Introduction
Workplace relationships between leaders and employees are linked to positive outcomes in contemporary organisations. Most employers and employees try to cultivate healthy, positive working relationships. The leader-member exchange (LMX) theory describes how superiors and subordinates interact. The LMX theory holds that leaders’ relationships with their subordinates vary depending on the situation. Leaders who want to connect effectively with their teams must learn about the employees and choose the best approach. A positive relationship will aid the organisation’s success and ensure that any time spent together is productive. Both the in-group and out-group subordinates that LMX manages necessitate separate approaches. Employee in-group members are more likely to get along with their coworkers, respect those in positions of authority, and have positive relationships with their managers. This subordinate group is extremely easy to communicate with and engage in productive relationships. Members of the out-group are concerned with doing what they are supposed to do and taking the hierarchy between leaders and followers seriously. The LMX theory is linked with increased job satisfaction and motivation, decreased burnout, and quit intentions. LMX theory is significantly relevant in contemporary organisations, providing a basis for the formation of effective and productive relationships in the workplace.
The Working of LMX Theory in Organisations
The LMX theory primarily addresses leaders and describes how they should interact with their workforce. Northouse (2019) stressed the need to produce leaders capable of maximising the LMX’s efficacy. Understanding how this method may assist leaders in determining where and why they have positive connections with their subordinates. LMX theory in modern businesses is based on three categories of relationships: stranger, acquaintance, and mature (Bunin et al., 2020). When someone begins a new job or has a new supervisor, there is frequently an adjustment phase during which they feel like outsiders. The objective, in this case, is to grow in one’s present job while maintaining one’s current duties, and information is given officially (Bunin et al., 2020). The acquaintance is defined as solely professional connections that are intended to manage job tasks (Bunin et al., 2020). As a result, the information exchanged by both parties is regarding the work duties and needs of various individuals. The mature stage consists of established relationships marked by mutual respect, duty, and trust developing toward one another, from which both partners gain (Hirvi et al., 2020; Northouse, 2019). Understanding the subordinate’s requests should be straightforward in a mature relationship since it involves enhanced dyadic interactions with reciprocity.
Examples of Organisations using LMX
Elon Musk, CEO of Tesla and SpaceX, tries to satisfy his employees by making them feel part of something greater than themselves and rewarding their efforts. He forms effective professional relationships with employees, which provides a sense of belonging to the workers (Khan, 2021). The CEO claims that if the executives fully understand the fundamental ideas, they will be less likely to build on the erroneous ground (Khan, 2021). Musk encourages business leaders to find ways to instill confidence in their employees, encourage them to speak up less often, and work together with others to overcome obstacles, which is the principle of LMX theory (Khan, 2021). Leaders are in place to encourage and facilitate the highest possible performance from their teams. Subordinates need the knowledge to understand their problems better and be motivated to execute at a high level (Habjan, 2020). Leaders are expected to put forth an extra effort and prioritise their demands over those of their subordinates.
Microsoft, led by Bill Gates, is another company that applies the LMX model. Bill Gates is a direct leader who sets deadlines, monitors performance, and conveys expectations to subordinates (Abdulrazaq et al., 2020; Hasib et al., 2020). The LMX theory, which centres on the quality of the connection between a leader and an employee, describes Gates as a transactional leader who embraces a clear exchange relationship with his staff. The two organisations’ success is largely attributable to the strong bonds they have built with their employees, which have generated billions in revenue.
Modes of Applications of LMX Theory
The relationship between leaders and their subjects is composed of different reinforcements. The leaders use these reinforcements to show that they care and serve as a basis for productive relationships. Reinforcement refers to rewards and remarks that tell workers whether they have responded correctly in different situations. Various positive reinforcement exists, including monetary and non-monetary prizes, recognition programs, and punishments (Omilion-Hodges & Ptacek, 2021). Negative reinforcement might take the shape of benefits forfeited when an individual refrains from engaging in conduct that would otherwise result in undesirable outcomes (Woods, 2019). The concept of reinforcement is demonstrated by Skinner’s reinforcement theory of behaviour modification.
Skinner’s Reinforcement Theory
Psychology has examined reinforcement, leading to the development of the reinforcement theory. Skinner developed the model of reinforcement, which describes the numerous types of rewards that can be employed to drive people. He concluded that conduct that is rewarded or has good consequences is more likely to be repeated, while behaviour that is not rewarded or has negative consequences is less likely to be repeated (McLarty et al., 2021; Soomro et al., 2020). Skinner’s theory has piqued the interest of researchers due to the importance of incentives and reinforcements in the workplace. Leaders use reinforcement theory to get their teams and organisations to focus on what is most important.
Rewards
A reward is a prize given to employees to encourage them to work harder. Rewards may be extrinsic benefits, which include pay, commissions, and bonuses, or intrinsic, including empowerment, admiration, and encouragement. Significant and conclusive findings revealed that intrinsic and extrinsic rewards are linked to higher worker performance levels (Lie et al., 2022). More so than other types of incentives, extrinsic financial rewards boost motivation and have been used in different organisations. Intrinsic rewards, as opposed to extrinsic ones, are more effective in maintaining an employee’s focus. The reinforcement theory lends credence to the idea that monetary incentives are only helpful for a short while. Additionally, verbal incentives induce an increase in intrinsic motivation. Individuals can be motivated by financial reward and public acclaim, but only the latter will result in sustained, high-level performance (Lie et al., 2022). Non-monetary benefits, like praise and recognition, may have a longer-term impact on an employee’s morale and performance than monetary awards since they increase the workers’ feeling of value.
