Wikipedia describes transactional leadership as, “a style of leadership that focuses on supervision, organization, and performance; transactional leadership is a style of leadership in which leaders promote compliance by followers through both rewards and punishments.”
The transactional style of leadership was first described by Max Weber in 1947 and then in Leadership and Performance Beyond Expectations by Bernard Bass. This style is most often used by the managers and is also commonly known as managerial leadership. It focuses on the basic management process of controlling, organizing, and short-term planning.
This leadership theory takes a behavioral approach to leadership by basing it on a system of rewards and punishments. Transactional leadership is often used in business; when employees are successful, they are rewarded; when they fail, they are reprimanded or punished. The leader views their relationship with employees as an exchange, you follow my expectations and you’ll receive a reward, which could be a higher pay increase then your peers.
Sport teams rely heavily on transactional leadership. Players are expected to conform to the team’s rules and expectations and are rewarded or punished based on their performance. Losing may lead to rejection and verbal humiliation and players become highly motivated to do well, even if it means suffering pain and injury.
Transactional leaders are generally good at maximizing the efficiency and productivity of an organization by setting expectations and standards. They don’t encourage growth and change within an organization but focus on maintaining and enforcing the current rules and expectations.
Transactional leadership tends to be most effective in situations where problems are simple and clearly defined. During crisis situations, when employees need to focus on accomplishing certain tasks, they assign them with clearly defined duties to ensure that specific tasks get done.
Transactional leadership involves motivating and directing followers primarily through appealing to their own self-interest, which is to receive a paycheck and benefits. The power of transactional leaders comes from their formal authority and responsibility in the organization, otherwise known as positional power. The transactional leader rewards the employee who meets the leader’s expectations, but if the employee does not meet the expectations of the leader, a disciplinary process will be used. The exchange between the leader and follower involves four different dimensions that takes place to achieve the leader’s expectations and performance goals;
Contingent Rewards: Transactional leader’s link goals to rewards, clarify expectations, provide necessary resources, set mutually agreed upon goals, and provide various kinds of rewards for successful performance. They set SMART (specific, measurable, attainable, realistic, and timely) goals for their subordinates.
Active Management by Exception: These transactional leaders closely monitor the work of their employees, which may be considered as micromanaging. They take corrective action to ensure that their expectations are met.
Passive Management by Exception: These transactional leaders only interfere with the employee’s performance when the leader’s expectations are not being meet and/or the employee’s performance declines below average. They may use some form of counseling and/or punishment.
Laissez-faire: This leader provides an environment where employees get many opportunities to make decisions. The leader may even avoid their own responsibilities and not make any decisions, the employees may lack direction and at times a junior employee will be more of a leader then the one with the position.
Here are some characteristics of a transactional leader;
1. Extrinsic motivation – Employees are rewarded for behaving in the expected manner, and punished for any deviation.
2. Practicality – They solve problems pragmatically.
3. Resistant to change – They resist change and prefer everything to remain same, they have a “if it’s not broke why fix it” attitude.
4. Discourage independent thinking – Employee independent thought and risky actions are discouraged.
5. Rewards performance – Closely monitor the performance of all employees based on specific goals and expectations.
6. Constrained thinking – They are happy to work within the existing systems and tend to think inside the box for solving problems.
7. Passive – They react to things that happen, and do not take proactive steps to prevent problems.
8. Directive – They believe that it is up to them to make all the decisions, they tend to micro-manage.
9. Emphasis on corporate structure – They place importance on hierarchy, the corporate structure and culture, they are positional.
10. Emphasis on self-interest – The employee receives a reward when they achieve their goals, they may not emphasis the importance of teamwork or achieve group goals.
Transformational leadership is another style of leadership that it is compared to transactional leadership the most. The difference between transactional and transformational leaders is that transactional leaders exchange tangible rewards for the work and loyalty of their employees, whereas transformational leaders are forward looking and engage their followers by sharing their ideas and vision for a better future.
Here’s a breakdown on the differences;
- Leadership is responsive
- Works within the organizational culture.
- Employees achieve objectives through rewards and punishments set by the leader.
- Motivates followers by appealing to their own self-interest.
- Management-by-exception: maintain the status quo; stress correct actions to improve performance.
- Intellectual stimulation or motivation is zero.
- Leadership is proactive
- Works to change the organizational culture by implementing new ideas.
- Employees achieve objectives through higher ideals and moral values.
- Motivates followers by encouraging them to put group interests first.
- Individualized consideration: Each behavior is directed to each individual to express consideration and support.
- Intellectual stimulation: Promote creative and innovative ideas to solve problems.
Transactional leadership can be useful in some situations, but it may prevent both the leader and their employees from achieving their full potential.
Transactional leaders don’t make an effort to enhance their employee’s creativity to generate new ideas. Transitional leaders tend to not reward or they ignore ideas that do not fit with existing plans and goals. The relationship between the leader and their employees is just an exchange of services, you meet my expectations and I pay you, instead of being based on emotional bonds, where the employee respects and trusts their leader and will do anything to ensure that they are successful as well, like a transformational leader is.