Leader–member exchange theory
The leader-member exchange (LMX) theory of leadership uniquely focuses on the two-way (dyadic) relationship between leaders and followers. It suggests that leaders develop an exchange with each of their subordinates, and that the quality of these leader-member exchange relationships influences subordinates' responsibility, decisions, and access to resources and performance. Relationships are based on trust and respect and are often emotional relationships that extend beyond the scope of employment. Leader-member exchange may promote positive employment experiences and augment organizational effectiveness. It is widely used by many managers and is replacing many of its predecessors.
- 1 History
- 2 Theory
- 3 Antecedents of LMX
- 4 Consequences of LMX
- 5 Empirical Results
- 6 Practical Applications
- 7 Boundary Conditions and Limitations
- 8 See also
- 9 References
Much of what is called Leader–member exchange theory today can be traced back to the introduction of Vertical dyad linkage theory (VDL) in 1975. Previous leadership theories had assumed that all subordinates have similar characteristics and that all supervisors behaved in the same fashion with all their subordinates. Gerstner & Day explain that traditional leadership theories attributed leadership effectiveness to personal characteristics of the leader, features of the situation, or an interaction between the two. LMX seeks to provide a different perspective that treats each subordinate/supervisor pair as an individual dyad with its own relationships. According to LMX, the quality of this dyadic relationship predicts attitudinal and behavioral outcomes at the individual, group, and organizational level. In 1976, Graen published "Role-making processes in complex organizations" in the Handbook of Industrial and Organizational Psychology, further increasing awareness about LMX.
By the 1980s, researchers in this field began transitioning from VDL to LMX, with the primary difference being a new focus specifically on jobs and task domains. By the 1990s, LMX was becoming a substantial theory, integrating Organizational citizenship behavior (OCB) and Perceived organizational support (POS). It was becoming increasingly clear that LMX was correlated with job satisfaction and organizational commitment. In 1995 Graen and Uhl-Bien used four stages to explain the evolution of LMX theory. The first stage involved work socialization and vertical dyad linkage and the focus was on the analysis of differentiated dyads, that is, in-groups and out-groups. In the second stage the focus of LMX was on the quality of the leader-member relationship and its outcomes. The third stage involved the creation of a prescriptive approach to building dyadic relationships. In the fourth stage LMX moved beyond the dyad level and was assessed at the systems-level, that is, group and network levels.
Throughout the 2000s and to present-day, Leader-member Exchange Theory has been researched extensively, adding more correlates and processes. LMX is evolving into a theory that crosses dyad-group levels.
The goal of LMX Theory is to explain the effects of leadership on members, teams, and organizations. According to the theory, leaders form strong trust, emotional, and respect-based relationships with some members of a team, but not with others. LMX theory says that leaders do not treat each subordinate the same. The work-related attitudes and behaviors of those subordinates depend on how they are treated by their leader.
Stages of LMX
Soon after a person joins a team and goes through several stages, leader-member relationship are formed. The stages one must go through are as follows:
The member joins the team and the leader evaluates his or her abilities and talents. Based on this, the leader may offer opportunities to demonstrate capabilities. This is the stage where a leader is able to gain insight into what areas a member will do best in. 
Role-making according to the Leader-Member Exchange theory expanded role theory beyond the limits of Katz and Kahn’s (1966) "role-taking" which is defined as the process whereby employees accept roles prescribed by their employer and employer’s agent. Graen’s theory hypothesized that particular actor, behavior and context variables increased the probability that employees would form alliances that were instrumental for them, their managers, and coworkers to change their roles. This was different from Graen’s models of Vertical Dyad theory that simply predicted managers would treat their direct employees differently. For example, Leader-Member Exchange theory prescribes that product managers uniquely design their teams for maximum sources of collaboration by proactively fostering unique strategic alliances between the leader and each team member and between each team member before turning to the other big five steps in competing team leadership.
In the second phase, the leader and member take part in an unstructured and informal negotiation whereby a role is created for the member and the unspoken promise of benefit and power in return for dedication and loyalty takes place. The theory says that, during this stage, managers sort new team members (often subconsciously) into one of two groups: in-group or out-group. Team members are put into the in-group if they prove to be loyal, trustworthy and skilled. This group is made up of the team members that the manager trusts the most. Managers give this group most of their attention, providing challenging and interesting work, and offering opportunities for additional training and advancement. This group also gets more one-on-one time with the manager. Often, people in this group have a similar personality and work ethic as their manager. Team members are put into the out-group if they betray the manager's trust or prove to be unmotivated or incompetent. This group's work is often restricted and unchallenging. Out-group members tend to have less access to the manager, and often don't receive opportunities for growth or advancement. Trust-building is very important in this stage. Thus, any feelings of betrayal, especially by the leader, can result in the member being demoted to the out-group. This negotiation includes inter-personal relationship factors as well as purely work-related factors. A member who is similar to the leader in various ways is more likely to be put in the in-group, making them more likely to succeed in their job. This perhaps explains why mixed gender relationships are typically less successful than same gender ones. The same effect also applies to cultural and racial differences. 
