, 2007).

In addition, intrinsic compensation correlated with psychological rewards which emanate from doing the work itself. Intrinsically motivated employee occurs when he works and accomplishes his task based on his personal goals, or solidarity with coworkers (Nigro, 2007). He added that the degree of involvement of a person in a particular job is depended on job itself in terms of how it is interesting, challenging, and personally meaningful. Tasks which are interesting and varies, the degree of autonomy and influence from others in the accomplishment, and also self-direction are others important intrinsic factors for employee, based on research conducted by Vasu, Stewart, and Garson (as cited in Nigro, 2007).

On the other hand, extrinsic reward derived from the factors associated with, but physically external to, the job that the employee does; that is from the job context. Extrinsic compensation involves both monetary and nonmonetary rewards. Common example of monetary compensation is wage or salary while nonmonetary compensation examples are protection programs, paid time off, and services given to employees (Martocchio, 2009)

Herzberg, Nelson, O'Driscoll and Randall (as cited in Mahaney & Lederer, 2006) noted broader area of extrinsic rewards which includes pay, fringe benefits, job security, promotions, working conditions, and social environment. They added other example including competitive salaries, pay raises, merit bonuses, and other indirect forms of payment such as vacation and compensatory time off.

On top of that, Shields (2007) contended that when defining compensation, it could be in a form of tangible or intangible rewards that an organization provides to employee as an exchange of what they have done or contributions they have rendered which are related to the accomplishment of certain value or needs that employee have. Furthermore, based on this definition, compensation can be seen as not only limited to financial rewards (pay, remuneration, or compensation) but also in terms of beneficial nonfinancial nature. It implies that compensation management system involves broad and comprehensive aspect of human resource which scholars defined as total reward approach (Shields, 2007).

People might share different emphasized when encountered with a situation whether to weigh more on intrinsic or extrinsic compensation. However, the pattern has suggested that job satisfaction to be higher for those who intrinsically motivated instead of extrinsic one (Nigro, 2007).

2.4. Hypothesis

Given the importance of intrinsic compensation to motivate the work effort (Shields, 2007); the existence of strong relationship between job satisfaction and intrinsically rewarding job; Hwang (as cited in Mahaney and Lederer 2006) stated that qualified result was generated by the employee who believed that their work is enjoyable, employees are thought to be motivated to work hard to produce quality results when they have pride in their work, they enjoy their jobs, they believe their efforts are important to the success of the project, and their jobs are fun, challenging, and rewarding ,thus H1 is proposed as follows:

H1: Intrinsic rewards are significantly and positively related with job satisfaction

From other scholars' point of view, they proposed that the absence of extrinsic rewards would generate job dissatisfaction (Herzberg, 1987); while Chen et al (as cited in Mahaney & Lederer, 2006) noted that extrinsic rewards would subsequently produce positive impact the organization though not as powerful as intrinsic ones; O'Driscoll and Randall (as cited in Mahaney and Lederer, 2006) proposed that although not as strong as intrinsic ones, extrinsic rewards considered as predictors of job involvement; thus H2 is proposed as follows:

H2: Extrinsic rewards are significantly and positively related with job satisfaction

2.5. Theoretical Framework

This section suggests that independent variables are extrinsic and intrinsic rewards whereas dependent variable is job satisfaction. Job satisfaction is affected by extrinsic and intrinsic reward. The relations of these variables are supported on the basis of review of literature:


Compensation (X1)

Job Satisfaction (Y)


Compensation (X2)

Figure 1 (Theoretical Framework).



3.1. Population

The data collected for this study was from tax auditors in all position levels (supervisor, team leader, and team member). Anonymous questionnaires were given to tax auditor representative in each office, which were then distributed to other auditors in respective office. They were requested to give their answers as honestly as they could and not leave any question unanswered. The scores were subjected to statistical analysis for testing the hypothesis of the study.

