Transactional leadership: Definition, features & examples
Transactional leadership is a common and effective method of leading teams and organizations.
Simple transactional principles help leaders avoid the downsides of autocratic leaders. While they might not achieve the radical outcomes of transformational or charismatic leaders, a transactional approach can keep your staff consistently happy and focused.
In 2024, McKinsey’s research recognized that “investing intentionally” in leadership was essential for achieving large-scale growth. Transactional leadership might not be enough to do this on its own, but it’s a necessary tool for all up-and-coming leaders to have in their kit.
This is a simple concept, but there are many nuances. Like our other leadership development articles, we will give you the basic knowledge and show you how to learn more.
This article will:
- Define transactional leadership
- Explain some of the core principles for transactional leadership
- Examine some examples of transactional leadership in action
- Evaluate the benefits and downsides of transactional leadership.
What is transactional leadership?
In transactional leadership, Leaders motivate their followers using rewards and punishments. They emphasize performance, productivity, and adherence to rules and procedures.
It is called “transactional” because workers expect something in exchange for their work. That could be praise, recognition, or a bonus. Alternatively, they might get a reprimand or punishment. Transactional leaders manage people through a system of rewards for achieving targets and consequences for missing them.
Alternatively, it is sometimes called “reinforcement leadership”. That’s because the transactional gratifications between staff reinforce what each one is meant to do.
Transactional leaders often like clear structures, roles, and expectations. However, the core characteristics of transactional leadership allow a lot of freedom for individual management styles. Some transactional leaders will praise their staff for every positive action. Others might only step in when things don’t go so well. A transactional leader can be very hands-on or hands-off, personable or distant.
The theory of transactional leadership was only developed in the twentieth century. Some of the key thinkers about transactional leadership are:
Max Weber
The great sociologist Max Weber was the first to describe something like transactional leadership. One of his landmark publications was his 1947 book The Theory Of Social and Economic Organization. There, he explains how “rational” authority works differently from “traditional” or “charismatic” leadership. (This is his famous “tripartite” division of leadership.) In that context, transactional leadership is the most important method in industrial modernity.
James Burns
Moving forward, one of the core texts on transactional leadership is James Burns’ 1978 book Leadership. Burns discussed transactional leadership through several sub-topics. They include opinion leadership, group leadership, party leadership, legislative leadership, and executive leadership. Burns was one of the first writers to contrast transactional and transformational leadership.
Bernard Bass
More recently, Bernard Bass and Bruce Avolio theorized transactional leadership in their “full-range leadership model.” The three main elements in this model are transactional, transformational, and laissez-faire. Avolio’s book, Full Range Leadership Development, from 2010, explains this clearly.
Transactional leadership is easily confused with other directive leadership styles. For example, it is not the same as autocratic (or authoritarian) leadership, in which the leader’s edicts rule supreme.
What are the core features of transactional leadership?
The core features of transactional leadership are relatively simple.
Although you may see these principles in other types of leadership, they are all fundamentally transactional. They include:
Performance-based consequences (good and bad)
Performance-based consequences motivate and manage employees in transactional leadership.
This principle operates on a simple basis: If you perform well, you receive a reward. If you perform poorly, you face a consequence. A good transactional leader should know a full range of employee performance metrics to look for.
Rewards for good performance can include bonuses, promotions, or other forms of recognition, formal and informal. Poor performance might lead to informal discussions, disciplinary actions, or even termination.
The literature often refers to these consequences as “contingent reward” or “contingent punishment.”
Needs-based intervention
With needs-based intervention, leaders support employees when they are not performing their best.
Managers intervene to offer guidance, resources, or assistance to help employees improve. Depending on the situation and the individual’s needs, the intervention can be spontaneous or planned.
Often referred to as “management by exception,” this method ensures that employees meet their performance standards. By addressing issues as they arise, managers stop small problems from escalating into larger issues.
Clear communication
Clear communication is essential for almost every form of leadership. However, transactional leaders must work hard to help employees understand what is expected of them.
Managers must be explicit about performance standards, detailed job descriptions, and success criteria. They may do so during onboarding and inboarding, at the start of projects, or in regular meetings. Otherwise, staff won’t know how to achieve contingent rewards and avoid contingent punishments.
Employees don’t need constant rewards. But it’s important to regularly remind them that they are on track and adhering to the required protocols. Clear communication creates a transparent work environment where employees feel guided and informed.
What are some examples of transactional leadership?
This section will look at three core examples of transactional leadership in action.
Whatever kind of work you are engaged in, ideas here will slot into your actions. They are:
Using freelance workers
Transactional leadership is a very common method of managing freelance workers.
In this context, employers have a straightforward relationship with freelancers. If the work meets the agreed standards, freelancers receive compensation. If not, payment can be withheld. This system aligns with transactional leadership’s focus on performance-based consequences and tying rewards to task completion.
Successful transactions motivate freelancers in these situations. They will look after their growth, development, and long-term employment separately.
Commission-based tasks
Commission-based work is commonly found in sales, marketing, and recruitment roles. In this setup, employees earn a portion of their income based on their performance. That might be measured by the number of sales they make, the number of leads they generate, or the successful placement of a candidate.
