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The fundamental premise of the leader–member exchange (LMX) theory is that leaders’ relationships with their followers vary in quality. Although LMX differentiation (i.e., within-group variation in the quality of LMX) is generally considered a sound leadership practice, its effects on group members’ work outcomes remain poorly understood. Drawing on LMX and upper echelons theories, this study suggests that employees’ reactions to LMX differentiation depend on the personal LMX status of employees and the characteristics of the organizational context. Analyses of multilevel data collected from 502 employees organized into 135 work groups in 34 firms show that the impact of LMX differentiation on work outcomes is more positive (or less negative) for employees with lower rather than higher LMX. The findings highlight the importance of organizational boundary conditions for these interactions: The negative moderation by one's own LMX status is stronger when top managers decentralize responsibilities to lower hierarchical levels and weaker when top managers impose a shared vision to guide the organization.