3.2. Sampling

Bryman (2008) defined sample as "segment of the population that is selected for investigation". Snowball sampling was used to select the sample size of participants. This thesis would be conducted by selecting sampling from 4,113 population of tax auditor in Indonesian Directorate General of Taxes (DGT Annual Report, 2011). The population is dispersed and sufficiently large. In order to capture the whole population we would consider some criteria of sampling such as the city or municipal (office location), island, age, gender, and position. To determine whether there is relationship between compensation and job satisfaction, the selection of sample would be done using convenience sampling by implementing Slovin's formula.


n = number of respondents/samples

N = total population

e = margin of error (for example 5%)

By using the formula, we can set that if we want to use 5% error tolerance among 4,113 tax auditors; the number of samples needed is 365. The questionnaires were then distributed to 550 auditors through all over Indonesia. Four hundred and eighty four questionnaires were received, resulting in a response rate of 88.00 percent.

3.3. Measurements

All the scales in this research were used to measure the constructs adopted from previous studies. Five point Likert scale was used in this study for measurement of overall job satisfaction and seven point Likert scale to measure specific job satisfaction. Questionnaire contained three sections, demographic, overall job satisfaction, and specific job satisfaction which derived from extrinsic and intrinsic compensation and length of questionnaire is five pages.

3.3.1. Dependent Variables

Overall job satisfaction

This section is consisted of six questions which are commonly utilized in research. Five point Likert scale used in this scale and in which 1 strongly disagree to 5 strongly agree. Cronbach's alpha of overall job satisfaction is .800.

3.3.2. Independent Variables

a. Extrinsic compensation

There are seven extrinsic rewards that are associated with job satisfaction applied in this research. They used seven point Likert scale and in which 1 strongly disagree to 7 strongly agree. Cronbach's alpha of extrinsic rewards is 0.891.

b. Intrinsic compensation

There are seven intrinsic rewards that are associated with job satisfaction applied in this research. The scale is also used seven point Likert scale and in which 1 strongly disagree to 7 strongly agree. Cronbach's alpha of intrinsic rewards is 0.801.

Reliability statistics of data collection


Cronbach's Alpha

Job Satisfaction


Extrinsic Rewards


Intrinsic Rewards


Table 3.1 Reliability statistics

3.4. Demographic

The demographic section of the questionnaire shows the information about the working location, gender, age, education, management class, tenure, and job position of the auditors to have a better understanding of their responses and resulting conclusion for the research. In the current sample, the majority of respondents are located in Java Island with N=330 (68.2%) and (31.8%) N=154 are located outside Java Island. The number of male respondents are more than female respondents, as there are N=427, males (88.2%) and (11.8%), N=57 are females. The majority of the respondents are of age 31-35 years (30.0%), N=145 whereas the lowest majority of the respondents fall in the age under 20 years old (0.2%), N=1. The biggest share of respondents hold undergraduate degree with N=289 (59.7%) and those who hold diploma degree are the least with N=85 (17.6%). Most of respondents are in the middle level of management which is class III with N=376 (77.7%) and the minority where in the highest management level which is class IV with N=28 (5.8%). The majority of tax auditors have working experience between 11-15 years with N=187 (38.6%) and the minority are having less than 5 years of working experience with N=15 (3.1%). Finally, the highest number of tax auditor is team member with N=242 (50.0%) and the least number is team supervisor with N=59 (12.2%).



Working Location

Java Island



Outside Java Island











Under 20 years old



21 - 25



26 - 30



31 - 35



36 - 40



41 - 45



46 - 50



Over 50 years old



Academic Qualification




Under Graduate Degree



Master Degree



Doctoral Degree



Management Class

Class II



Class III



Class IV



Working Experience

0 - 5 years



6 - 10 years



11 - 15 years



16 - 20 years



More than 20 years




Team Member



Team Leader



Team Supervisor



Table 3.2 Demographic

3.5. Statistical Methods

Following statistical methods used for data analysis purpose. According to the figure 1 in theoretical framework, interdependency is exist in this model so that's the reason Pearson correlation analysis is used to measure the association between these variables. Hierarchical regressions are used to measure the effects of demographic variables, extrinsic compensation, and intrinsic compensation on overall tax auditor job satisfaction and also to determine which factor affect significant influence on job satisfaction.

