THE ROLE OF LEADER-MEMBER EXCHANGE IN THE PSYCHOLOGICAL CONTRACT BREACH -- SUBORDINATES' PERFORMANCE RELATIONSHIP.

Abstract

The present study addresses the call for empirical-based examinations of the psychological contract breach - LMX relationship. It contributes to the literature by linking the two streams of knowledge, proposing and testing the mediating role of LMX between psychological contract breach and employee performance. We also examined the moderating role of LMX between breach and employee performance. Since high LMX relationships involve mutual trust, respect, and obligations (Dansereau, Graen, & Haga, 1975), this may further impose higher expectations on the leader. Thus, an experience of breach may be construed as a form of betrayal. As a consequence, employees with high quality LMX relationships are more likely to retaliate by performing less extra-role behaviors and by neglecting their inrole responsibilities. We present two competing perspectives in explaining the moderating role of LMX between breach and employee performance. Data were collected from 177 employees and their direct supervisors from a large manufacturing organization in the Philippines. In general, we found that psychological contract breach and LMX were significantly related to civic virtue behavior, altruism and inrole performance. Results also showed that LMX fully mediated the relationship between psychological contract breach and altruism and in-role performance but partially mediated the psychological contract breach - civic virtue behavior relationship. Finally, LMX moderated the relationship between breach and altruism. Practical implications and directions for future research are discussed.