Leader-member exchange (LMX) theory is based on social exchange relationships between leaders and their followers. LMX’s core contribution is its explicit emphasis on the unique dyadic relationships that develop between leaders and each of their subordinates rather than on the general effects of leader traits and behaviors. Effective leader-member exchange leaders create positive relationships with each individual.

The current focus on LMX is developing positive relationships. Past LMX research focused on in and out groups. Have you ever been in a group in which the leader liked you and you were a member of the in-group (favorites, cliques), or have you ever been in the out-group? Not surprisingly, the members of the in-group get better assignments, receive higher performance ratings, have greater job satisfaction, and often have higher-level performance.

LMX leaders sometimes end up with the two groups fighting for power and using unethical politics. So we need to be inclusive in developing positive relationships with everyone without creating any out-groups. When you get a job, often your manager will believe you should be with the in-group. If there is a clear in- and out-group, you should be able to recognize the members, as the out-group tends to try to recruit new members to their coalition. Belonging to the in-group has its career benefits.