3.5.1. Correlations Analysis

The results show that the values of Pearson's correlation among all variables are summarizing in Table (3.3). The Pearson correlation table reveals that job satisfaction is positively and significantly correlated to extrinsic rewards (.484**, p < 0.01). Job satisfaction is positively correlated with intrinsic rewards (.583**, p < 0.01) and higher than extrinsic rewards. These Pearson correlation results describes that intrinsic rewards are more related to employees job satisfaction in the context of tax auditor as compared to extrinsic rewards. These results also indicates job satisfaction increased when organization given more intrinsic rewards and intrinsic rewards more worth as compared to extrinsic rewards.





Pearson Correlation



Sig. (2-tailed)






Pearson Correlation



Sig. (2-tailed)






Pearson Correlation



Sig. (2-tailed)






**. Correlation is significant at the 0.01 level (2-tailed).

Table 3.3 Correlations

3.5.2. Regression Analysis

Three models are constructed to measure each independent variables influence on dependent variable. For example, Model 1 examines the effects of demographic variables on overall job satisfaction. In Model 2, socio demographic variable and extrinsic compensation were entered to measure the effect on overall job satisfaction. In Model 3, all independent variables are included to determine the impact on overall job satisfaction. The models were then compared to identify the influence of compensation on explaining job satisfaction and also to identify which factors are associated with overall job satisfaction and its dimensions.

Satisfaction was regressed onto the control variables and the independent variables. The control variables (location, gender, age, education, management class, tenure, and position) were entered into the regression model first; then control variables with the addition of extrinsic compensation, and lastly, control variables with addition of extrinsic and intrinsic compensation.

Independent Variable

Model 1

Model 2

Model 3

Control Variables





Management Class
























Extrinsic Variables



HR Policy


Working Condition













Intrinsic Variables



Model F




Adjusted R2







F change



* p < 0.05; ** p < 0.01; *** p < 0.001; ┼ 0.05 < p < 0.1

Table 3.4. Hierarchical Regression Result

As shown in Model 1, the control variables explained a 4% variance in job satisfaction. Gender variable is statistically affect significant influence to job satisfaction (β=0.100, p<0.05). While Job satisfaction affect moderate influence to job satisfaction (β=0.081, 0.05 < p < 0.1).

Extrinsic compensations were entered in Model 2 and increase the predictive power of the model to 30.2%. Position is statistically affect significant influence to job satisfaction (β=0.142, p<0.05) while extrinsic compensation which affect significance influence to job satisfaction are Supervisor (β=0.148, p<0.01), People (β=0.184, p<0.001), and Working Condition (β=0.235, p<0.001). Furthermore, Human Resource Policy affect moderate influence to job satisfaction (β=0.087, 0.05 < p < 0.1).

In the final model, intrinsic compensations were entered thereby increasing the predictive power of the model to 47.2% indicating that forty seven point two percent of the variation in overall job satisfaction is explained by the independent variables which are extrinsic and intrinsic compensation. By including intrinsic compensation (Model 3), the R square increases from 0.040 (with only control variables) to 0.472, suggesting that the full model explains about forty three point two percent more of the variance in job satisfaction than Model 1.

While not directly related to the hypotheses, a few other correlations between the tax auditor's demographics and job satisfaction are interesting. Control variables that statistically give significant influence to job satisfaction are Education (β=-0.095, p<0.05) and Position (β=0.122, p<0.05). Gender affect moderate influence (β=0.064, 0.05 < p < 0.1). Extrinsic compensation which statistically give significant influence is Working Condition (β=0.148, p < 0.001). Three other variables which are Supervisor (β=0.072, 0.05 < p < 0.1), People (β=0.081, 0.05 < p < 0.1), and Promotion (β=0.080, 0.05 < p < 0.1) affect moderate influence. Finally, intrinsic compensation which statistically give significant affect job satisfaction is Interest (β=0.442, p < 0.001).

Both results from correlation and regression analysis revealed that intrinsic and extrinsic rendered statistically significant and positive influence to job satisfaction. Thus hypothesis H1 is accepted and this shows that there is significant and positive relationship between intrinsic rewards and job satisfaction. Furthermore H2 is also accepted and this indicates that there is significant and positive relationship exists between extrinsic reward and job satisfaction.



