Most of the managers, CEOs, and big players in the industry use some specific tools and techniques to run their business and manage other people. One such leadership strategy is Transactional Leadership.

It gives them more control and flexibility in their role. A manager or a leader has a lot of people working under him or her and must keep some sort of streamlined strategy to execute their goal.

What is Transactional Leadership?

Also sometimes referred to as ‘managerial leadership’, this is a sophisticated leadership technique that focuses on supervision, organization, and performance. It is a technique that emphasizes on some specific tasks and motivates followers through rewards and punishments.

It was first described by sociologist Max Weber in 1947. Logically speaking, in any organization, an employee will be rewarded if he or she performs well, shows some improvement, and help the organization to succeed.

On the other hand, an employee will be punished or reprimanded if he or she does not meet certain performance expectations and does not add value to the organization.

Transactional Leadership is based on the same principle of rewards and punishments and exercised by managers to keep strong control of their leadership qualities.


Characteristics of Transactional Leadership

Below are a few characteristics of Transactional Leadership:

Extrinsic approach

Managers use the reward-punishment model in transactional leadership to gain compliance from their followers. They are concerned with the goals, culture, and structure of the existing organization. This is more of an extrinsic approach rather than an intrinsic one.

Keeping it practical

Transactional Leadership follows a pragmatic approach. Managers rely on realistic and rational data and opportunities and the decisions are taken arebased on practical systems.

Discourage the change

Transactional leaders do not seek change and wish to keep the things running just as they are. They encourage everyone to follow a strict ‘routine’ in the workplace, resist change, andcarry on with the workas it has been since day one.

Performance-based approach

As stated before, Transactional Leadership is based on rewards and punishments. Managers are keen to observe those employees who perform well, who meet the deadlines and targets, and reward these employees appropriately.

Similarly, they also observe those employees who are not meeting the expectations, who are missing the key deliverables and withhold rewards.

Thinking inside the box

We always hear the term, “think outside the box!” But transactional managers tend to think inside the box. They prefer to stay within the safe boundaries or comfort zone to solve day-to-day problems that the organization faces and even to achieve long-term goals. This may present a challenge when a problem requires a creative decision-making strategy.

Passive in nature

Transactional Leadership is passive. It does not actively participate in the well-being of an employeebecause the aim is to maintain the status quo. It is like an action-reaction state where decisions are taken only when confronted with a scenarioin the present time.

Authority over inferiority

The leaders following the transactional approach are authoritative. They do not care about suggestions as such and believe that in the end, the decision they take is final. Employees are meant to follow the directives passed on to them by transactional leaders.

Hierarchy-based approach

This leadership style promotes a rigid organization structure or hierarchy-based structure. Managers follow instructions passed on to them by their manager and expect the same to continue down the chain.They are concerned only with the corporate affairs and culture.

Teamwork not necessary

In a transactional leadership approach, teamwork is not encouraged. Since the performance and achievements are based on an individual level, an employee will be rewarded if he or she meets certain objectives, without considering teamwork or group goals.

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Advantages and Disadvantages of Transactional Leadership

Each strategy or technique has some pros and cons. Let us try to understand the same:


  • Motivates self-interest in employees who follow instructions given to them.
  • Suitable for large organizations that have a repetitive nature of tasks.
  • It helps to achieve short-term goals efficiently and quickly.
  • A clear definition of rewards and punishments is stated for all the employees equally.
  • Imposes a certain level of authority and directorship in the workplace, which can help to bring order and discipline in an organization.


  • This strategy takes into consideration only the practical aspects of employees and rewards money or perks accordingly.
  • It discourages creative thinking and does not allow employees to think out of the box.
  • Employees cannot take initiatives on a personal level as goals and objectives are already set.
  • This system does not reward teamwork or group decisions.
  • It is passive in nature; does not promote the active participation of employees in achieving goals and objectives.


When and Where Would It Be Better to Practice Transactional Leadership?

Since this type of leadership does not promote creative thinking and finding new solutions, it is best suitable to use in organizations where problems are easy, straightforward, and clearly defined. It can be used to achieve certain routine tasks and short-term goals.

Transactional Leadership may also work best in situations of crisis or economic collapse. As the focus in such difficult times is to keep running the existing business with as much retention as possible, transactional leaders can execute pre-determined goals with minimum to no impact.

This style of leadership clearly states the organization’s goals and objectives, the role of the employees in achieving the same, and facing the consequences, should any kind of failure occur.

Hence, such type of leadership can be practiced in large organizations that have a hierarchy-based management system where changes are not required for the smooth functioning of the workplace.

Difference Between Transactional and Transformational Leadership

There is another type of leadership called Transformational Leadership. This leadership encourages working with teams, creating a vision, and executing changes to suit organizational needs.

Let us have a look at some of the differences between these two leadership strategies:

Sr. No.Transactional LeadershipTransformational Leadership
1Based on the action-reaction model.Based on proactiveness and initiative.
2Functions on existing culture, practices, and ideas of the organization.Ready to make changes in the organization’s structure by implementing new ideas.
3Goals are achieved through give and take model: rewards and punishments.Goals are achieved through motivation, morality, and ethical values.
4Teamwork is not encouraged and promotes self-interest in employees.Teamwork is encouraged and promotes thinking that can contribute as a ‘group’.
5‘Out of the box’ thinking not encouraged.‘Out of the box’ thinking is promoted.
6Creative thinking is not considered while rewarding perks.Creative thinking and better ideas are given preference while rewarding perks.



Thus, transactional leadership is best suitable for organizations that encourage authority, control, and rigidity.

It is based on a purely practical approach of rewarding the employees if they can achieve pre-defined goals and objectives, meet deadlines, and deliver the milestones in time.

It also punishes or applies penalties to those employees, who fail to meet the deadlines and goals.

This type of leadership may not allow the manager-employee relationship to utilize its full potential but is very effective in achieving short-term goals, routine tasks, and construct a disciplined structure.

Being passive, transactional leaders will only act when they are confronted with a specific situation that demands action. Pre-emptive engagement is discouraged.

But to keep the environment at the workplace in perfect balance, managers should be careful not to practice this type of leadership extensively or beyond the requirement. Otherwise, it may bring unwanted notions of power, politics, and dictatorship to the workplace and result in a downfall.


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