There’s no singular “right” way to lead. Truth be told, many of the best leaders use multiple leadership styles to guide their teams.

Transactional leadership is a leadership style that focuses on setting clear expectations and using rewards and punishments as motivators. When used intentionally, it can bring out the best in your team.

In this article, we’ll cover what transactional leadership is, what it looks like, and when to use it. We’ll also provide examples of transactional leadership to help you put it into practice effectively.


Quick Summary

  • Transactional leadership relies on rewards and consequences to motivate employees and maintain performance standards.
  • This leadership style is effective in goal-oriented settings, such as sales, and in crises where quick, decisive action is necessary.
  • Pros include clarity in roles and quick decision-making, and cons include limiting creativity and lower employee engagement.

What Is Transactional Leadership?

Transactional leadership is a leadership style that focuses on structure, order, and achieving specific goals. It operates in a straightforward way — with leaders telling their team members exactly what to do.

office leaders

Transactional leaders emphasize maintaining stability and consistency rather than nurturing change and innovation. They drive their teams forward by setting clear objectives and providing explicit instructions on how to achieve them.

This leadership style is built on a system of rewards and consequences, similar to the traditional carrot-and-stick motivation model.

In this setup, leaders incentivize performance by offering rewards for achieving targets and enforcing penalties for falling short. They appeal directly to the self-interest and personal gains of their team members.

History of Transactional Leadership

Transactional leadership can be traced back to the early 20th-century management theories of Max Weber in his seminal work, Economy and Society, as well as the principles of scientific management introduced by Frederick Taylor.

These theories laid the groundwork for understanding organizational behavior and the dynamics of leadership within the workforce.

Bernard M. Bass and James MacGregor Burns were also pivotal figures in bringing the concept of transactional leadership into political settings.

They introduced a distinction between transactional leaders, who reward performance or compliance, and transformational leaders, who seek to inspire and innovate.

Over time, transactional leadership has evolved to blend with transformational leadership characteristics as leaders recognize the complexities of human motivation.

Modern transactional leadership, while still relying on extrinsic rewards, achieves its best results when these rewards are paired with intrinsic motivators.

What Does Transactional Leadership Look Like?

The transactional leadership style uses distinct practices to promote efficient and goal-driven team management. These include the following:

Clear Expectations

Transactional leaders communicate precisely what is expected of their team members regarding their performance, roles, and responsibilities. This transparency removes ambiguity and uncertainty and helps build trust between leaders and followers.

In a transactional setting, every team member knows exactly what is required of them, making it easier for them to focus on meeting those targets.

Goal-Oriented Approach

Transactional leaders prioritize achieving predefined goals and objectives, which are often short-term goals that can be quantified and celebrated.

goals

However, this approach can sometimes overshadow long-term strategic planning and lead to the risk of missing out on future opportunities.

Contingent Rewards

In transactional leadership, rewards serve as a central motivational tool. Leaders use bonuses, promotions, or public recognition to acknowledge team members who meet or surpass their performance expectations. This system encourages team members to consistently strive for excellence in their tasks.

Based on organizational behavior experts Skopak and Hadziahmetovic’s research, the contingent rewards of transactional leaders promote job satisfaction.

Punishments for Missed Targets

Transactional leaders also enforce punishments for not achieving set targets or standards. Reprimands, demotions, or the loss of privileges are used as deterrents. Still, transactional leaders don’t punish their subordinates with micromanagement.

This aspect of transactional leadership reinforces accountability and the significance of upholding organizational standards.

Management by Exception

Transactional leaders often employ a method called management by exception, primarily in response to ineffective or inadequate performance. This method can take an active or passive form.

management by exception

In active management, the leaders are deeply involved in daily operations, supervising team members closely, providing detailed instructions, and constantly evaluating performance to rectify issues.

Conversely, in passive management, the leaders step in only post-completion of a project or if significant problems arise.

When Is Transactional Leadership Effective?

Transactional leaders shine in clear, structured work environments with set processes and systems that benefit from direct oversight.

Sales Teams

Transactional leadership aligns well with the goal-driven nature of sales teams, where performance is closely tied to specific targets and incentives. Sales representatives are typically highly motivated by rewards such as commissions or bonuses that directly reflect their ability to meet sales quotas.

The straightforwardness of transactional leadership establishes a clear link between effort, results, and rewards in a sales environment.

Project-Based Teams

Transactional leadership can be beneficial for project-based teams with tight deadlines, specific budgets, and quality standards. Leaders can use clear expectations and contingent rewards to help keep team members aligned with project goals.

project managers

By clearly defining what needs to be accomplished and enforcing parameters, leaders help ensure that their team is focused and that projects are completed within the set constraints.