Material benefits (or “contingent rewards”) directly affect measurable outcomes in this approach. Employees are motivated to achieve higher performance levels to increase their earnings.
This system encourages employees to achieve targets, reinforcing the link between effort, achievement, and compensation. It exemplifies the core idea of transactional leadership: rewarding performance towards clear expectations.
Non-material rewards
Non-material rewards recognize, reinforce, and encourage desirable behaviors. Simple acts such as a “thank you,” or public recognition can boost morale and encourage continued effort.
Conversely, transactional leadership also includes non-material consequences for underperformance. Managers might remind employees about targets or discuss the implications of missed deadlines. This approach doesn’t need to involve formal disciplinary actions. It’s just a matter of the right verbal cues and reminders to reinforce expectations and standards.
Non-material rewards can also build relationships between managers and their team members.
What are the benefits of transactional leadership?
A strong set of transactional leadership principles can lead teams to success. This section will introduce three key reasons why.
In some respects, transactional leadership has a bad reputation, but it is not entirely deserved. Let’s see how.
Produces confidence among workforce
High-quality transactional leadership sets clear expectations for your workforce. Employees understand exactly where they stand with the company. Everyone knows the criteria for rewards and the repercussions of underperformance.
Such an environment meets basic employee needs for predictability and stability, creating great conditions for improving productivity. Transactional leadership does not encourage managers to treat employees as equal partners, but it can still incorporate developmental opportunities.
So, with some limitations, transactional attitudes can create a stable workforce with all the capacity for outstanding employee productivity.
Workplace stability
In common with autocratic leadership, transactional leadership can sustain workplace stability. It works well in environments where business processes are established, teams are experienced, and vendor relationships are predictable. Transactional leadership helps ensure that operations remain smooth and controlled by reinforcing consistent procedures and clear performance standards.
In other words – transactional leadership regulates a positive status quo.
However, transactional leadership can also lead to conflict in some situations (as James Burns drew attention to many years ago). The emphasis on maintaining consistency can sometimes stifle innovation and adaptability, leading to potential tensions within the team.
Supports other styles of leadership
Within transactional leadership, the concept of “contingent reward” is versatile and can be applied in many contexts. This adaptability allows transactional principles to enhance different aspects of organizational dynamics.
For example, leaders can offer performance-related rewards for effectively participating in democratic decision-making sessions or for achieving goals in team training programs. Moreover, while transformational leadership is often viewed as the opposite of transactional leadership, the two can coexist and reinforce each other.
Research by Nadeem Yousef on the political history of South Asia highlights how transactional elements can underpin transformational initiatives.
For more ideas about integrating transactional leadership in an eclectic management approach, situational leadership theory offers a flexible framework that adapts to the needs of the organization and its employees. This synergy ensures a well-rounded approach to leadership.
What are the challenges of transactional leadership?
As we’ve seen, transactional leadership has many obvious benefits. It is great at maintaining a positive status quo and keeping employees focused.
However, it also has numerous challenges. Add them up, and transactional leadership is unlikely to help leaders take organizations to the next level.
Consider these carefully before going “all in” with transactional leadership. We’ll look at three specific problems in this section:
Produces superficial relationships
This leadership style focuses on straightforward transactions—rewards for performance and consequences for underperformance—which can make employees compliant and settled. However, these simple transactions do not foster deeper, nurturing connections or genuine empathy.
Democratic or servant leadership emphasizes deeper human needs. By contrast, transactional leadership may struggle to build strong interpersonal relationships. Thus, it may not work for organizations that want to cultivate a deeply connected and valued team. This lack of depth in relationships can limit workforce cohesion.
Conceals deeper issues
Transactional leaders don’t always address underlying issues. Problems like inadequate compensation, excessive workloads, or poor managerial attitudes are not solved through recognition alone. Implementing superficial transactional methods will not suddenly improve employee satisfaction.
Furthermore, if employees feel they are not adequately compensated or supported, their compliance and overall morale will likely remain low. A superficial reward, like a “pat on the head,” can be patronizing, whether directed at front-line customer service staff or seasoned professionals. This can lead to resentment and disengagement.
Stifles innovation
When employees are stuck in rigid transactional relationships, it’s difficult for them to freely share new ideas. Focusing on rewards and punishments for specific outcomes often means neglecting open communication.
Leaders can attempt to incorporate a system of rewards for delivering innovative ideas. However, this approach does not necessarily lead to a free flow of support and suggestions. In today’s fast-paced and ever-changing business landscape, the ability to innovate is more crucial than ever. Relying solely on transactional leadership may hinder an organization’s ability to adapt and grow, ultimately impacting its long-term success and competitiveness.
How transactional leadership works well
In an age of constant crises, transactional leadership is a useful tool for managing teams and sustainable organizational development.
It may not lead to radical innovation or deep interpersonal connections, but its clear structure of rewards and consequences ensures operational stability. This predictability can be particularly useful during times of upheaval. Moreover, transactional leadership integrates well with other leadership styles. So, it can provide a balanced framework to support immediate performance and long-term growth. So even though research from 2023 suggests that transformational leadership remains more popular than transactional – don’t forget the simple things in life. .
