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Factor Influencing Employee Performance: The Role of Leader-Member

Exchange and Job Satisfaction

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Factor Influencing Employee Performance: The Role of Leader-Member Exchange and Job Satisfaction. PJAE 18(2) 2021

Factor Influencing Employee Performance: The Role of Leader-Member

Exchange and Job Satisfaction

Achmad Sani Supriyanto*

[email protected]
Faculty of Economics, State Islamic University of Maulana Malik Ibrahim, Malang, Indonesia
Vivin Maharani Ekowati*
Faculty of Economics, State Islamic University of Maulana Malik Ibrahim, Malang, Indonesia
[email protected]
M. Faisal Reza
Faculty of Business Administration, Brawijaya University, Malang, Indonesia
Ratna Mitasari
Faculty of Economics, State Islamic University of Maulana Malik Ibrahim, Malang, Indonesia

ABSTRACT

The purpose of this paper is to examine the process through which leader-member
exchange (LMX) is related to followers’ job performance. Integrating the literature on LMX
theory and resource theories, the authors hypothesized that the positive relationship between
LMX and employee job performance is sequentially mediated by job satisfaction. In conducting
this research the data is collected by using questionnaires distributed to 108 employees of PT
BPR Malang, by using Path Analysis. The research result showed that leader-member exchange
has a direct effect on employee performance. Job satisfaction mediates the effect of LMX to
employee performance. Leader-member exchange can shape the subordinate mindset to be
always responsible for their work. It underlies the employee performance to commit to workload.
Keywords: Leader-Member Exchange; Employee Performance; Job Satisfaction

I. Introduction

Life satisfaction (LS) is generally defined as an individual cognitive evaluation of

satisfaction with his/her own life as a whole (Diener et al., 2003; Liao et al., 2017). Numerous
studies indicate that LS is a key indicator for quality of life. Moreover, it is found to be
correlated with a vast array of individual condition, such as: psychological, social, interpersonal,
and intrapersonal conditions (Clarke, 2015). For example, people with higher LS achieve better
life outcomes, academic achievement, emotional intelligence, and improved performance
(Koubova and Buchko, 2013; Liao et al., 2017). In contrast, people with lower LS have higher
levels of anxiety and depression. Therefore, LS is an important indicator of people’s

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Factor Influencing Employee Performance: The Role of Leader-Member Exchange and Job Satisfaction. PJAE 18(2) 2021

performance. Since the domain of LS is of immense importance for the quality of life of an
individual, the correlates and predictors of employee’s LS are critical research issues.
Interactions between work and individual life have been the subject of a broad literature
across the social science and organizational development. Extensive studies in the social sciences
and management have linked employees’ job satisfaction (JS) to observable workplace
behaviors, including absenteeism, organizational commitment, productivity, resignation,
employee careers, and organizational development (Norman et al., 2015). It is thus not surprising
that numerous studies emphasize the importance of identifying job satisfaction, exploring both
work and non-works related factors, such as leadership, knowledge sharing, trust, commitment,
emotional intelligence, and team performance (Liao et al., 2017). This condition would imply
that employer or manager should pay more attention to building a leadership atmosphere of
satisfaction, both within organization and among organizational members (Kovoor-Misra and
Olk, 2015).
A number of studies have pointed out that leadership behavior is a critical factor closely
related to employee satisfaction and reactions in organizations (Walumbwa et al., 2010; Katou,
2015). The confidant relationship has been discussed in the leadership theory as a leader-member
exchange model (LMX) (Graen, 2004). Robbins & Judge (2011) state that the Leader Member
Exchange (LMX) is a concept on the relationship between leaders and members divided into in-
group and out-group member. In-group member status will have higher performance ratings,
lower turnover rates, and higher job satisfaction. Liao et al. (2017) found that team members in
an organization who become parts of the in-group members (i.e. those with high-quality LMX
relationships) receive more information from their head than those with low-quality LMX
relationships (i.e. the leader’s out-group members). Thus, leadership style can positively
influence organizational behavior, job satisfaction and performance (Zhao, 2015; Supriyanto and
Ekowati, 2019; Supriyanto et al., 2020).
Job satisfaction is a positive level of pleasure or attitude and emotional response as a result
of the workers’ assessment (Fattah, 2017). Handoko (2016) that job satisfaction reflects
someone’s feelings about his work. This appears to be in the positive attitude of employees and
everything that is faced in their work environment. Supriyanto and Maharani (2013) suggest that
performance is the result of a person's efforts that he has achieved with the abilities he has under
certain conditions. Thus, performance is the result of the relationship between effort, ability, and
the perception towards the task that has been assigned (Timpe, 1999; Pawirosumarto, et al.,
2017).
Research on LMX on performance was conducted by numerous researchers, including
Charasia and Shukla (2015), Anand et al. (2018), Breevart (2015) concluding that there is a
significant influence between LMX and performance due to a good relationship between
employer and employees. Whereas, a research from Kartika and Suhrnomo (2016), Anshari, et al
(2018) suggest that LMX has an insignificant effect on employee performance.
Another research on the relationship between LMX and job satisfaction has been
conducted by Ikbar (2015), Mirna et al. (2017). The result shows that LMX has a positive effect
on job satisfaction. The previous studies conclude that the leadership style of leader-member
exchange (LMX) which is effective in managing human resources at work will affect work
behavior by increasing individual job satisfaction and the performance of the unit. Under these
developments in the empirical literature on testing leadership, job satisfaction and performance,
this study aims to investigate how leadership styles, such as LMX, affect employee performance

