Effect of Leader–Member Exchange on Proactive Employee Behavior and Employee Performance: The Moderating Role of Innovative Climate

Abstract

This study aims to investigate the mechanisms and regulatory processes underlying the relationship between leader–member exchange and employee performance. Social exchange theory and self-determination theory argue that proactive employee behavior has an intermediary effect on the relationship between leader–member exchange and employee performance. In addition, it is predicted that the innovative climate will regulate this indirect effect. Data were collected via questionnaire from 266 people working in organizations operating in various sectors located in Gebze and Istanbul using a survey method. Data analysis was conducted using structural equation modeling (SEM) and PROCESS macro. According to the findings, the hypothesis that leader–member exchange is positively related to employee performance and that proactive employee behavior mediates this relationship is supported. In addition, an innovative climate regulates the positive relationship between leader–member exchange and proactive employee behavior, deepening the theoretical understanding of the consequences of this interaction.

1. Introduction

It is accepted within both business and academic environments that employee performance has a significant role in organizations’ ability to influence the industry [1,2]. It has become one of the main goals of organizational researchers to determine what triggers employee attitudes and behaviors so managers can obtain maximum efficiency from employees [3]. Leader–member exchange (LMX) takes the lead among the variables affecting employee performance in studies conducted by several researchers [4,5,6,7,8].

In the organizational environment, both leaders and employees have expectations of each other, and the level at which these exceptions are met shapes the interaction. The employee’s response to these expectations is explained by the social exchange theory (SET). Many studies have found that this social exchange in the context of LMX results in performance [8,9]. Furthermore, the self-determination theory asserts that there are three psychological needs—autonomy, competence, and relationship—based on human behavior. According to this theory, as external factors may satisfy individual needs, they also affect individual behavior. Thus, employees behave towards achieving goals that can satisfy their needs [10]. In other words, external factors such as LMX affect employee behavior [11]. Furthermore, employees who meet the need for relationship and autonomy with high-quality LMX are expected to perform for the benefit of the organization by meeting the need for competence with proactive working behavior. Proactive employees exchange more information with their managers and colleagues, increasing their confidence and creativity [12]. To the best of the authors’ knowledge, there is no study in this context in the literature. In this respect, examining the role of proactive employee behavior to explain the mechanisms by which LMX strengthens employee performance will contribute to the literature by filling this gap.

In order to achieve the targeted vision, there must also be an atmosphere that supports their ideas. In an environment where innovation is supported, employees with high interaction with the leader will result in proactive working behavior and taking the most appropriate action for the job according to the current conditions [13]. However, it is unclear how the innovative climate influences the impact of LMX on employee proactive behavior, as well as the effect of employee proactive behavior on employee performance. Therefore, the strengthening effect of the innovative climate on these relationships is an issue that needs to be revealed through empirical evidence.

The contribution of this study is threefold. First, this research investigates the effect of LMX on employee performance based on the social exchange theory and self-determination theory. This study aims to test the direct relationship of LMX with proactive employee behavior and employee performance. Second, it examines the mediating role of proactive employee behavior in the relationship between LMX and employee performance. Examining the role of proactive employee behavior to explain the mechanisms by which LMX strengthens employee performance will contribute to the literature. Finally, it aims to examine the moderating role of an innovative climate on the relationship between LMX and employee proactive behavior, as well as employee proactive behavior and employee performance.

2. Theoretical Background and Hypothesis Development

SET provides a basis for understanding the interaction between the leader and the employee. This theory states that parties exchange with each other with the thought that they will benefit in the future. In order to ensure employee performance, mutual trust must be established between the manager and the employee [14]. According to SET, employees feel obliged to reciprocate the resources their organizations provide them. In other words, the more resources employees receive from their organizations, the more motivated they are to work for the organization [15]. These resources may be financial, but they may also be in the form of organizational support, quality relationships, recognition, and development opportunities [16].

