What is Transactional Leadership? Structure Leads to Results

what is transactional leadership?

The focus of transactional leadership is on bringing results, achieving objectives, and complementing the growth of the organization. 

It conforms to the existing structure of the organization and operates on a system of rewards and punishments. 

The measure of success that such leadership utilized to determine the performance is carried out through rewards and penalties. 

Key highlights of transactional leadership style and management :

  • Transactional leaders have formal authority in the organization and also carry responsibility and accountability.
  • Such leaders are responsible for managing and continuing the routine system in an organization.
  • They manage the routine work by managing individual performance and further leveraging group performance to bring results as well.
  • These leaders also set criteria for their employees depending on their previously defined requirements.
  • One of the most common ways under transactional leadership management to judge performance is a performance review of every individual worker.
  • Leaders tend to work best with those employees who are highly motivated by their reward-penalty system set in the organization.
  • Transactional leadership helps the organization maintain its status quo out in the market. 

History Of Transactional Leadership Style 

Max Weber was the first to describe the transactional style of leadership in 1947, followed by Bernard Bass in 1981. 

It is the kind of leadership style that is profoundly used by managers in organizations. 

This kind of leadership management style primarily focuses on basic management procedures like organization, controlling, and planning on a short-term basis. 

Few really famous examples of transactional leadership styles can see in the management style of McCarthy and De Gaulle. 

Breaking Down The Transactional Leadership Management 

The transactional leadership style is about motivating, managing, and directing the substitutes or subordinates by appealing to their self-interest. 

So, the way transactional leaders operate in the organizational spaces is by leveraging their authority to get things done from their subordinates. 

For the subordinates, the goal is to follow their authority and work on their given instructions. 

Simply put, you can term it as a “telling style” of leadership and management in its very reduced form. 

Transactional leaders focus on motivating the substitutes through a system of rewards and punishment. 

So when the employees do something that they have been told, how and when they are being told, they will be rewarded. 

On the other hand, if they do not follow or go against the wishes of their leader, they have to face punishment too. 

Four Dimensions Of Transactional Leadership Exchanges

Four Dimensions Of Exchanges In Transactional Leadership 

This interrelationship of the leader and subordinates in transactional leadership style and management works on the basis of four different dimensions. 

Here are those dimensions in which the regular exchanges occur: –

Active Management By Exception 

Transaction leaders actively keep track of their subordinates, keep monitoring their work, and look for any deviation they make. 

They see if their subordinates are doing anything against the rules, standards, and instructions given to them. 

If they do, then they have a set of actions to perform to rectify, correct or damage control the mistakes. 

Also, they further strategize and lay down the plan of action as required depending upon the particular subordinate. 

Preventive measures are also taken to avoid the same mistakes from happening again. 


In the transactional leadership style and management, the leader encourages, in fact, actively puts the subordinate into the position of decision-making. 

This happens in very few styles of leadership where the subordinates are given opportunities to make the decisions that drive the project. 

The leader, in this case renounced their responsibilities and allowed the employees to partake and make decisions. 

This often goes south when the group lacks directions due to this, or they aren’t competent enough. 

Contingent Rewards 

As stated earlier, transactional leaders believe in the system of allocating rewards to their employees. 

They link the goal to a particularly attractive reward for the employees to be motivated. 

Leaders also very specifically provide details and clarify the expectations along with giving the needed resources to reach the goal. 

With the reward system, they also prefer to set SMART goals for their substitutes. SMART stands for Specific, Measurable, Attainable, Realistic, and Timely. 

Passive Management By Exception 

Apart from the active management leaders do with their subordinates such as monitoring and correcting them, they also do passive management as well. 

They intervene whenever the very standards they set or prescribe for the work are not met or degrading. 

Here, they even might use the punishment as a prompt response to their incompetent performance. 

How does Transactional Leadership work? 

The rewards and penalties are contingent upon the performance of the subordinates under transactional leadership. 

As per the leader, their relationship with their followers is entirely based on their transactional exchange rather than emotion. 

It is still more on the authoritative side rather than emotional or collaborative.  

So their exchange is about giving something and getting something in return, and that’s the very foundation of transactional leadership works on. 

When the employee performs well, they get a set reward already proposed to them with set and defined expectations. 

The performance is assessed using the competence of the employee to deliver the project as per the given standards, rules, regulations, and deadlines. 

When an employee performs poorly, they get penalized or punished in some particular way depending upon where they lack. 

The punishment also focuses on the damage control caused by the employee and resolving the incompetence of the employee. 

Transactional leaders also track and monitor their employees to enforce the rules, regulations, and standards that they prescribed in the first place. 

They intervene when their standards are not met, or the instructions are not followed. 

When they notice, the employees deviate from their given set of the path they meant to walk. 

However, they do not intervene to help or offer any kind of inspiration. They do not act as catalysts for growth or change in the organization. 

Implication Of Transactional Style And Management 

Under transactional leadership management, the leaders emphasize primarily extensive, detailed, and shorter goals. 

It also includes following the given standards, rules, and regulations to perform and execute the task. 

Limitation Of Transactional Leaders 

Transactional leaders do not make any effort towards the enhancement of the creativity of their followers. 

They don’t partake in the encouragement or generation of new ideas amongst their subordinates. 

So, while this kind of leadership may work in organizations where the problems or issues are simple, not sophisticated, and clearly defined, it won’t work in other cases. 

You would find this kind of leadership style does not encourage ideas or changes that don’t comply with the reward-punishment system. 

It means the leaders won’t entertain any idea, strategy, or change in the organization or management where they cannot apply a reward and punishment system for their subordinates.

Making this transactional leadership limited and constrained due to a set structure system and the unwelcoming of changes or new ideas. 

Effective In Directing Decision-Making 

On the flip side of the coin, Transactional leaders are certainly effective in guiding the decision-making in the organization very efficiently. 

They are focused to achieve cutting costs and expenditures and increasing the productivity of their employees. 

This makes transactional leaders highly competent and motivated to direct and take required action when necessary. 

However, their relationship with their subordinates is transitory and based on a give-and-take system. 

And there are no emotional bonds created between employees and their leaders which you sometimes see in other forms of leadership.

Transactional Leadership Vs. Charismatic Leadership

Transactional Leadership Vs Charismatic Leadership

Transactional leaders are different from charismatic leaders in their very structural method as well as the method of their approach. 

Charismatic leaders tend to focus primarily on influencing the team or group to make the organization a better place. 

In this leadership style, the followers are not driven by their self-interest but towards seeing the larger picture for the organization and being part of it. 

Transformational leaders seek to bring larger changes in the organization as compared to charismatic leaders. 

Charismatic leaders appease the self-interest of the employees to motivate them whereas transformational leaders help people see the larger picture. 

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