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Factor Influencing Employee Performance: The Role of Leader-Member Exchange and Job Satisfaction. PJAE 18(2) 2021

and job satisfaction. Job satisfaction mediates the relationship between LMX and employee
performance.

II. Literature Review

LMX and Employee performance

A leader plays a very crucial role in a company or organization because he/she has a
strategic role in achieving the organizational goals (Robbins & Judge, 2011). The right
leadership can increase employees’ motivation to provide good performance results, because the
influence on superior leadership can determine the success or failure of employees’ performance.
If the relationship between employees and leaders is good, employees tend to be willing to work
more optimally (Chaurasia & Shukla, 2015).
Bhal et al. (2009) explains that leader-member exchange as an employee behavior towards
the company has an important role in the success of an organization. A good treatment towards
employees can create a feeling of willingness to genuinely serve for the company. In addition,
positive special treatment will increase employee contributions to the company. Morrow (2005)
states that Leader-Member Exchange (LMX) is an improvement in the quality of the relationship
between employer and employees which can enhance the work of both. In fact, the relationship
between employees and employers can be grouped into two: good and bad relationships. A good
relationship will create employees’ trust, positive attitude, and loyalty, but a bad relationship has
the opposite effect. LMX dimensions, according to Liden and Maslyn (1998), cover affection,
contribution, loyalty, and professional respect. Audenaert (2016) revealed that when employees
perceive a high-quality LMX leadership style, they tend to behave positively by showing better
performance. Likewise, the research from Kim & Woo (2017) shows the LMX theory based on
the high-quality relationships between employees and employers can strengthen their
performance.

H1: The better leader-member exchange (LMX), the better employee's performance

Chaurasia & Shukla (2015) says that the relationship and interaction between leaders and
employees in an organization can be grouped into two: in-group and out-group. In-group means
employees and leaders have a good relationship. The relationship between the two is based on
the feelings of the same fate, trust, and affection for one another; while out-group means that the
leader is more professional. This is due to the lack of time to get closer to each other, so that
employees have less time for the leader, and the relationship between the two is only in the
corridor of normal authority interactions.
Effective human resource management is the key to improve working performance. Sani
& Ekowati, 2019) stated that some factors affecting working performance are job satisfaction
and leadership/supervision. Handoko (2016) states that job satisfaction reflects individual
feelings about his/her job. It appears to be in the positive attitude of employees and everything
they find in their work environment. Job Satisfaction Indicators according to Supriyanto and
Maharani (2013) is work environment, Promotion, and recognition of achievement.
According to Bhal, Gulati, & Ansari (2009), Ariani (2012), Liang, et al. (2018), LMX has
a tremendous impact on employees, such as job satisfaction, commitment, role performance, and
OCB. Employees will make a good relationship with their leader if they are satisfied. Likewise, a

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Factor Influencing Employee Performance: The Role of Leader-Member Exchange and Job Satisfaction. PJAE 18(2) 2021

research by Flickinger, et al. (2016) shows that leader-member relationships affect job
satisfaction and performance.
Performance is the work result in quality and quantity achieved by an employee upon
performing his duties in accordance with the responsibilities assigned (Mangkunegara, 2009).
Mathis and Jackson (2009) report that performance is what employees do or don't do.
Employees’ performance in general includes the following elements: (a) quantity of results, (b)
quality of results, (c) timeliness and results, (d) attendance and (e) ability to work together.
Ikhbar (2015) suggests that performance is the result of work achieved by a person or group of
people in carrying out the task given along with the specified criteria.
Wijanto & Sutanto (2013) show that the quality of the relationship between leaders and
employees or LMX will increase employees’ job satisfaction. If employees have a good
relationship with the employer, they tend to enjoy several privileges such as trust, support,
attention, respect and self-recognition. Besides getting job satisfaction, they have more
opportunities to help the development of the organization. Similarly, Siddique (2020) considers
LMX can improve job satisfaction and performance results (Henson & Terry, 2017); Lo et at.
(2015). Therefore, LMX can improve employees’ job satisfaction and encourage them to achieve
superior performance results (Hooi, 2016); Lee & Yeon (2017).