The theory of self-determination also provides a theoretical framework for explaining the behavior of employees [17]. People are motivated by the satisfaction of needs like innate autonomy, competence, and relationships [10]. Employees who enjoy their work are focused on the process and are better motivated by the factors of autonomy, competence, and relationships in the work. In this way, their performance and well-being levels also increase [18]. Leaders interacting with employees at a high level are supportive, empowering employees to make decisions about their work and sharing extra resources with them, leading employees to put in extra effort by exhibiting proactive behavior and enabling them to engage in activities that contribute to the organization [10]. The proposed research model is given in Figure 1.

2.1. LMX and Employee Performance

LMX theory was first introduced as vertical dyadic linkage by Dansereau et al. (1975) and draws attention to the different levels of relationships between leaders and employees [6,19]. LMX focuses on the relationship between a leader and follower based on respect, trust, and mutual responsibility.

When there is a high level of LMX, the leader adopts the employees and provides them with the necessary support, resources, and rewards when appropriate. A high level of LMX affects employee satisfaction, loyalty, and individual performance. With a low level of interaction, the leader and employee interactions continue within the scope of the employment contract [20]. In addition, in the case of high-level LMX, leaders will be able to get to know employees better and motivate them to perform better by realizing their potential [21]. According to the reciprocity element of the SET [22], the level of investment the leader offers the employee directly correlates to the output of the work produced. Namely, high LMX relations lead to employees’ need to reciprocate, which results in high performance [23]. Therefore:

H1. 

LMX is positively related to employee performance.

2.2. LMX and Employee Proactive Behavior

Employee proactive behavior expresses the fact that a person attempts to change both himself and his environment for the future and makes efforts in this direction, rather than obeying the environment he is in and maintaining the status quo [24]. Employees who take initiative to improve conditions and strive to create new conditions can contribute to the development of their work by demonstrating proactive behavior [25]. Behaviors such as taking responsibility, utilizing their voice, individual innovation, and problem prevention are proactive behaviors aimed at improving one’s control and making changes in the organizational environment [24]. Employees can demonstrate creative behaviors by developing new ideas in the presence of leaders with a high level of interaction, which makes them feel good and gives them confidence [26]. Therefore, expanding the perspective of employees, supporting them to intervene in problems on the spot and developing new ideas are initiatives that leaders with a high level of interaction can achieve.

Leaders establish more effective relationships with employees that they believe will make a significant contribution to the organization and provide them with a variety of resources and support [27]. When employees who value their work feel independent and receive the necessary support and feedback from their managers, they are autonomously motivated, look for solutions to problems, and perform better [18]. As a result, employees with high LMX leave the employment contract due to their increased responsibilities towards the organization and make extra efforts and exhibit behaviors that eventually increase the development of both the work and the organization because they tend to repay the support of leaders by working proactively [28]. Thus:

H2. 

LMX is positively associated with proactive employee behavior.

2.3. Employee Proactive Behavior and Employee Performance

The proactive behavior of employees who take initiative to improve the organizational environment and develop new practices increases their performance levels [29]. Indeed, proactive behavior means that employees dominate their work, take control, and change both themselves and their environment [30].

Employees are considered to be the main source of organizational performance as they make extra efforts to increase organizational efficiency by going beyond the employment contract. In this regard, proactive behavior can improve the performance as it includes many useful actions, such as leading to the assertion of different ideas in the organization, replacing useless applications with new ones, and preventing and solving problems. When employees find an environment that qualifies proactive behavior as an organizational norm, they are motivated to act proactively and will focus more on their work and be more productive [24]. On the other hand, proactive employees are good at searching for information, developing skills, and solving problems [31]. This enables them to take responsibility when necessary and implement successful initiatives beyond their duties. Moreover, they do not hesitate to take initiative and constantly improve their methods of doing business [32]. Therefore:

H3. 

Employee proactive behavior is positively associated with employee performance.

2.4. The Mediating Effect of Proactive Employee Behavior

LMX [33], a relationship-based approach, has been explored for many years to explain the different relationships between leader and employee development. When the leader establishes a relationship based on mutual trust with the employees and values their opinions, employees show their responsibility to contributing to change and transformation by being motivated to increase their performance in the organizational environment [34]. In other words, relationships with the leader affect employee behaviors and, in turn, affect employees’ performance results.

