Leader's Role in Balancing Effort and Reward: The Connection between Leader-Member Exchange and Effort-Reward Imbalance

Abstract

The Leader-Member Exchange (LMX) theory is one of the most notable leadership theories in academic literature and the outcomes of LMX relationships have been under examination for decades. At the same time, the Effort-Reward Imbalance (ERI) model has been used to explain the health and well-being outcomes of work-life, but the antecedents of ERI have been widely neglected in the academic literature. This study aims to connect these two theories by examining the connection between the quality of LMX relationship and the components of the ERI model, i.e. effort, reward, effort-reward imbalance and overcommitment among employees.

The study was conducted with quantitative methods using the data collected from a Finnish insurance company in the LÄIKE research project by the University of Vaasa during 2011-2013. The results show that the quality of LMX relationship is negatively connected to effort-reward imbalance and positively connected to reward, but there are contradicting findings about the connection between the LMX quality and effort. The findings show that the quality of LMX can balance out ERI by increasing experienced rewards. In addition, it was found that an average quality of LMX is enough to reduce ERI. However, no connection was found between the quality of LMX and overcommitment.

This study contributes the existing literature by combining the theories of LMX and ERI and by providing insight about the neglected antecedents of ERI. The implication of this study is that it connects the research fields of leadership and work-related health and well-being. The study provides a promising ground for further research to examine the mediating role of ERI and its components in the research of LMX and health and well-being outcomes. As a being a master’s thesis, this study is limited to cross-sectional examination, when longitudinal research about the subject should be made to confirm the causality between LMX and ERI.