Emergency Situations

The command-and-control style of transactional leadership is particularly effective in emergency situations that need quick action and strict adherence to established protocols.

High-pressure scenarios, such as a pandemic, require leaders to swiftly issue directives, enforce discipline, and keep their team functioning.

How Do I Know If Transactional Leadership Is for Me?

If you’re contemplating whether this style of leadership would suit you and your company, do the following:

Reflect on Your Leadership Style

Consider your natural inclinations as a leader. Are you at your best when providing specific instructions? Do you prefer a structured work environment that has clear expectations? If so, transactional leadership may align with your natural leadership tendencies.

Moreover, ask yourself if you’re comfortable using rewards and punishments as tools to motivate your team. Your effectiveness as a transactional leader depends on your affinity for these practices.

Assess Your Organizational Structure

Transactional leadership thrives in environments with clear hierarchies and established routines. Take a moment to evaluate whether your organization values having well-defined roles and a systematic, goal-oriented planning process.

The more these characteristics resonate with your organization, the more suitable transactional leadership may be for you.

Consider Your Team’s Needs

Lastly, think about how your team operates. Do they respond well to explicit directives and quantifiable targets? Are they motivated by an environment where order and predictability govern their tasks?

Understanding how your team responds to the foundational elements of transactional leadership will guide you in deciding whether this leadership style would benefit your team.

Pros and Cons of Transactional Leadership

Like any leadership style, transactional leadership comes with advantages and drawbacks.

Pros:

Clarity in Roles and Expectations

Transactional leadership clearly defines roles and expectations, which minimizes confusion and aligns team members with their respective responsibilities.

different employee roles

Having a clear framework can streamline operations and foster a strong sense of accountability across the team.

Goal Achievement and Productivity

Because transactional leadership focuses on achieving specific targets and performance standards, it can boost productivity by providing team members with concrete objectives. This direction drives purposeful actions in the organization.

Efficient Decision-Making

Transactional leaders typically make decisions without requiring group consensus, expediting the decision-making process. In environments where rapid responses are necessary, this can be highly advantageous.

Cons:

Limited Creativity and Innovation

Transactional leadership’s emphasis on rules and established procedures can suppress creative thinking and innovation. With 60% of employees valuing creative work opportunities, a transactional approach can dampen this spirit.

Lack of Employee Engagement

Since transactional leadership often relies on extrinsic motivators, it may not always foster genuine employee engagement.

lack of employee engagement

Modern workers also expect intrinsic value in their roles. So, extrinsic rewards alone are not effective for long-term employee engagement and may result in higher turnover.

Resistance to Change

Organizations led by transactional leaders may struggle with adaptability due to these leaders’ preference for the status quo. This can pose a risk to a company’s competitiveness and responsiveness to new market challenges.

Examples of Transactional Leadership

Let’s take a look at some examples of transactional leadership from both the corporate world and popular culture:

Mcdonald’s

In the 2016 movie “The Founder,” which chronicles the story of McDonald’s transformation, Ray Kroc, the force behind the franchise’s rapid growth, declares, “Systems, procedures, consistency; it’s all there in the manual.”

This proclamation underscores McDonald’s international acclaim — its commitment to highly structured operational procedures. The iconic fast-food franchise model relies on precise guidelines for food preparation, customer service, and cleanliness.

McDonald’s is also known for implementing a system of rewards and punishments that drive productivity and maintain consistency across all locations. That’s why, no matter which country you travel to, a Big Mac tastes pretty much the same.

Bill Gates

Bill Gates, the co-founder of Microsoft, is known as a transactional leader due to his focus on concrete goals.

Gates’ leadership places a strong emphasis on clear, measurable objectives and detailed planning, which translates into Microsoft’s methodical approach to software development and its business operations.

Performance-based incentives have also been a hallmark of Gates’ tenure. They’ve effectively motivated Gates’ employees to fulfill project deadlines and maintain high standards for product quality.

How OfficeRnD Hybrid Empowers You to Be a Better Leader

Today’s leaders face new challenges that conventional leadership approaches may not fully address. Hybrid work environments,present complex issues.

Coordinating employees on different schedules and locations and the inability to observe real-time team interactions can be real issues.

OfficeRnD Hybrid is a hybrid work management software that equips leaders with versatile tools to navigate these modern complexities regardless of the leadership approach they use.

Enhance Team Coordination and Performance

With OfficeRnD Hybrid, you can create and oversee workplace policies, ensuring that expectations are communicated clearly and implemented consistently. Understanding how well these policies are adopted and adhered to helps maintain a high level of performance.

officernd hybrid scheduling

The software provides transparent team schedules, which is essential for coordination in a hybrid work setting. Visibility into when and where your team is working simplifies communication and planning, as well as ensures smoother collaboration.

