What Is LMX Theory? The Leader-Member Exchange at Work

The leader-member exchange theory—also known as the LMX or vertical dyad linkage theory—alludes to how leader-member relationships (i.e., supervisor-employee relationships) can either empower or detract from the work of an organization as a whole.

By using applied psychology, LMX theorists look at two-way working relationships and see how leaders tend to pick both an in-group and out-group among their employees. In-group employees are high-performing and have high-quality relationships with their supervisors. Out-group employees are low-performing and have low-quality relationships with their supervisors.

Where some might suggest the differentiation between these two group levels is due to the employees’ innate work ethic, LMX theorists place at least some of the impetus on the leader themselves. If the leader welcomes the out-group into the in-group, the theory states they’re likely to become higher-performing employees themselves.

LMX theory might sound complex at first, but it’s relatively simple to grasp when you break it down. Consider these three core elements of the leadership theory:

• Leader: LMX theorists focus on dyadic relationships (i.e., two-way relationships) between a supervisor and each of their employees. When the leader has mutual respect for their in-group team members, they’re more likely to all perform more effective work together. The opposite is true for out-group team members—leaders might take a more detached, disinterested leadership style for these employees if they feel they don’t work as hard as the in-group. In reaction, out-group members feel less and less of an urge to do high-performing work for the leader.
• In-group: An in-group leader-member exchange relationship features high-quality exchanges between both the leader and the employee. This might exhibit itself through greater organizational citizenship behavior (OCB) from the team member as well as in increased focus and interest from the supervisor. In-groups are high-performing and desire to perform even more exceptionally due to the favor the leader has bestowed on them.
• Out-group: If an employee has a lack of mutual trust with their supervisor, it’s likely they’re one of the out-group members in their supervisor’s mind. This might lead to a greater turnover intention among these members, as well as lower job satisfaction and less interest in performing to the best of their abilities.

When you encounter the LMX theory of leadership in real life, it manifests in predictable phases. Here are three key phases to observe:

1. 1. Role-taking: As an antecedent to anything else, new members of any team start their tenure under a leader’s watchful eye with a blank slate. During this period, both parties start to define the leader-follower relationship. If the new team member struggles with motivation early on, it might cause the leader to preemptively shuffle them into an out-group.
2. 2. Role-making: As the development of leader-member exchange relationships proceeds, supervisors will begin to carve out new responsibilities and roles for team members with whom they have positive relationships. In contrast, leaders will also leave those in the out-group with fewer tasks and opportunities due to their lack of connection.
3. 3. Routinization: Early work behavior predicts future work relationships—by this phase, leaders and team members have fallen into their routines. Even if early success or failure might not correlate to future success, leaders often will sidestep taking on a moderating role and instead continually focus on fostering in-group employees’ career paths and ignore out-group employees. It’s at this point a leader can step in and do their best to rectify the situation by making the playing field more level for everyone.

Bringing the out-group into the in-group is a sign of an effective leadership process. Try out these three strategies to improve the workspace for everyone:

1. 1. Ask what caused a rift. Recognize that an early faux pas or deviation from expectations should not disqualify an out-group employee from additional opportunities to prove themselves. Ask what might have biased you in favor of some employees and against others. Perhaps the in-group employees showed more organizational commitment early on and the out-group ones didn’t. Consider how you can motivate these out-group employees and encourage better job performance rather than relegate them to menial tasks.
2. 2. Be fair. High-quality LMX relationships thrive on mutual trust and respect. Coworkers—whether supervisors or team members—need to feel they’re all working toward the same goal with each other’s best interests in mind. As a leader, try to adopt a mediating role between employees and in your own frame of mind when it comes to out-group employees. When you take on a multilevel, multidomain perspective like this, you empower all your team members to achieve at their highest potential.
3. 3. Reach out to the out-group. If there’s an out-group in your work unit, reach out to them. Forgo transactional relationships and offer them more hands-on mentoring. Give them attribution and praise for the tasks they do well. Empower them in the company decision-making process. According to LMX theory, this could lead them to become higher performers.

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