In this last phase, a pattern of ongoing social exchange between the leader and the member becomes established. Habits and routines are formed in this stage. In-group team members work hard to maintain the good opinion of their managers by showing trust, respect, empathy, patience, and persistence. Out-group members start to dislike or distrust their managers. Because it's so hard to move out of the out-group once the perception has been established, out-group members may have to change departments or organizations in order to "start over." Once team members have been classified, even subconsciously, as in-group or out-group, that classification effects how their managers relate to them from then on, and it can become self-fulfilling. Being a successful member or becoming an in-group member usually includes being similar, in many ways, to the leader. The members work hard at building and sustaining trust and respect from their leader. The members are often empathetic, patient, reasonable, sensitive, and are good at seeing the viewpoint of other people, especially their leader. Characteristics that are often shared by the out-group include aggression, sarcasm and a self-centered view. 
Antecedents of LMX
Dulebohn et al. identify three primary groups of antecedents: leader characteristics, follower characteristics, and interpersonal relationships. Followers are evaluated by their competence, agreeableness, conscientiousness, extraversion, neuroticism, and openness, positive affectivity, negative affectivity, and locus control. Leaders, on the other hand, are evaluated based on supervisor's expectation of followers, contingent reward behavior, transformational leadership, extraversion, and agreeableness. Although the leader takes a dominant role in creating an LMX relationship, the follower also plays an important part in creating the relationship. Variables that may affect this relationship are perceived similarity, affect/liking, integration, self promotion, assertiveness, and leader trust.
Of the follower characteristics, competence, agreeableness, conscientiousness, extraversion, locus of control, and positive affectivity are all positively correlated with LMX. Negative affectivity and neuroticism are negatively correlated with LMX. All of the listed leader characteristics are positively correlated with LMX. With the exception of assertiveness, all of the interpersonal relationship variable correlated positively with LMX. In an experiment run by Dulebohn et al., leader behaviors and perceptions explained most of the variance. This likely means that it is up to the leader to form the relationships necessary for successful implementation of LMX.
The relationship between these antecedents and LMX are not significantly affected by work setting or the physical location, indicating that they are similar around the world.
Consequences of LMX
Whether LMX is successful can be measured by a multitude of consequences. Some of the consequences that can be measured include: turnover intentions, actual turnover, overall organizational citizenship behavior, affective commitment, normative commitment, general job satisfaction, satisfaction with supervisor, satisfaction with pay, procedural justice, distributive justice, empowerment, perceptions of politics, role ambiguity, and role conflict. LMX typically decreases turnover intentions and actual turnover, as well as role ambiguity and role conflict. LMX increases the other measures, particularly increasing perceptual and attitudinal outcomes.
LMX and Job Behaviors
In their 1995 meta-analysis of LMX correlates and constructs, Gerstner & Day explain that research has generally found relationships between LMX and positive work performance and attitude measures, especially for members (as opposed to leaders). That is, especially for members, LMX is associated with higher performance ratings, better objective performance, higher overall satisfaction, more satisfaction with supervisor, stronger organizational commitment, and more positive role perceptions. Gerstner & Day's meta-analysis used 79 studies to examine the correlates of LMX. Their analysis found a positive correlation between the member's perceptions of LMX and the leader's ratings of the member's job performance. It also found an even stronger positive correlation between the leader's perceptions of LMX and the leader's ratings of the member's job performance. Gerstner & Day explain that supervisors may have a tendency to rate a subordinate more favorably due to a positive LMX relationship. This can be a good thing for the subordinate. They further explain that LMX perceptions may cause a leader to form positive or negative expectations about an employee which can then affect actual employee performance rather than only performance ratings. This meta-analysis also found statistically significant positive correlations between LMX and objective performance (as opposed to subjective performance ratings), satisfaction with supervisor, overall satisfaction, organizational commitment, and role clarity. It found statistically significant negative correlations between LMX and role conflict and turnover intentions.