4.1. Relationship between Compensation and Job Satisfaction

The objective of this study was to measure the relationship between compensation and job satisfaction and also to determine which elements of compensation has rendered statistically significant influence on tax auditor job satisfaction in Indonesian Directorate General of Taxes. After interpretation of the result, H1 and H2 are accepted as there are significant relationship between extrinsic rewards, intrinsic rewards, and job satisfaction. But comparatively, intrinsic rewards have stronger relation than extrinsic rewards. It indicates that tax auditors are more concerned with content or involvement of the job itself rather than what the job is actually paying to them. The results are quite according previous studies conducted by Clifford (1985) who contended that basically people are more satisfied with intrinsic compensation rather than extrinsic compensation. In addition, Buelens and Van den Broeck (2007) noted that "instead of extrinsic motivation, public sector employees are motivated by intrinsic rewards".

Findings on this study seem to contradict with what previously regarded as common problem when the government initially reforms the tax institution. At that time, it was believed that the common problem of ineffective and under performance of tax organization was the inability of government to provide adequate and competitive compensation structure (Rizal, 2010). The above situation basically related with Hierarchy of Needs as explained by Maslow (1943). If only the study was conducted before or in the recent years after the implementation of reformation of tax organization in 2001, the result would highly likely reveal that tax auditors put more emphasized on extrinsic compensation rather than intrinsic compensation because they need to fulfill their basic needs before shifting up to the higher level of necessity. As time goes by, they have already fulfill the preceding needs and move forward to the higher needs which are love and belonging needs up until the need for self-actualization. Actualization in this case, they demand more challenging and interesting jobs and also the intention to obtain higher promotion in order to contribute more to the organization. The higher position we are, the more contribution we can make to the organization.

Currently, in the scope of Directorate General of Taxes and even compare to other government officials within the country, tax auditors have received more sufficient and competitive economic rewards. Although there haven't been previous studies which measured the relationship between tax auditor compensation and job satisfaction, ten years period of time from the beginning of reformation process could be justified as a sufficient period for the auditor to shift their preference from extrinsic to intrinsic compensation.

As the results of correlation analysis further shows, it is likely that the tendency tax auditors emphasized more intrinsic rather than extrinsic compensation because of their strong motivation to public services. Even though it might be too confident to associate the reality that monetary reward didn't significantly affect job satisfaction with the existence of public service motivation as explained by Perry and Wise (1990), indeed the path and evidence were there. Directorate General of Taxes has been regarded as the most important organization to support the national development. Being accepted as the employee and take part in the organization practices could increase the sense of altruism and serving the country. And yet, the content of the job itself which is collecting revenue for the national development and the intention to take part of public decision making are more motivating for them, instead of pecuniary reward.

4.2. Factors that Influence Job Satisfaction

According to the regression result, both intrinsic compensation factors which are interesting tasks and promotion, deliver significant and positive result to the achievement of job satisfaction at 0.000 and 0.056 level respectively. From the interesting tasks perspective, tax auditor perceived that as their job becoming more challenging; their corresponding level of job satisfaction will increase. Studies have shown that the degree to which employees can utilize various capability, competency and skills when doing their job is significant predictor of job satisfaction. Conversely, as Wright and Davis (2003) research indicates, daily working activities which are routine and homogenous would generate negative effect on employee job satisfaction.

In addition, from the promotion opportunities point of view, the regression result affirmed that it increased the likelihood of higher satisfaction. It indicates that satisfaction would increase when tax auditor perceived the existence of opportunities for promotion. Drafke and Kossen (as cited in Rast & Tourani, 2012) noted that employee might feel satisfied when they perceived their future career paths are obvious and attainable. According to this explanation, opportunities for better and higher position could be regarded as the requirement factors of job satisfaction; otherwise, there might be possibility that the employee reduce their performance and consequently impact the organization as a whole. It is therefore suggested that the organization pay more attention on the promotion system which are fair, procedural, and transparent. Furthermore, recent study conducted by Yamazaki and Yoon (2012) explained that in the context of Asian private sector, procedural and transparent justice perceptions on Human Resource practices within organization is significantly influence job satisfaction. It is natural when employees feel they have fair, procedural and transparent system of promotion, they try to do their best in order to be promoted and obtain high level of position. It's some kind like mutualism which benefit both sides, a situation when performance of organization would increase and at the same time the employees have the chance to get better and higher position.