At high level LMX, leaders provide incentive resources such as training, promotion, authorization, and support and make employees feel like they belong to the organization [9]. On the contrary, low LMX leaders are limited by the employment contract and are less supportive, which can weaken their proactive behavior by causing employees to feel alienated [35]. As is the basis of LMX, leaders invest more in employees whom they think will be productive for the organization in accordance with their expectations and offer all kinds of support and resources to their service. Employees who do not meet these expectations cannot benefit from supplements other than the employment contract. For this reason, low leader–member interaction leaders weaken the ability of employees to act flexibly and negatively affect their proactive behavior, which can reduce employee performance [29].

Employees in this intermediary mechanism evaluate the level of interaction between them and their leaders and position themselves according to the reaction they receive from those leaders. Then, based on their relationship with the leader, employees decide whether to act proactively to contribute to the organization. As mentioned earlier, this results in employees responding by performing at a certain level. Therefore:

H4. 

Employee proactive behavior mediates the relationship between LMX and employee performance.

2.5. The Moderating Effect of the Innovative Climate

The innovative climate is based on the perception of whether the organization helps employees to demonstrate innovative behavior [36]. When employees perceive an environment that takes their thoughts into account, encourages them to develop and implement new ideas, and attaches importance to individual creativity, they are enabled to act more innovatively and challenge traditional functioning [13].

Employees also cooperate by showing their commitment to their leaders and respond by contributing to the organization [37]. In this sense, LMX will be more productive in an innovative climate environment, and when employees have high interaction with their leaders and feel good in the organization, they will act more proactively towards improving their work by making more effort than their responsibilities as detailed in the employment contract.

The proactive behavior of employees is related to the support of innovation in the organizational environment [38]. Offering flexible working conditions to employees and ensuring their participation in decisions can make it easier for them to develop new ideas and take responsibility [39]. When proactive employee behavior is high, employees make more creative and solution-oriented initiatives, demand feedback, take responsibility for achieving goals, and express problems when necessary [24]. Therefore, this situation is positively reflected in the performance of employees [40]. In this respect, it is thought that it will be easier for employees to exhibit proactive behavior in an innovative climate environment and increase their performance. In this sense, the following hypotheses are developed:

H5. 

An innovative climate moderates the relationship between LMX and employee proactive behavior.

H6. 

An innovative climate moderates the relationship between proactive employee behavior and employee performance.

3. Research Design

3.1. Measures

All variables were measured using a 5-point Likert scale, ranging from strongly disagree (1) strongly agree (5). We measured the LMX with the 7-item scale developed by Graen and Uhl-Bien (1995) [33]. Respondents evaluated the quality of their relationship with their managers. Employee ratings of LMX were used because our study focuses on employees’ perceptions of the quality of the LMX relationship with their supervisor. We used the 13-item scale developed by Parker and Collins (2010) [24] to measure the proactive working behavior. In order to measure the employee performance, we used the 5-item scale developed by Williams and Anderson (1991) [41]. The scale developed by Malik and Wilson (1995) was used to measure the innovative climate [42]. Questionnaire items are given in Appendix A.

3.2. Sampling and Data Collection

The data were collected using a face-to-face survey method from individuals working in different companies located in Gebze and Istanbul due to accessibility. The convenience sampling method was used to collect the data. The responses were obtained from employees in companies operating in various sectors, such as IT, finance/banking, machinery, construction, automotive, health, chemistry, services, and education. It has been noted that these organizations are similar in terms of ownership (private) and working conditions (regular).

First, 400 employees were chosen as the target sample based on their accessibility. Therefore, a total of 400 questionnaires were distributed and 280 participants responded (response rate 70%). However, only 266 data were used after removing the incomplete cases. In the final dataset, 66% of the employees are male. Overall, 59% have a bachelor’s degree, while 22% have a MA/MBA/PhD degree. In addition, 21% of them work in finance/banking, 16% in informatics, 15% in construction, 11% in services, 11% in chemistry, 10% in health, 9% of them serve in the automotive sector, and 7% in the education sector.

3.3. Common Method Bias

As the data were collected cross-sectionally, there may be prone to common method bias. In order to reduce this, the participants were assured about the confidentiality of the study. In addition, Harman’s single-factor test was used to determine whether such a problem occurred [43]. The results show that the common variance value is 35.20%; this result is below the threshold value (50%) stated in Podsakoff et al.’s (2003) study [43]. Therefore, we concluded that common method bias is not a problem in this study.

