The Leader-Member Exchange Theory

If you think back to a positive work experience, one of the first things to come to mind will likely be the relationships you cultivated. However, as the comedy Horrible Bosses highlights, oftentimes, we don’t get along with our bosses, which can be a primary source of discontent at work.

There are a number of obstacles that can prevent managers from having good relationships with their employees. There might not exist mutual respect between both parties, there could be a lack of trust, or it could simply be a matter of having clashing personalities. These factors do not only contribute to an employee being less satisfied at work; as Herzberg’s motivation theory demonstrates, being less satisfied with the relationships at work can cause an employee to be less motivated. Being less motivated leads to being less productive. Evidently, negative relationships between managers and employees isn’t beneficial for anyone.

That is where the Leader-Member Exchange Theory comes in. The theory assumes that good leadership is the result of dyadic (two-way) relationships between managers and employees. The leader must be connected to their employees, which is possible through trust, respect, support, and loyalty.¹ 

The Leader-Member Exchange Theory also suggests that naturally, managers will form close relationships with some employees more than others. These employees might have repeatedly delivered quality work and maintained the good impression their manager had of them. However, their success at work might also be attributable to their manager’s willingness to give them greater responsibility.¹

In a sense, those managers are falling victim to the confirmation bias. They believe an employee with whom they share a close relationship will perform well, so they give them a task that they succeed in, which then confirms their pre-existing belief. Alternatively, by not giving other employees the opportunity to take on greater responsibilities, those employees never have a chance to prove themselves.

The Leader-Member Exchange Theory, therefore, recognizes that there are both advantages and disadvantages to having close relationships with employees, as it creates an in-group and an out-group. The relationship a leader has with their employees can either promote growth or can withhold progress.²

In the 1970s, various psychologists became interested in how leadership affects its followers. Traditional management strategies usually employed a top-down approach, but a growing body of research began to question these models. Fred Dansereau, an important figure in organizational behavior, thus proposed that approaching leadership as an exchange — a two-way relationship — was better suited for evolving views of leadership. Alongside his team, he published his findings from a longitudinal study in 1975 and came up with the vertical dyad linkage approach, which was the inspiration for the Leader-Member Exchange (LMX) Theory.⁴

Dansereau and psychology professors George Graen and William Haga focused on the leadership-subordinate relationship in their study. Up until this point, traditional models of leadership within organizations assumed that all subordinate members are homogenous and can be grouped into a singular ‘work entity,’ and that as a result, leaders treat each employee in the same way.

Alternatively, Dansereau et al. assumed that each relationship between subordinate and leader was unique. Since each relationship could be radically different, the relationship had to be examined from the perspective of both the employee and the leader. The team, therefore, proposed that the vertical dyad was the appropriate unit of analysis for examining leadership processes.⁴

The vertical dyad linkage approach made an important distinction between leadership and supervision. Whilst a manager can solely rely on the employment contract for supervision purposes, where personal relationships have little influence, they must rely on forging interpersonal relationships with their subordinates for leadership purposes.⁴ Dansereau et al. believed that leadership greatly influenced the role employees took on in three discrete stages: role-taking, role-making, and routinization.

• Role-taking: When an employee initially joins an organization, they must find where they fit in and must form a relationship with their boss. During this time, the boss will assess the new member’s skills.²
• Role-making: After being onboarded, new employees will begin assisting with projects and completing tasks as part of a team. As they adjust to their new role, bosses expect employees will work hard and be trustworthy. Depending on a boss’ assessment of the employee’s performance, they will (often unconsciously) sort the member into one of two groups: the in-group or the out-group.²
• Routinization: As time goes on, routines between team members and their managers are established.²

In 1982, Graen, who had worked on the initial study with Dansereau, renamed the vertical dyad linkage approach the Leader-Member Exchange model in his paper “The Effects of Leader-Member Exchange and Job Design on Productivity and Satisfaction: Testing a Dual Attachment Model.”⁵ Graen put forward LMX as an extension of the previous approach.

In his paper, Graen outlined the findings from a study that examined how LMX impacted satisfaction and productivity. For employees to be happy, Graen believed organizations needed to look beyond the economic compensation of their employees. Two vital components of employee satisfaction were whether they formed meaningful relationships at work and whether there was potential for personal growth and development, which are findings supported by Herbzerg’s motivation theory.

Graen surveyed a government installation with over 400 employees. All participants had the same job title and their productivity and satisfaction were examined over a six-month period. Graen and his colleagues found that those employees who benefitted from greater leadership training (and thus had the opportunity to form meaningful relationships with their supervisors), were more productive. They were able to complete more work in a smaller amount of time. The better the leader-member exchange, Graen concluded the more productive employees will be.⁵

The LMX model is supported by the social-exchange theory, which suggests that behavior is the result of an exchange process. Realizing that each employee-manager relationship is unique and that the strength of that relationship impacts how productive and happy an employee is, means that it is important for managers to be aware of how best to form relationships with their subordinates. This also includes being aware that they may unconsciously group individuals into an ‘in’ and an ‘out’ group during the role-making stage, and acknowledging the consequences this grouping can have.