H2: Job Satisfaction mediates the relationship between leader-member exchange (LMX)
and performance

H1

Leader Member Employee

Exchange (X) Performance (Y)

H2 Job Satisfaction
H2 0,333 H2
(Z)

Figure 1. Hypothesis Model

III. Methodology
This research is categorized as an explanatory research to examine the hypotheses between
the hypothesized variables. In this study, there is a hypothesis to test for truth. The hypothesis
describes the relationship between two variables and find out whether a variable is associated or
not with other variables, or whether the variable is imposed or not by other variables (Supriyanto
and Maharani, 2013). The data collection technique used was questionnaire, provided to all
employees of PT BPR Malang in East Java. In addition, the study population includes all
employees, with a total of 108. Data collection involved the distribution of questionnaire to all
respondents. LMX refers to Liden & Maslyn (1998), measurement of job satisfaction variables

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refers to Supriyanto & Maharani (2013), Performance refers to Supriyanto & Maharani (2013).
The measure used to evaluate the variables was the Likert scale, weighed according to the items,
with a range of 1 to 5 (Sekaran, 2003). To analyze the data, it employs path analysis. Path
analysis is used to analyze the relationship between variables. This model aims at determining
the direct and indirect effect of a set of independent (exogenous) variables on the dependent
variable (endogenous) (Riduwan and Kuncoro, 2008).

IV. Result and Discussion

Analysis in relation to the characteristic of information was conducted, with 49 percent are
male and 51 percent female respondents. In accordance with the unit, 11 and 26 percent are front
and back officers, while 63 percent are marketers. Regarding experience, 39 percent have less
than 5 years, 54 percent have 5-10-years, while 7 percent have been working for more than 10
years.The characteristic of the respondent analysis is shown in Table 1.

Table 1: Respondents Characteristic

Demographic Variable N Percentage
Gender
Male 53 49.0
Female 55 51.0
Unit
Front Office 12 11.0
Back Office 28 26.0
Marketing 68 63.0
Experience (in years)
<05 42 39.0
05<10 58 54.0
10 and above 8 7.0

The results of the instrument validity examination show that the items statement of LMX,
job satisfaction, and employee performance variables are obtained by the correlation coefficient
greater than 0.33. Obtaining number statement items greater than 0.33 indicates that statement
items are valid. Validity testing is presented in Table 2.

Table 3: Results of the reliability

Variable Cronbach’s α Conclusion
LMX 0,772 Reliable
Job Satisfaction 0.638 Reliable
Employee Performance 0,612 Reliable

Table 3, shows that the reliability examination and α coefficient is obtained for LMX, job
satisfaction, and Employee Performance variables above 0.6. This value shows that the research
instrument is reliable. Path analysis describes the relationship among LMX, job satisfaction,
and performance which is depicted in Figure 2.

H1 0,324 (0.001)

Employee 219
Performance (Y)
Factor Influencing Employee Performance: The Role of Leader-Member Exchange and Job Satisfaction. PJAE 18(2) 2021

Leader Member
Exchange (X)

H2 0,443 (0.000) Job Satisfaction

H2 0,333 H2 0,333(0.005)
(Z)

Figure 2. Indirect Path Analysis Model

Tabel 2: Result of the validity examination

Variable Item Corrected item- Conclusion
total correlation
LMX X1.1 0,550 Valid
X1.2 0,654 Valid
X1.3 0,546 Valid
X1.4 0,587 Valid
X1.5 0,589 Valid
X1.6 0,546 Valid
X1.7 0,462 Valid
X1.8 0,623 Valid
X1.9 0,705 Valid
X1.10 0,609 Valid
Job satisfaction Z.1.1 0,384 Valid
Z1.2 0,549 Valid
Z1.3 0,549 Valid
Z1.4 0,471 Valid
Z1.5 0,431 Valid
Z1.6 0,407 Valid
Z1.7 0,557 Valid
Z1.8 0,503 Valid
Z1.9 0,464 Valid
Z1.10 0,438 Valid
Employee Y1.1 0,489 Valid
performance Y1.2 0,498 Valid
Y1.3 0,458 Valid
Y1.4 0,429 Valid
Y1.5 0,454 Valid
Y1.6 0,490 Valid
Y1.7 0,390 Valid
Y1.8 0,399 Valid
Y1.9 0,406 Valid
Y1.10 0,460 Valid

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Factor Influencing Employee Performance: The Role of Leader-Member Exchange and Job Satisfaction. PJAE 18(2) 2021

Hypothesis Test
The basic assumption of decision making for hypothesis testing is by using the T-statistics,
whose value is greater than the value of t table, 1.960 showing a significant effect. The
hypothesis test result is as follow.