LMX and Culture
Rockstuhl et al.'s 2012 meta-analysis of LMX theory and national culture correlates found that in Western cultures LMX is more strongly correlated with organizational citizenship behavior (OCB), justice perceptions, job satisfaction, turnover intentions, and leader trust than in Asian cultures. This meta-analysis used 253 studies conducted in 23 countries to compare the differences in how LMX influenced work-related attitudes and behaviors such as task performance, OCB, distributive justice, procedural justice, interactional justice, job satisfaction, affective commitment, normative commitment, and turnover intentions between two different cultural configurations: horizontal-individualistic (Western countries) and vertical-collectivist (Asian countries). The analysis found that the relationships between LMX and citizenship behaviors, between LMX and justice outcomes, between LMX and job satisfaction, between LMX and turnover intentions, and between LMX and leader trust are stronger in horizontal-individualistic cultures than in vertical-collectivist cultures. The analysis also found that there is not a cultural difference in the relationships between LMX and task performance and between LMX and affective and normative organizational commitment.
LMX and Citizenship Behaviors
Ilies et al.'s 2007 meta-analysis of LMX theory and citizenship behaviors found a positive relationship between LMX and citizenship behaviors. The meta-analysis also found that the target of the citizenship behaviors has a moderating effect on the magnitude of the relationship between LMX and citizenship behaviors. That is, citizenship behaviors targeted at individuals are more strongly correlated with LMX than are citizenship behaviors targeted at an organization.
When joining a team, it is important to join the inner circle, take on more than your share of administrative and other tasks in order to gain trust from your leaders. 
The quality of the LMX relationship varies. It is most efficient on one of the two ends of the spectrum: either extremely low or extremely high. The size of the group, financial resources available, and the overall workload are also important. The theory can also work upwards as well. The leader can gain power by being a member of his or her manager's inner circle, which the leader can then share with subordinates. 
The Leader-Member Exchange Theory can be utilized outside of the workplace. It can be applied to group projects for school, clubs, etc. By using LMX in such circumstances, you can learn more about how you see your team members. First, you must determine who your out-group consists of. When you do this you have to make sure you know how they ended up under this title. Compare facts with your perception of the events. The next step you must take requires you to re-establish the relationship with those in the out-group. In doing so, you will gain respect as a leader. It may also boost morale for those members of the out-group. However, make a mental note that those members will have their guards up at first when you try to give your support to them. Make it sincere by approaching each member one-on-one. Take time to get to know a little more about them. This can also help you learn more about what drives them. From that point on, try to keep the reconnection going by keeping in touch with those members. Make an effort to offer your guidance on any of their tasks if they need assistance. Your third and final step to apply the Leader-Member Exchange Theory is to offer some form of mentoring or coaching. This allows a type of opportunity for the member to advance in the group. Start first with low risk assignments. 
Boundary Conditions and Limitations
The main limitation of leader–member exchange research is that it is not particularly helpful in describing the specific leader behaviors that promote high-quality relationships. At best it only implies generalities about the need for leaders to show trust, respect, openness, autonomy and discretion. Additionally, the theory involves the assumption that each individual is worthy of the same amount of trust, chance of project responsibility, and opportunity for advancement. This is not always the case. The members with the most talent will receive the better opportunities than those in the out-group, perhaps. Because of this reason, the leader must make sure that he or she is using the theory to help themselves be objective in the manners in which they deal with others. 
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- Bauer, Tayla; Ergoden, Berrin (2015). The Oxford Handbook of Leader-Member Exchange. New York, NY 10016: Oxford University Press. ISBN 978-0-19-932617-4.
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- Dulebohn, James; Bommer, William; Liden, Robert; Brouer, Robyn; Ferris, Gerald (6 November 2012). "A Meta-Analysis of Antecedents and Consequences of Leader-Member Exchange: Integrating the Past With an Eye Toward the Future". Journal of Management 36 (6): 1715–1759. doi:10.1177/0149206311415280.
- Ilies, Remus, Nahrgang, Jennifer D. & Morgeson, Frederick P. (2007). "Leader–Member Exchange and Citizenship Behaviors: A Meta-Analysis." Journal of Applied Psychology 92 (1): 269-277.
- Seibert, S. E.; Sparrowe, R. T.; Liden, R. C. (2003). "A group exchange structure approach to leadership in groups". In Pearce, C. L.; Conger, J. A. Shared leadership: Reframing the hows and whys of leadership. Thousand Oaks, CA: Sage Publications. ISBN 0-7619-2623-2.
- Template:Millennial Management: designing the future of organizationsGrace M. & Graen G. B. Infoagepun, 2014
- Graen, G. B.; Uhl-Bien, M. (1995). "The Relationship-based approach to leadership: Development of LMX theory of leadership over 25 years: Applying a multi-level, multi-domain perspective". Leadership Quarterly 6 (2): 219–247. doi:10.1016/1048-9843(95)90036-5.