Employees in the in-group are often treated with greater respect, are given more attention, and are trusted with bigger responsibilities. Managers will offer these employees interesting and challenging work due to the in-group bias which states we treat our in-group better. They form meaningful and close relationships with their superiors, which leads to them being more productive and enables opportunities for personal and professional growth. When someone expects us to perform well, we’ll actually perform better in order to meet their expectations, a phenomenon known as the Pygmalion effect.²

Alternatively, managers often restrict what kind of tasks they assign to employees in the out-group and limit their interaction with them. Without access to increasingly important responsibilities or consistent feedback from their boss, these employees can quickly become dissatisfied with their role and become unmotivated.²

The LMX model often assumes that the only reason behind the differential treatment of employees is because of an unconscious categorization into an in-group and out-group which then impacts an employee’s performance. As a result, it suggests leaders need to give all their employees the same opportunities and responsibilities. However, it could be that leaders group their employees based on more than just personal preferences, and instead, that their categorization reflects the employees’ individual abilities. Not every employee is hard-working and trustworthy, so managers are sometimes warranted in reserving important tasks to a select group of employees.²

Moreover, although the LMX model is adamant that during the role-taking and role-making stages, an employee becomes categorized into one of two groups, it is unclear which factors influence the categorization process. Additionally, the model does not provide insight into how leaders or employees can ensure to forge meaningful relationships which would be valuable insight considering these relationships are presented as the largest determinant of employee satisfaction and wellbeing.⁶ 

Although the LMX model focuses on a two-way relationship, it often leads to behavior change suggestions for the manager, not the employee. Behavior recommendations for employees who seek to improve their relationships with their bosses could be extremely useful and still need further research.

LMX and Diversity

Diversity within a team can be beneficial; studies have attributed diversity as a cause behind improved performance and better decision-making. However, diversity, especially racial diversity, can also be a point of conflict. Sport-specific studies have found that individuals of a different race than the majority of their group are often less connected to the team and less satisfied.⁷ The leadership exchange theory, which suggests that developing trust and a close relationship can lead to improved performance, could mitigate the negative impacts of conflict that potentially arise due to diversity.

Sam Todd, professor of Sports and Entertainment Management at the University of South Carolina, developed a case study based on the real life experiences of a field ground crew, in order to see how LMX influenced group behavior.⁷ A field manager, Lonnie, needs to lead a crew that works well together to achieve a functioning and aesthetic field. Her success will depend on the interplay between diversity issues as well as her own management style.

Lonnie hired Christy, an individual with turf management experience that differs from her own experience. The two debate on a number of topics, which ends up being productive as their different perspectives allow them to figure out the optimal decision. Lonnie also hires Elberto, who has similar experience to Christy but has demographic diversity. Lonnie and Christy get along well and have a high quality LMX relationship. That causes Christy to love her job, support Lonnie, and put in 100% effort in every task. Lonnie and Christy develop trust and a mutually beneficial reciprocal exchange relationship. Lonnie and Christy even become friends. However, while the strong LMX relationship initially results in increased productivity, there are also some negative outcomes that arise later on.

Lonnie comes to expect more from Christy, which causes Christy to have high expectations for herself and feel pressured to not let Lonnie down. The added pressure can increase stress, which could make Christy lose some passion for her job. If she becomes less satisfied, her productivity may decrease.⁷

On the other hand, Elberto has a low quality LMX relationship with Lonnie. She does not trust him, which results in him doing the bare minimum to complete his tasks and never being asked to take on greater responsibility. Elberto has no interest in participating in team activities outside the workplace. Although he may not enjoy a close relationship with his manager, Elberto does not have the added burden of Lonnie’s high expectations. He may not be as productive as Lonnie in the short-run, but will not get burned out as a result of being overworked and stressed.⁷

As this study shows, both diversity and LMX relationships can have both positive and negative influences on productivity and job satisfaction. While job-related diversity can often be constructive (as is the case of Lonnie and Christy), demographic diversity can often be destructive (as is shown as in the case of Elberto and Christy).

As the study shows, while forming close and trusting relationships can lead to greater productivity, favoritism can also place extra stress on an individual. When the lines between employee and manager cross over into friendship, it can be difficult to define boundaries. Todd’s case study reflects previous research conducted by Kenneth Harris and Michele Kacmar that showed the correlation between the relationship and stress follows a U-shape.

In their 2006 article “Too much of a good thing: The curvilinear effect of leader-member exchange on stress,” the pair identified that although usually, as the quality of a LMX relationship increases, so do the advantages, there comes a point where the relationship becomes too close and leads to negative effects.⁷

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1. Leader-Member Exchange Theory (LMX). (2020, July 16). ToolsHero. Retrieved June 7, 2021, from https://www.toolshero.com/management/leader-member-exchange-theory-lmx/
2. The Leader-Member Exchange Theory. (n.d.). Mind Tools. Retrieved June 7, 2021, from https://www.mindtools.com/pages/article/leader-member-exchange.htm
3. Srinivasan, B. (2008, April 21). Leader – Member Exchange (LMX) Theory. Project Management & Leadership Champions. https://leadershipchamps.wordpress.com/2008/04/21/leader-member-exchange-lmx-theory/
4. Dansereau, F., Graen, G., & Haga, W. J. (1975). A vertical dyad linkage approach to leadership within formal organizations. Organizational Behavior and Human Performance, 13(1), 46-78. https://doi.org/10.1016/0030-5073(75)90005-7
5. Graen, G., Novak, M. A., & Sommerkamp, P. (1982). The effects of leader—member exchange and job design on productivity and satisfaction: Testing a dual attachment model. Organizational Behavior and Human Performance, 30(1), 109-131. https://doi.org/10.1016/0030-5073(82)90236-7
6. Leadership-Member Exchange (LMX) Theory. (n.d.). Management Study Guide. Retrieved June 7, 2021, from https://managementstudyguide.com/transformational-leadership.htm
7. Todd, S. Y., Christie, I., Magnusen, M. J., & Harris, K. J. (2012). A case study of diversity and leader member exchange in intercollegiate athletics. https://doi.org/10.4135/9781526435330