Power is frequently classified according to whether it stems from the organization or the individual. Three bases of power—legitimate power, reward power, and coercive power—stem from the person’s position in the organization. The lawful right to make a decision and expect compliance is called legitimate power. People at the highest levels in the organization have more power than do people below them. However, organizational culture helps establish the limits to anyone’s power.

Newly appointed executives, for example, are often frustrated with how long it takes to effect major change. At the top of the organization, a leader’s legitimate power is strengthened when he or she serves as CEO and chairman or chairwoman. Executives who occupy the dual role show a unity of command and strong leadership to stakeholders. The authority to give employees rewards for compliance is reward power.

If a vice president of operations can directly reward supervisors with cash bonuses for achieving productivity targets, this manager will exert considerable power. Almost any leader occupying a formal position has some reward power. Even the ability to give a subordinate a positive performance evaluation is a form of reward power.

Coercive power is the power to punish for noncompliance; it is based on fear. A common coercive tactic is for an executive to demote a subordinate manager who does not comply with the executive’s plans for change. Coercive power is limited, in that punishment and fear achieve mixed results as motivators. The leader who relies heavily on coercive power runs the constant threat of being ousted from power. Nevertheless, coercive power is widely practiced.