Introduction
High-quality employees are one of the determinants of the company’s success in competing. This success cannot be separated from the high employee performance, which is the main factor in the business processes of a company. Several previous studies have proven the role of employee performance in improving company performance (Lajili et al., 2020; Makarius & Stevens, 2019; Otoo & Mishra, 2018; Salman et al., 2020). Companies that consider employees as company assets have spent a lot of budgets investing in improving employee performance (Lajili et al., 2020; S. Lee, 2018). Dankyi et al. (2020) explain that human capital is a company’s valuable asset in increasing competitive advantage in a sustainable manner. Other studies explain that good employee performance can meet customer expectations (Leung et al., 2020), customer satisfaction and loyalty (Maxham et al., 2008), high peer helping behavior (Pradhan & Jena, 2017), good decision making (Jordan & Audia, 2012), and increased salary (Banker et al., 2013). The performance itself can be formed from the ability to do work and previous experience (Pradhan & Jena, 2017). For these reasons, this study tries to see the role of those factors toward employee performance.
In addition to employee performance, work engagement is also seen as important in indirectly improving company performance. Employees who dedicate themselves to their work will be more serious in their work so that they will indirectly contribute to the company’s performance. Employees who have high work engagement also directly love their work so they are more productive than employees with low work engagement. A literature review by Wood et al. (2020) explains that work engagement is an antecedent of work-life balance. Seeing the importance of employee work engagement, several recent studies have examined the positive impact of work engagement on employees and companies (Decuypere & Schaufeli, 2020; Eldor et al., 2020; Lai et al., 2020; Mostafa & Abed El-Motalib, 2020; Zheng et al., 2020).
One of the most influential factors in increasing employee performance and work engagement is the role of the leader in the company. Apart from being an administrative function in the company, a leader also plays a very important role in communication and increasing employee work motivation so that a quality leader can improve employee performance and create employee work engagement. Regts et al. (2019) argue that leaders in companies can directly improve employee performance. Another study by Sheikh et al. (2019) also argues that leaders in companies can create employee work engagement. However, a leader can also have a negative impact on employees with the incivility/abusive behaviors carried out by the leader. Several previous studies have explained that incivility/abusive behavior by leaders can have a negative impact on employees (Alola et al., 2019; Burton et al., 2012; K. Y. Kim et al., 2019; A. C. Peng et al., 2019; Thompson et al., 2018; Waldman et al., 2018; Watkins et al., 2019). This behavior can be formed from the experience of the leader’s relationship with his employees so as to shape the behavior of employees and leaders. One of the variables that can explain the relationship between leaders and their subordinates is the Leader-Member Exchange (LMX) which is the most studied dyad relationship variable.
LMX is the closeness of the leader with his subordinates, both formally and informally. LMX is also a situational variable that can explain the influence of the leader’s role in improving employee performance. In addition, employees who are close to their leaders (LMX in-group) get more information, attention, and motivation compared to employees who only have work contracts with their leaders (LMX out-group). A high LMX can also minimize psychological uncertainty experienced by employees, so employees feel calmer in carrying out their work and have clarity about their future in the company (Zakiy, 2019). Leaders who are close to employees are also more willing to help employees who experience difficulties in their work so that employee work engagement can be created. Several previous studies have confirmed the role of LMX in improving employee performance and work engagement (Johnson et al., 2017; Kim & Koo, 2017; Quade et al., 2020; Regts et al., 2019; S. Singh & Vidyarthi, 2018).
High LMX between leaders and subordinates can be created due to several factors such as demographic similarities between leaders and subordinates (Emirza & Katrinli, 2019; Zagenczyk et al., 2015), the personality of superiors (Kahya & Şahin, 2018), subordinates’ efforts in building relationships (Maslyn et al., 2017), rewards from superiors to subordinates (Young et al., 2020) informal communication between leaders and subordinates (Peng & Lin, 2016). High interaction between leaders and subordinates is carried out continuously, causing both parties to understand each other, thus causing a high LMX between the two. The match between leader and subordinates is the dominant factor in forming LMX. Kristof-Brown et al. (2005) explained that Person-Supervisor Fit (PS-Fit) is the most studied dyadic fit between leaders and subordinates in the work environment. Leaders who have a lot of compatibility with their subordinates are more often involved in work that is carried out together. With a high PS-Fit, it will affect the LMX between the two.
This study tries to look at the role of leaders in influencing the performance and work engagement of Islamic Bank employees. Researchers tried to see the effect of PS-Fit on employee performance and work engagement with LMX as a mediating variable. The LMX variable is placed as a liaison because the role of PS-Fit does not directly affect employee performance and work engagement but must pass LMX first. Employees who are compatible with their leaders will form an LMX in-group to affect the performance and work engagement of these employees. The Path-Goal Theory by House (1971) explains that an effective leader is a leader who can motivate employees to work so that work goals can be achieved. For this reason, the researchers tried to connect PS-Fit with performance and work engagement through LMX.
The selection of Islamic banks as the object of research is because banking services are the primary needs of modern society in carrying out their daily activities. A study from McKinsey & Company in 2012 projected that the saving and investment industry, such as banking, will become one of the highest consumption posts for Indonesians in 2030 (Zakiy, 2021). For this reason, Islamic banking must prepare Human Resources to compete in retaining customers and attracting new customers. Seeing that most of Indonesia’s population is diverse in Islam, the prospect of Islamic banks in the future is very profitable. In addition, the concept of Islamic banks that offer alternative Islamic-based financial services is welcomed by both Muslim and non-Muslim communities (Adelekan, 2021; Mohd Thas Thaker et al., 2020; Olayiwola, 2021; Wu et al., 2019). During the Covid 19 era, Islamic banking still exists and provided many benefits to the community (AbdulGaniyy et al., 2021; Afandi, 2021).