The cost of leader personal financial insecurity: implications for adaptive team performance

Abstract In light of a global pandemic, rising inflation, and stock market uncertainty, many across the globe are experiencing financial insecurity. We build on an emerging line of research to explore the mechanisms through which leaders’ personal financial insecurity impacts the teams they lead. We draw on compensatory control theory to theorize that leaders’ personal financial insecurity has a negative indirect effect on adaptive team performance because more insecurity is associated with less perceived personal control, to which leaders respond by implementing a more hierarchical decision‐making authority structure in their teams. Integrating the social identity theory of leadership, we theorize that this effect is stronger when the leaders are more prototypical of their team. Evidence from three multi‐wave, multi‐source field studies including leaders and their teams and an online experiment supports our model. By uncovering how a leader's perceived financial state impacts those they lead, our work adds to the growing bottom‐line case for why organizations should care about supporting their employees’ financial health.