4. Analysis and Results

Within the scope of the study, analyses were carried out using descriptive statistics, Confirmatory Factor Analysis (CFA), regression analysis, and SEM. Subsequently, the mediating and moderating analyses were conducted by using the PROCESS macro [44].

4.1. Measure Validity and Reliability

In order to assess the validity and reliability of the measurement scales, we investigated whether the measurement scales exhibited content, discriminant, and convergent validity, unidimensionality, and reliability.

CFA was used to analyze the convergent and discriminant validity. As shown in

Table 1. Factor loadings, composite reliability, and average variance extracted of the latent variables, comparison of measurement model.

	Items	Loadings	t-Value	Cronbach Alpha	AVE	CR
LMX	LMX1	0.56	-	0.90	0.57	0.90
	LMX2	0.85	9.807 **
	LMX3	0.81	9.516 **
	LMX4	0.80	9.465 **
	LMX5	0.74	9.033 **
	LMX6	0.62	8.080 **
	LMX7	0.84	9.724 **
Employee Proactive Behavior	EPB 1	0.55	-	0.91	0.51	0.92
	EPB 3	0.68	8.432 **
	EPB 4	0.75	8.941 **
	EPB 5	0.76	8.982 **
	EPB 6	0.77	9.054 **
	EPB 7	0.73	8.837 **
	EPB 8	0.76	8.989 **
	EPB 9	0.70	8.633 **
	EPB 10	0.77	9.095 **
	EPB 11	0.69	8.527 **
	EPB 12	0.59	7.675 **
Employee Performance	EP1	0.75	-	0.84	0.57	0.87
	EP2	0.70	16.371 **
	EP3	0.77	12.092 **
	EP4	0.82	12.758 **
	EP5	0.71	11.177 **
Innovative Climate	IC1	0.72	-	0.88	0.60	0.88
	IC2	0.74	14.767 **
	IC3	0.85	13.136 **
	IC4	0.86	13.345 **
	IC5	0.70	10.860 **

** p < 0.01.

, the supporting results were reached with a sufficient model fit, in which each element was significantly loaded by its own factor (χ²(340) = 571.804, χ²/df = 1.682, RMSEA = 0.05, IFI = 0.95, CFI = 0.95, TLI = 0.94).

The Composite Reliability (CR) and Average Variance Extracted (AVE) values were used to assess the convergent and discriminant validity. The CR and AVE values for all of the variables are greater than the threshold levels of 0.70 and 0.50, respectively [45]. Furthermore, the square roots of AVE are larger than any inter-variable correlations [45], as shown in

Table 2. Correlation coefficients and descriptive statistics.

Variables	Mean	Std. Dev.	1	2	3	4
1. LMX	4.02	0.79	(0.75)
2. Proactive Behavior	4.26	0.55	0.46 **	(0.71)
3. Employee Performance	4.74	0.38	0.31 **	0.38 **	(0.75)
4. Innovative Climate	3.80	0.85	0.53 **	0.47 **	0.17 *	(0.77)

* p < 0.05; ** p < 0.01; Diagonals show the square roof of AVEs.

. These results show that the scales provide reliability and validity.

4.2. Hypothesis Testing

We applied SEM to test H1, H2, and H3. During the SEM analysis, LMX, employee proactive behavior, and employee performance were assessed as first-order constructs.

Table 3. Results of Hypotheses.

Hypothesis	Structural Path	Unstandardized Estimate	Standard Error	Standardized Estimate (β)	t-Value	p-Value
H1	LMX→EP	0.16	0.075	0.164 *	2.143	0.032
H2	LMX→EPB	0.427	0.079	0.467 **	5.441	0.000
H3	EPB→EP	0.313	0.085	0.295 **	3.677	0.000
Control Variables	Age→EP	0.041	0.027	0.093	1.496	0.135
	Sex→EP	0.003	0.05	0.004	0.066	0.947

Fit indices χ²(266) = 417.201, χ²/df = 1.568, RMSEA = 0.046, IFI = 0.96, CFI = 0.96, TLI = 0.95. * p < 0.05, ** p < 0.01; LMX = Leader Member Exchange, EPB = Employee Proactive Behavior, EP = Employee Performance.

shows that LMX positively relates to employee performance (β  =  0.16, p < 0.05) and employee proactive behavior (β  =  0.46, p < 0.01), thereby supporting H1 and H2. Furthermore, we found that employee proactive behavior was positively and significantly associated with employee performance (β = 0.29, p < 0.01), thus supporting H3.

