“The Dynamics of Leader-Member Exchange Theory and the Impact to the Organization”
By Carol Whelan

Introduction
The study of leadership includes many theories on leadership styles and what makes an effective leader. One such theory, the Leader-Member Exchange Theory (LMX), specifically focuses on the 2-way relationship between managers and subordinates, the impact on these individuals, and the and the resulting effect on the organization. Gaining an understanding of this theory has significant application to recognizing the dynamics of the supervisor-associate relationship and ultimately the level of success with attaining organization goals. The terms leader, supervisor, and manager are used interchangeably, as are the terms member, associate, and subordinate.
What is it and how does it occur?
The LMX theory states that leaders establish their “favorites” early in the leader-member relationship, determining whether a member is in the “in-group” or the “out-group.” Due to time concerns and pressures in the workplace, LMX relationships develop very early in the leader-member interaction, and tend to remain constant over time. Leaders have a tendency to reward in a variety of ways those associates with whom they want special linkage.
What does it mean for the member?
LMX refers to the quality of the leader-member relationship and describes the benefits of a strong LMX relationship, primarily to the associate. The theory proposes that the in-group receives a number of both intrinsic and extrinsic rewards and privileges that the out-group does not experience. The intrinsic rewards to the in-group member include social rewards, and friendship.
Members enjoying high LMX will likely also experience a number of extrinsic rewards. These would include challenging and interesting projects, exposure to upper-level management and other leaders across the organization, and opportunities for growth in the organization.
In addition, extrinsic rewards will lead to the reinforcement of intrinsic reward, meaning there is personal satisfaction in working on things that are interesting and exciting, and containing a high degree of leader mentoring and support. Attainment of both intrinsic and extrinsic rewards and privileges result in higher organizational commitment and greater job satisfaction.
What does it mean for the role of the leader?
How the leader categorizes his associates is not clear, but there are common contributors to a strong LMX relationship.
Path-goal theory states that it is the leader’s responsibility to help associates with setting goals that support the organization, providing direction, and assisting with attainment of those goals. How might this be in conflict with LMX and what it says about the leader? A good leader should acknowledge the presence of LMX, recognize how the resulting favoritism it affects associates’ behavior, and reflect on what it provides him or her.
Little research has discussed how LMX impacts the leader. In 1997 Liden, Sparrowe, and Wayne stated that “research is needed on outcomes of LMX for leaders” (p. 73). This request remains largely unanswered in the LMX literature. LMX theory takes a relationship-based approach to leadership and proposes that the dyadic relationship between a leader and member develops around the dimensions of trust, respect, loyalty, liking, intimacy, support, openness, and honesty (Graen & Scandura,1987).

What does it mean for the organization?
And, we also know that high LMX relationship contributes to leader job satisfaction, commitment and turnover. This is noteworthy given the high cost of replacing managers; one large high-tech company estimates the cost of replacing a middle manager at forty thousand dollars (Wagner & Hollenbeck, 2005).
There can be problems with LMX, and organizational identification is a major contributors to the problem of turnover. We know that Leader-Member Exchange Theory indirectly related to turnover.