Recognition Programs
Most contemporary organisations have recognition programs to acknowledge employees’ good work and value. Heppy and Budhi (2020) investigated the effects of incentive and recognition programs on worker motivation. They highlight the Hawthorne investigations, which served as the foundation for the human relations method. Money, motivation, behaviour, and viewpoint have numerous distinct correlations. Human relationships are more important than profits in a company, and this is what the human relations theory is all about (Heppy & Budhi, 2020). Since the concept’s introduction in the twentieth century, organisations have concentrated their training of managers and leaders on the human relations approach. This plan aims to help leaders explore new ways to keep employees interested and satisfied. Employees inspired and fulfilled in their professions are more likely to succeed (Woods, 2019). Overall, employees who feel valued by their managers and the business are more willing to go above and beyond expectations for the benefit of an organisation.
Punishments
While rewards and positive reinforcements are dominant in most organisations, punishments also exist as a way to ensure discipline among employees. While incentives and perks benefit workplace productivity and morale, there does not appear to be nearly as much the opposing effect of negative reinforcement or punishment (Woods, 2019). Employee motivation and output may improve depending on the severity of the punishment, and in some cases, punishments may be more effective than incentives. Sutter and Panekenan et al. (2019) asserted that larger penalties and fewer rewards are more successful but admitted that this necessitates careful incentive balancing. Punishments may negatively impact workers’ enthusiasm and contentment (Panekenan et al., 2019; Shaikh et al., 2019). Organisations are careful when utilising negative reinforcement because when punishment is not related to a specific behavior, subordinates’ performance worsens (Woods, 2019). Punishments are widely used in contemporary organisations, keeping employees disciplined and focused on the organisational goals.
Implications of LMX Theory on Performance
The relationship between a manager and an employee is the cornerstone of every company, and it is essential to the success of both the business and the worker. Employee relationship management is the continual efforts of a firm to excite and inspire its personnel. This strategy promotes open communication on the job, and collaboration within teams and between management and staff is promoted. Relationship management motivates and rewards employees, making them feel valued for their efforts. This helps businesses retain their best employees and motivates them to advance professionally and find meaning in their work.
Leaders of organisations should always look for conditions where positive and negative reinforcements meet to motivate their staff to achieve at their highest levels (Woods, 2019). According to Woods (2019), the only way to successfully improve employee performance is to promote relationships between leaders from different levels and subordinates. It is critical to learn how to recognise and address the requirements of employees to increase productivity. Each action plan must consider inner and external variables to increase employee motivation and happiness. According to numerous studies on employee satisfaction and motivation, finding a neutral medium between these extremes can enhance an organisation’s overall production (Woods, 2019). Extensive research has been done on the relationship between employees and leaders, providing a foundation for professional relationships. Therefore, leaders are encouraged to learn the basics of LMX theory and apply it in their organizations to eliminate employee dissatisfaction, which harms the productivity and performance of workers (Woods, 2019). The appropriate application of this theory creates a comfortable work environment, and contemporary organizations can attract and retain top talent.
Conclusions and Recommendations
Few leadership theories take into account both the leader and the followers. Unlike previous theories, the LMX theory focuses on communication between leaders and followers. This is a crucial concept to understand in the study of leadership since it demonstrates that the dynamics between leaders and their subordinates vary. The implications of the LMX theory, which argues that leaders categorise their followers based on the quality of their ties with them, were assessed. The study’s findings suggest a causal relationship between LMX and the indicated variables, such as employee performance. In other words, LMX has been proven statistically to impact employee engagement significantly. A company’s success or failure greatly depends on how successfully its LMX partnerships work. According to a theoretical literature review, high-quality LMX relationships improve organisational outcomes, including productivity and performance. Impacted areas include job satisfaction, workplace stress, organisational commitment, organisational citizenship behaviour, motivation, intention to quit, burnout, goal attainment, and productivity. Tesla and Microsoft are just two successful organisations that have kept the LMX principle at the heart of their operations. The end effect is increased productivity, satisfaction, and bottom-line profits.
The findings of this study emphasise the importance of interpersonal relationships between leaders and their subjects. As a result, LMX theory offers various advice for businesses battling performance and other challenges that affect employee satisfaction in the workplace. It is critical that the leader initially make an effort to mend relations with out-group members because employees who get along with their boss are happier and more productive. Thus, it is recommended that CEOs use one-on-one meetings to learn about their employees’ psychological contracts and underlying aspirations.
Second, these firms must create opportunities for employee growth and development. It can be beneficial to support their employees’ transfer from the out-group to the in-group by providing them with training and other opportunities to grow and establish their worth as in-group members. Giving newer employees low-stakes opportunities to demonstrate what they have learned is one method to put their skills to the test. In this manner, management can avoid claims of unequal treatment and improve satisfaction. This could help level the playing field and reduce partiality against people not part of the group. Overall, strong ties with one’s subordinates are becoming the standard in leadership. As a result, if leaders want to encourage the most growth for their businesses and themselves, they must understand how to build trusted connections within their teams.
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