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Leader-Member Exchange (LMX): How Disengagement Hurts Diversity and the Bottom Line


In the ongoing search for the employee engagement silver bullet, I want to talk about a great predictor of employee success within an organization. It is called leader-member exchange (LMX) theory. LMX is a term that caught my attention the first time I came across research on the subject. Sure, it seems intuitive that maintaining good leader-member relationships would be beneficial to keeping employees engaged, but what exactly do we mean by good relationships? Do all leaders have the relational skills it takes to maintain meaningful relationships with all their direct reports? Are you feeling skeptical already? That's good. Let's talk LMX. Give it a shot, the results can be transformational.


LMX focuses on developing, maintaining and growing the leader-member relationships. As you may have guessed by now, I am heavily invested into the relational, human side of organizations. LMX is about the depth and quality of these relationships. This has some overlap with emotional intelligence research that has increased in popularity in the decades since Daniel Goleman's book on the subject hit the best seller lists in 1995. LMX combines communication training and emotional intelligence to get the most out of these leader-member relationships and ultimately the most efficiency out of organizations. And before I lose you in the woo-woo nature of building relationships, I’ll be discussing some quality data in relation to relationships! For example, recent data suggest that employees are 400% less likely to leave a job if they have a manager with high emotional intelligence [1]. That’s one point for increased retention right at the top.

...employees are 400% less likely to leave a job if they have a manager with high emotional intelligence...

Research into organizations with a focused LMX approach indicates increases in information exchange, communication, commitment, trust, job satisfaction, [2] occupational citizenship behaviors (OCB) [3], and a decrease in counterproductive work behavior (CWB) [4]. OCBs are linked to overall organizational effectiveness and are a fancy organizational psychologist’s way of categorizing the above-and-beyond behaviors of employees. OCBs are actions that affect an organization positively, but for which employees aren't directly compensated. CWBs are the opposite behaviors. CWBs are behaviors that damage an organization such as absenteeism, abuse and bullying, theft, turnover, tardiness and sabotage.


So far, so good, right?


With recent polls showing as little as 15% of the workforce actively engaged [5], creating processes to address relationships that drive engagement can give an organization an upper hand while providing increased job satisfaction for employees. LMX is a great starting point for any organization struggling with issues around disengagement and dissatisfaction.



According to LMX theory the leader-member relationship happens in 3 stages:


1. Role taking

This is the beginning of the relationship. Having taken a role that is overseen by the leader a relationship will naturally start to develop based on first impressions, interactions, tasks that are assigned and completed, etc.


2. Role making

Having been integrated into the group the leader can now start to see the strengths of each member and how they contribute to and interact with the team. An important point to understand in this stage is that this is the point where leaders often subconsciously divide the group into the "in-group" and the "out-group." While most people have a feeling for who is "in" and who is "out" it begins to solidify in the next stage.


3. Routinization

In this stage the team develops a routine. The in-group performs strongly to stay in the good graces of the leader and the out-group tends to perform more poorly. As a result, leaders perceive them as less trustworthy than the in-group and out-group members may be passed up for opportunities and resources.


Talented employees that fall into the out-group create a unique opportunity to impact the bottom-line with leader-member interaction. I'm not suggesting that organizations should always keep poorly performing employees, only that a focus on LMX can determine why they are in the out-group and if they can be utilized more effectively. It is at the very least an opportunity to determine if the employee can be reintegrated into the in-group before going down the path of replacing them via recruiting, hiring, and onboarding another employee. If in the end the problem is related to the leader-member relationship rather than the employee themselves, you run the risk that the replacement employee ends up in the same boat.


The S.S. Disengaged, currently and forever sailing nowhere.



Using LMX management techniques to move an employee across the line from disengaged to engaged on average creates a bottom-line impact of $13,000 per employee [6]. A recent study suggests that disengagement at work is costing US employers $400-500 billion annually [7]. There is a lasting and compounding effect on the workforce from the disengaged out-group that stifles everything from creativity and innovation to diversity, equity and inclusion.


Diversity is the hidden cost of the out-group that is likely not being considered as a direct byproduct of disengagement. This out-group relationship is a multifaceted one with dangerous consequences for all parties if left unaddressed. Poor relationships between leaders and members of an organization seem to deteriorate exponentially. As a leader becomes less engaged with certain employees those employees become less engaged with work and further avoid contact with the leader. The leader's opinion may be caused by decreased employee productivity because of disengagement or simply a lack of trust because the leader feels that the relationship is deteriorating.


It's a managerial chicken-and-egg scenario.


Did the employee become disengaged because of the deterioration of the managerial relationship or did the managerial relationship deteriorate because of employee disengagement?


