The Key Attributes of Transactional Leadership

Effective leadership is all about learning. There are many different leadership styles, and throughout the course of your leadership journey, you might not utilize one exclusively. Often, leaders embrace a variety of styles throughout their careers, depending on the needs of the people they are leading and the organization they are working with.

This article will define one style, transactional leadership, and it will explain the traits of transactional leaders, the three approaches to transactional leadership, and how transactional leadership can be an effective leadership style.

Transactional Leadership Definition and Origin

Political scientist James MacGregor Burns coined the term ‘transactional leadership’ in his 1978 book “Leadership,” defining this style of leadership as one focused on the relationship between leader and followers. Essentially, Burns said that a transactional leader is one who gives something with an expectation for something in return.

By the early 1990s, researchers Bernard Bass and Bruce Avolio introduced “The Full Range Leadership Model,” which focuses on three main leadership styles: transactional, transformational, and laissez-faire. While transactional leadership theory has developed over time, its core leadership qualities, structure, and control, remain constant. Broadly speaking, transactional leaders are results-driven, embracing a leader-follower model based upon a strict set of rules, guidelines, and instructions that ultimately reward or punish individuals based on their performance. 

Transactional Leadership Characteristics

The key attributes of transactional leadership include:

• Clear expectations
• An incentives framework
• An intense focus on results
• A “telling” style

Clear expectations are at the top of the list because a transactional leadership style is based on a leader setting clear expectations for employees through the process of highly detailed instructions, rules, and guidelines. When total clarity is achieved through this rigid structure, employees know exactly what is expected of them and how their performance will result in either a positive reward or negative punishment. 

Rewards can span anything from bonuses to increases in paid time off. Punishments can also range from bonus removal to more severe forms like termination. 

Since transactional leadership operates under the premise that individuals are motivated by rewards, a strong and reliable incentives framework is essential to transactional leadership. While the incentives framework outlines the exact expectations for employees to earn rewards, it also clearly outlines that poor performance will be punished.

With a clear focus on rules, structure and performance, transactional leaders are often acutely focused on results only, with little to no interest in personal relationships. When comparing transactional leadership vs. transformational leadership, the transactional style is considered a “telling” style, in that it places all emphasis on structure and employee performance. This is opposite to the transformational leadership style that seeks to inspire employees to grow and develop.

Three Approaches to Transactional Leadership 

In their expanded description of transactional leadership, Bass and Avolio identified three unique approaches that define the style: active management by exception, passive management by exception, and contingent reward. 

Consider these approaches like you would a toolkit. You may not need to utilize all these tools or approaches at once and you may find that some are more effective in certain situations than others. A Certificate in Organizational Leadership can help you continue to gain the tools you need to develop as a productive leader.

Active Management by Exception

This approach means that a leader will tightly control all aspects of employee tasks and immediately step in at the first sign of a problem. When the leader intervenes, it typically results in negative feedback or punishment. 

Passive Management by Exception

This approach is the exact opposite, in that passive management by exception means a leader will take a hands-off approach to employee tasks and only step in when necessary. Similar to the active management by exception approach, if a leader does step in, it will likely result in punishment. 

Contingent Reward

In the Full Range Leadership Model, contingent reward sits at the center of the model’s visualization. At the most basic level, this approach involves rewarding employees based on the outcome of their performance or their ability to complete tasks. 

The contingent reward approach focuses on a detailed performance structure that clearly outlines the expectations for specific results. Once these conditions are met, employees can earn rewards such as bonuses, commissions, promotions, or stock programs. Rewards can also be more psychological in nature, such as a public award or company-wide recognition.

Contingent reward can be highly effective in motivating employees who are working in a more transactional business environment, like at a call or distribution center, where there are often more repeatable tasks with easily measurable outcomes.

Does the Contingent Reward Approach Really Work?

In a study about transactional leadership and its role in project success, researchers from Tilburg University, the Netherlands and Ethiopian Civil Service University found that when utilizing the contingent reward approach, transactional leadership is positively related to the overall success of a workplace project.

This approach becomes more positively related to project success as the level of project goal clarity increases. According to the study, 6.4% of the variance in project success is explained by the interaction of contingent reward and goal clarity, which is substantial, given that significant interaction terms are rare in organizational research.

While contingent reward can be an effective approach to transactional leadership, it’s important that leaders set clear expectations alongside a rewards framework. If at any point employees become unsure of what is expected of them, project success will decline, regardless of the anticipated reward. 

When is the Transactional Leadership Style Effective?

Transactional leadership can be effective in environments where strong employee culture is difficult to build. While transactional leadership can achieve short-term goals quickly, in the long run, it can deprive employees of their creativity by incentivizing them to focus on the next reward instead of growing in their roles. Including metrics for both quality and quantity in performance evaluations can help mitigate this effect.
Remember, leadership styles aren’t static. If you identify with transactional leadership qualities or would like to apply this style in your leadership work, you can utilize the different approaches that best match your strengths and the needs of your employees.