Extrinsic compensation also emerges as a fairly powerful predictor. Interesting result which related with extrinsic compensation are factors that statistically deliver significant influence on job satisfaction. While several scholars pointed the importance of salary and human resource policies in generating employee job satisfaction, table (3.4) explained that salary and human resource policies in the context of Indonesian Directorate General of Taxes are not significant to the determination of tax auditor job satisfaction. In terms of salary, compare to other government employees with slightly share the same characteristics job description, tax auditors have received adequate and competitive compensation structure. This is the reason why, keeping attention on increasing salary was not an appropriate decision for the government to increase tax auditor job satisfaction. This condition in line with previous correlation analysis result which reveals that intrinsic compensation is highly appreciated rather than monetary benefit. Economic compensation was no longer attractive for tax auditors, suggesting the future compensation system should satisfy the need to improve the content of the task itself. Same situation applied to human resource policies. They perceived that human resource policies were not significant factor in determining job satisfaction.

According to the hierarchical regression result, supervisor give moderate and positive influence on job satisfaction at the 0.095 level while coworkers had significant and positive effect on job satisfaction at the 0.051 level. The result implied that tax auditor value more on relationship with their supervisor and coworkers. Indeed, they spent almost nine hours per day to interact with their friends and colleagues in the office which beyond the time spent with their family. This finding should not be too surprising. Green (2000) stated that coworkers could satisfy many social needs; she added that supportive and sympathetic fellow employees could increase job satisfaction. In addition, Bruce and Blackburn study (as cited in Waskiwick, 1999) showed that constructive interaction between employees and their supervisors would lead to job satisfaction. After all, it seems obvious that friendly and supportive relationships with coworkers and supervisors would be an important source of satisfaction in any type of work setting. Furthermore, table (3.4) showed that working condition has significant and positive effect on tax auditor job satisfaction at 0.001. It should be noted that these measures of working conditions represent properties of the workplace such as the availability of appropriate computer hardware and software to support the audit process, the support to conduct long range audit trip, and also integration among all business and banking transaction to facilitate the examination of reported taxpayer financial data. With the dependencies on such environment, it is no doubt that the tax auditors emphasize on working condition as important factors on achieving job satisfaction.



The study investigated relationship between compensation and job satisfaction in the context of tax auditor in Indonesian Directorate General of Taxes (DGT). It also determines factors that affect tax auditors' job satisfaction. The correlation analysis revealed that job satisfaction is significantly and positively correlated with both intrinsic and extrinsic rewards. However, comparatively intrinsic rewards have stronger relation than extrinsic rewards. It indicates that tax auditors are more concerned with content or involvement of the job itself rather than what the job is actually paying to them. The result supported previous study conducted by management scholars who interested in studying the relationship between compensation and job satisfaction.

Final model of hierarchical regression analysis showed that 47.2% of job satisfaction could be explained by the control variables and compensation in terms of extrinsic and intrinsic rewards. As the regression further explained, intrinsic factors which generate statistically significant and positive influence on tax auditors job satisfaction is interesting task. While for extrinsic rewards those factors are working condition, supportive coworkers, supervisor, and added with the chance of obtaining job promotion, affect moderate influence on job satisfaction. Control variables although not directly related with hypothesis, generated result that position and education are statistically influence job satisfaction but their direction is opposite. Positive influence was given by position whereas negative effect was produced by education. Furthermore, gender affects moderate and positive influence on tax auditor job satisfaction.

The findings in this research are expected to improve decision makers understanding in Indonesian Directorate General of Taxes regarding tax auditor job satisfaction. All this time, human resource department have made several efforts to increase tax auditor job satisfaction with the expectation of increasing the quality of audit conducted. In particular, considering the importance of tax audit to deter and detect noncompliance of taxpayers and at the same time delivering service, compensation

The conclusions from this study require further research inquiry because the methodology employed is not without limitations. First, like all other survey studies, results of the present study depend on the accuracy and truthfulness of the responses provided by tax auditor surveyed. Second, the number of female respondents and also tax auditor which job location outside Java Island are less in our study. Third, this study was conducted based on cross sectional data, which has some limitations in predicting tax auditors' job satisfaction. Therefore, longitudinal studies should be made to increase the predictive power of the model among tax auditor in Indonesian Directorate General of Taxes.

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