Over time this pushes a workforce to become stagnant and homogenous. If leaders don't become mindful of the "in-group" and the "out-group" the people who are attracted to an organization and stay with an organization begin to become very similar. Often those who survive and thrive are those most like the leader. It is human nature to surround ourselves with people similar to us. It is comfortable. But innovation is rarely found in comfort or in homogenous ideas. This cycle that creates a like-minded in-group is the antithesis of innovative learning cultures and can limit an organization's ability to change with their external environment [8].

"innovation is rarely found in comfort or in homogenous ideas"

Leaders must make themselves available to members of the organization that are under their management. This can become complicated in remote or hybrid work environments but on the other hand, scheduling blocks of time to check in with teams or individuals and really listen to how they are doing and where they are struggling and succeeding goes a long way into employee buy-in and engagement. Rather than every exchange being an opportunity to give direction, allow for some exchanges to be more open, fluid and discussion based. Listening with empathy and with only the intention of listening is when trust is built. Leaders are more likely to get good information in these scenarios. I recently linked work by Dr. Mats Alvesson on "functional stupidity." Some of that work discusses the tendency of organizations to jump through hoops of disingenuous interaction to say we did "something." In this context of listening and getting good information, functional stupidity's most common form is the annual survey. Even if there is real intention to use the information to critique current practices in an organization the data collected in most internal surveys is highly skewed. Empathetic listening is another byproduct of emotional intelligence training. It's not always comfortable for leaders at first and it takes a significant investment of time, but that investment is returned in engagement and retention rates. An article in Forbes called empathy the solution to the multibillion-dollar engagement problem. In that article the author notes that 92 percent of employees say they would be more likely to stay with a company that empathized with their needs [9].


Is this kind of time investment possible in current organizational structures? As with all things, moderation is key.


Over the last several decades flattening organizational structures has become a highly praised practice. Removing bureaucracy can empower employees and by flattening at the top we assume that some decision making will be pushed downward. This serves not only to decentralize decision making, but also to speed up response time… or so we thought. Some research suggests that the executives left after a flattening process are simply stretched further and absorb more work and more direct reports. On average, CEOs since the late 80s have expanded the C-Suite positions by more than double [10]. Recent polls indicate that the sweet spot for direct reports is 7∓2. Meaning a manager can only sustainably maintain 7 direct reports on average. [11] The high end of the range went up to 12 direct reports, but every organization is different. Here is a quick and easy calculation on the costs associated with overstretched leadership: Multiply every direct report beyond 9 (7∓2 as a manageable number of reports on average) by the $13,000 figure mentioned previously. That total represents the potential costs of employee disengagement.


When it comes to LMX the trick is determining what amount of time is necessary with each report to maintain a real relationship that encourages engagement. One-on-one meetings are an invaluable tool for employee engagement and development. An overstretched manager will struggle to find time to meet with each of their direct reports in a meaningful way. At just 8 employees, spending 30 minutes a week with each employee is half a day of work. Some people might say 30 minutes a week is over doing it! However, that type of interaction maintains the relationship and the regularity cuts down on the anxiety employees carry around meetings with a manager. In reference to the quick math around disengagement, that 30 minutes a week represents a large dollar figure if it keeps that employee engaged.


Making quality time a priority is crucial to improved LMX. It is a good starting point to determine if your managerial structure is stretched too thin to create meaningful relationships. Again, all things in moderation. Rushing to add a layer of management isn't a panacea for employee engagement. In our experience there is a middle ground between using high-performing leaders as people managers and overburdening your organization with excessive management bureaucracy. Often adding just the necessary people-oriented managerial roles can benefit all layers of an organization. Anyone who has ever been managed by a highly successful person with low EQ knows the perils of overly flattened organizations. Designated people-managers make for happier employees and happier members of upper management. Employees get a higher quality relational experience with the organization and upper management has more time for external facing tasks that drive revenue.


The value of focusing on LMX is undeniable. For some organizations LMX could become a focus right away through creating new initiatives for leaders and new processes by which they communicate. In other organizations it may be necessary to make changes to the current structure to support LMX initiatives. In either case, to be successful takes an organization-wide dedication to the people of the organization. An organization must focus on training leaders to see the signs of disengagement and head them off at the pass. An annual survey is very rarely going to catch disengagement in its early stages. Knowing an employee will.


What you can do:

  1. Consider whether your organizational structure supports quality leader-member relationships.

  2. Schedule routine check-ins with employees.

  3. Train leaders to identify needs and how to ask questions.

  4. Identify out-groups and work to reintegrate those employees.

  5. Call Paramita for a culture assessment!



Additional Reading/Resources:

3 Hackett, R.D., Farh, J.-L., Song, L.J., & Lapierre, L.M. (2003). LMX and organizational citizenship behaviour: Examining the links within and across Western and Chinese Samples. In G.B. Graen (Ed.), Dealing with diversity: LMX Leadership-The Series (pp. 219-264). Greenwich, CT. Information Age Publishing.

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