The proposed moderated mediation model was analyzed using PROCESS macro [44]. Model 58 of PROCESS macro was used for the model where innovative climate is given to moderate the relationship between LMX and employee proactive behavior, and the relationship between employee proactive behavior and employee performance.

As shown in

Table 4. Results of Moderation and Moderated Mediation Effect Analysis.

Predictor	EPB			EP
	Model 1			Model 2
	β	SE	p-Value	β	SE	p-Value
Age	0.059	0.04	0.088	0.038	0.031	0.222
Sex	−0.002	0.06	0.979	0.021	0.056	0.714
LMX	0.206 **	0.04	0.000	0.096 *	0.039	0.015
IC	0.218 **	0.04	0.000	−0.024	0.036	0.512
LMX × IC	0.099 *	0.04	0.016
EPB				0.242 **	0.056	0.000
EPB × IC				−0.049	0.052	0.348
	R2 = 0.29			R2 = 0.167
Conditional indirect effect			Moderator	Estimate	SE	95% CI
LMX→EPB→EP			Low IC	0.034	0.016	0.002–0.065
			Average IC	0.05	0.019	0.017–0.091
			High IC	0.058	0.023	0.012–0.103

* p < 0.05, ** p < 0.01; IC = Innovative Climate.

, the conditional indirect effect of LMX on employee performance is significant at low, average, and high IC levels. Therefore, H4 is supported. H5 states that the innovative climate moderates the effect of LMX on employee-proactive behavior. As depicted in Table 4 (Model 1), the interaction term of LMX and innovative-climate is significant (β = 0.099, p < 0.05). According to the slope test results given in

Table 5. Innovative climate as a moderator between LMX and employee proactive behavior.

Innovative Climate	Effect	SE	t-Value	p-Value	LLCI	ULCI
Low IC	0.127	0.050	2.548	0.011	0.029	0.226
Avg IC	0.206	0.042	4.890	0.000	0.123	0.289
High IC	0.305	0.062	4.915	0.000	0.183	0.427

and the interaction plot given in Figure 2, the interaction effect is stronger in the case of a high level of innovative climate (Effect = 0.305; SE = 0.062; p < 0.01) than in the case of a low level (Effect = 0.127; SE = 0.05; p < 0.05). Therefore, we concluded that H5 is supported.

However, there was no support for the moderator effect of innovative climate on the relationship between employee-proactive behavior and employee performance, as seen under Model 2 in Table 4 (β = −0.049; p > 0.05). In other words, the positive relationship between employee-proactive behavior and employee performance does not differ in the case of a low, medium, or high innovative climate. Therefore, H6 is not supported. Figure 3 summarizes the results of the moderated-mediation model.

5. Discussion

5.1. Theoretical Implications

Within the scope of the study, the moderated mediation model, which explains how and when LMX affects employee performance based on social exchange theory and SET [10], was developed and tested. A positive theoretical link has been identified, strengthening the understanding of the consequences of the interaction between LMX and employee performance. The empirical results support the hypothesis that LMX is positively associated with proactive employee behavior. In addition, it has been determined that proactive employee behavior has a mediating effect on the relationship between LMX and employee performance, and an innovative climate can increase the positive relationship between LMX and proactive employee behavior. Moreover, the innovative climate strengthens the indirect effect of LMX on employee performance. These findings contribute to the literature on interaction and employee performance in two ways.