Table 4: The Effects of Research Variables

Relationship Path T value P Value Result
Coefficients
Leader Member Employee 0,324 3,531 0,001 significant
Exchange Performance
Leader Member Job Satisfaction 0,443 5,093 0,000 significant
Exchange
Job Satisfaction Employee 0,333 3,635 0,005 significant
Performance

Direct Effect

The effect of LMX on employee performance obtained the t value of 3,531 with a
significance of 0.001. Thus, LMX has a positive and significant effect on employee performance.
Furthermore, it concluded that the higher the LMX level, the higher the employee's performance.
If LMX is applied well, employee performance also improves. It supports the opinion of Liden
and Maslyn (1998) that one of the applications of LMX is leadership loyalty. It is necessary to
maintain the leadership process that employees’ performance could improve. Similarly, Liao et
al. (2017) state that loyalty has a positive effect on organizational performance. Organizational
performance is an accumulation of employee performance.
Audenaert (2016) states that the implementation of a good LMX will stimulate employees
to perform better. Likewise, Kim & Woo (2017) views that LMX theory is based on the idea that
high-quality relationships between employees and employer can strengthen performance. The
perception of employees within the organization differs in terms of the extent to which they
perceive the quality of their relationship with the employer. A better quality of the relationship
between employer and employee will result in reciprocal contributions through loyalty (Graen,
2004); commitment, and organizational performance (Liden & Maslyn, 1998).

Indirect Effect
The research on effect of LMX (X) on employee performance (Y) through job satisfaction
(Z) concludes that LMX variable on job satisfaction are 5.093 > 1.96 of a t values and 0.000 <
0.05 of significance values. Therefore, it concludes that LMX effects on satisfaction. Likewise,
the effect of satisfaction on employee performance is a t value of 3.635 > 1.96 and a significance
value of 0.005 < 0.05, which implies that satisfaction has an effect on employee performance.

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Factor Influencing Employee Performance: The Role of Leader-Member Exchange and Job Satisfaction. PJAE 18(2) 2021

The fact that both are significant means that satisfaction mediates the effect of LMX on
employee performance.
The research results show a positive and significant effect between LMX on job
satisfaction at PT BPR Malang. If LMX is implemented properly, job satisfaction will increase
employee performance. The results are in line with Bhal, Gulati, & Ansari (2009), Ariani
(2012), that LMX has an extraordinary impact on employees, such as job satisfaction,
commitment, role performance, and OCB. According to Ariani (2012), employees will make
good relationships with their employers when they have satisfaction among them.
In addition, Liang et al. (2018) show that employees who are in-group members show
higher job satisfaction and organizational commitment. When employees are willing to perform
specific tasks and serve others, they are effectively engaged in mutual exchange behavior, which
increases their role in the organization (Bolino, 1999). Some previous studies noted that the
relationship between in-group members and the employer provide more benefits, promotion
opportunities, and higher satisfaction and performance compared to other employees (out-group
members) (Liang et al., 2018). The results are in line with several previous researchers that LMX
can increase job satisfaction and performance results (Siddique et al., 2020). Thus, LMX can
help increase employees’ job satisfaction and encourage them to achieve strong performance
results (Hooi, 2016; Lee & Yeon, 2017).
The results are the same with the opinion of Wijanto & Sutanto (2013) which shows that a
good quality relationship between employer and employees or leader-member exchange (LMX)
will increase employees’ job satisfaction. The results are based on the quality of communication
built between employers and employees. If employees have a good relationship with their
employers, they tend to enjoy several privileges such as trust, support and protection, attention,
respect, and self-recognition so that in addition to getting job satisfaction, they have more
opportunities to run the business and help in the organizational development (Siddique et al.,
2020; Srivastava & Dhar, 2016).

Conclusion
LMX has a positive and significant effect on employee performance. The better the LMX
is applied by the employer in their work, the better performance of the employees. LMX also has
a positive and significant effect on job satisfaction. Job satisfaction has a positive and significant
effect on employee performance. Therefore, job satisfaction mediates the influence of LMX on
employee performance. The better the LMX is implemented, the more job satisfaction and the
better performance are found. The limitations of this study could not completely eliminate the
possibility of common method bias because all the data used were obtained from self-reports for
both the independent and dependent variables and the variables are limited only from the
suggestions of the previous research. Further researches might develop a research model by
adding a variable of trust as a moderating variable, so the research scope is wider and broader.

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