Adapt to Changing Work Environments

OfficeRnD Hybrid is tailored to the unique demands of managing hybrid teams. We offer presence tracking and workplace analytics to keep you informed about team dynamics and workspace usage.

With these insights, you can make data-driven decisions that enhance productivity and adapt to changing work environments and dynamics.

Integrate Your Workspace With the Apps You Already Use

OfficeRnD Hybrid’s collaboration and office resource scheduling tools can help refine your procedures, workflows, and team schedules. Moreover, our integration with top collaboration tools, such as Google Workspace, Microsoft Teams, and Slack, enhances your team’s connectivity and collaboration capabilities without the need to use yet another app.

We offer a central hub where team members can collaborate effectively, no matter where they’re located. With OfficeRnD Hybrid, you’ll have the tools and oversight necessary to manage and motivate your hybrid team.

You can start for free with OfficeRnD Hybrid or book a live demo with one of our workplace experts.

FAQ

What Is the Difference Between Transactional and Transformational Leaders?

Transactional leaders focus on maintaining the status quo and ensuring tasks are performed to expected standards through a system of rewards and penalties. Their leadership is characterized by clear structures, where compliance and achievement are priorities. They also rely heavily on extrinsic motivators, such as bonuses, salary increases, promotions, and formal recognition.

In contrast, transformational leadership aims to inspire and motivate employees to transcend their own self-interests for the good of the organization. They encourage innovation, foster trust, and build a shared vision that promotes change and growth within an organization.

Transformational leadership depends on intrinsic motivators, including personal growth opportunities, job fulfillment, and inclusion within a supportive team.

What Are the Three Approaches to Transactional Leadership?

The three primary approaches to transactional leadership are as follows:

  1. Contingent reward: Leaders provide tangible rewards for task completion or positive performance.
  2. Active management by exception: Leaders actively monitor employee performance and take corrective action as soon as they see a deviation from normal standards.
  3. Passive management by exception: Leaders intervene only when problems become serious or performance falls below standards.

How Do You Implement Transactional Leadership?

Follow these five tips to implement transactional leadership in your company:

  1. Set clear goals: Define clear, measurable objectives that align with your organization’s goals.
  2. Establish expectations: Communicate what is expected from each team member and outline the rewards for achievement and the consequences of failure.
  3. Monitor performance: Keep a close watch on team performance to make sure tasks are completed as required.
  4. Provide feedback: Offer immediate feedback to reinforce good performance or to correct issues.
  5. Reward or discipline: Implement a consistent system of rewards for achievers and disciplinary actions for those who do not meet the set standards.

Who is the Best Example of Transactional Leadership?

The best example of transactional leadership is Bill Gates, co-founder of Microsoft. Gates exemplified this style by focusing on clear structures, setting specific goals, and implementing a system of rewards and penalties to manage his team effectively.

What is an Example of a Company with Transactional Leadership?

A notable example of a company with transactional leadership is General Electric (GE) under the leadership of Jack Welch. Welch’s approach emphasized efficiency, direct performance-reward linkages, and strict adherence to goals, making GE a classic case of transactional leadership in action.

Is Elon Musk a Transactional Leader?

Elon Musk isn’t considered a transactional leader. He is more often described as a transformational leader, known for his visionary approach and emphasis on innovation and risk-taking at companies like Tesla and SpaceX, rather than focusing primarily on structured transactions and rewards.

Is Mark Zuckerberg a Transactional Leader?

Mark Zuckerberg isn’t primarily seen as a transactional leader. He is more often regarded as a transformational leader, especially in the early stages of Facebook, where he demonstrated a strong vision for social connectivity and innovation, rather than strictly adhering to the transactional leadership style of direct rewards and penalties.

Is Steve Jobs a Transactional Leader?

Steve Jobs isn’t classified as a transactional leader. He is more widely recognized as a transformational leader, known for his charismatic and visionary approach at Apple, focusing on innovation and challenging the status quo, rather than the structured, reward-based approach of transactional leadership.

 

Miro Miroslavov
CEO and Co-founder of OfficeRnD
Miro Miroslavov is a software engineer turned into a tech entrepreneur. In 2015 he co-founded OfficeRnD - a leading flex space and hybrid work management platform. As a CEO at OfficeRnD, he grew the company from inception to a leading software vendor that serves thousands of customers worldwide. He is a big fan of flexible working and is on a mission to "Making Flexible Working the Way of Working".