First, research shows that LMX is positively associated with employee performance. Although similar results have been obtained in previous studies [23,46], the mechanisms underlying this relationship have been neglected. The mediating effect of proactive employee behavior on the relationship between LMX and employee performance has not been researched before. By examining the mediating effect of proactive employee behavior, empirical support is provided for the idea that LMX encourages proactive behavior, which, in turn, leads to improved employee performance. Thus, employees who have the chance to receive support, resources, and opportunities that can increase their proactive behavior by interacting with the leader, and this employee is highly likely to offer a superior performance by going beyond the employment contract. Our results further expand on the findings of Mostafa and El-Motalib (2019) and Cerit (2017) that increased LMX induces proactive employee behavior and that this relationship triggers employee performance. This result contributes to the literature in understanding and explaining the results of LMX [47,48].

Second, the results indicate that an innovative climate moderates the effect of LMX on proactive employee behavior. Although recent studies have argued that LMX can help increase proactive employee behavior [47,48], there are very few studies investigating the conditions under which this relationship may be possible [49]. Moreover, this study was undertaken in an emerging country, Turkey. There are few studies addressing these issues in developing countries. In addition, in cultures where collectivist culture is dominant, such as Turkey, employees care about harmonious relationships and attend to the corresponding social exchanges [50]. This situation causes the organizational climate to be an important driving force for their work-related behaviors. The results of this study support the idea that the innovative climate environment is considered important in terms of the quality of interaction with leaders.

5.2. Practical Implications

The results obtained in this study offer some critical managerial implications for organizations. First, LMX is crucial in encouraging the proactive behavior of employees. For this reason, leaders have substantial duties to reveal the potential for employees to provide new suggestions to the organization and to facilitate the achievement of goals. According to the results, when the quality of the interaction increases, the mutual efficiency also increases. In this respect, leaders need to interact and motivate their employees at a high level to add more value to the organization. In order to create a desire in employees to conduct work that is beneficial to the organization, leaders should be supportive of employees [23]. Organizations should also ensure that leaders receive training in this direction to ensure effective communication with employees and to soften their perspectives against proactive behaviors. This type of training can strengthen the bond between leaders and employees and reduce the tension that proactive behavior can create. However, in organizations with a large number of employees, it may not be possible to create LMX at the same level with all employees. In this case, it is important for the leader to be aware of the employees who have low-level LMX and to make efforts to improve the quality of LMX in this direction [51].

Second, this study shows that the innovative climate strengthens the relationship between LMX and employee proactive behavior. In this respect, management must structure the organization in a way that encourages innovation by providing flexible and autonomous conditions to employees, tolerating mistakes, and valuing new ideas, procedures, and techniques to enable an increase in employee efficiency. The most important responsibility in creating the correct organizational climate belongs to leaders [52]. For this reason, leaders must have an innovative attitude and ensure that it is adopted in the organization. Furthermore, risk-taking should be supported and creativity should be encouraged [53]. Incentive programs should be implemented to support creative and innovative ideas [54]. In particular, organizations can support employees by rewarding innovative behaviors like developing a solution to a problem in the organization or presenting a new application to increase the proactive behavior of employees.

5.3. Limitations and Future Research

Despite its theoretical and practical contributions, this research has some limitations. First, there could be common method bias in the study as the data were collected cross-sectionally. The data were collected from employees in different sectors operating in the crowded cities of Turkey; this may limit the generalizability of the results. However, this study can also be carried out comparatively by gathering from public, private, family-owned, or multinational companies operating in the east and west of Turkey.

This study examined the mediating effect of proactive employee behavior on the relationship between LMX and employee performance. In addition, whether proactive employee behavior has a role in the relationship between transformational leadership and employee performance can also be examined. Future research may also explore the relationship of other leadership styles (including abusive leadership) with proactive employee behavior and employee performance. It is possible to examine whether this relationship changes in climatic conditions that differ from the innovative climate environment.

6. Conclusions

This study indicates that LMX is positively associated with employee performance and that proactive employee behavior mediates this relationship. In addition, the study shows that the innovative climate moderates the impact of LMX on employee proactive behavior. Empirical support is provided for the idea that leader–member exchange increases proactive employee behavior, which, in turn, leads to employee performance. The aim of this study is to attract the attention of academia as it draws attention to the situations in which proactive employee behavior can be beneficial. In addition, practitioners are expected to attach importance to leader–member exchange with its positive results for the organization and support proactive employee behavior.