What Is Transactional Leadership?

By Indeed Editorial Team

Updated November 18, 2022

Published May 17, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Strong leadership skills are necessary for high-level positions in any industry, though leadership styles vary in different companies and situations. There are dozens of leadership styles, and many managers incorporate multiple types into their workplace. One common style is transactional leadership, also known as managerial leadership.

In this article, we look at what transactional leadership is and explore its advantages and disadvantages.

What is transactional leadership?

Transactional leadership focuses on producing results through organization, supervision and assessments. Transactional leaders want employees to be compliant and ensure it with a system of rewards and disciplines.

They view the relationship between managers and subordinates as a transaction. This means they will give you something, like a reward, in exchange for something else, such as hard work or meeting a specific goal.

Transactional leadership focuses on maintaining an organization, not growing or changing it. The aim is to create and meet short or long-term goals while maintaining the status quo within the company.

This leadership style is ideal for skilled employees motivated by a reward and punishment system.

Related: 10 Common Leadership Styles

Who uses transactional leadership?

Any industry can use transactional leadership, but middle and upper management positions in medium to large-sized companies are the most common. This is because larger companies don't need to worry about change or growth in their organization if what they're doing is working. They just want to maintain their success.

Related: 15 Leadership Positions You Can Have at Work (With Salaries)

An example of transactional leadership is within a competitive sales team. A salesperson agrees to meet a certain sales target for payment or commission. If they don't meet the target, they receive a punishment, usually less or no commission.

Transactional leadership does not work as well in creative fields, such as marketing or advertising. Employees in these industries need flexibility to create pitches, slogans or ideas. Transactional leadership follows a strict outline, which may reduce morale and motivation among creative employees.

Characteristics of transactional leadership

As many managers blend management styles to find one that works for them and their company, identifying a particular style can be hard. Here are some common characteristics of a transactional leader to help you recognize one:

  • Passive: Transactional leaders are passive as they focus on maintaining the status quo of an organization, not taking proactive steps to solve problems or create growth.

  • Micromanager: Transactional leaders micromanage employees to ensure they are working efficiently. This is because they handle all decision-making and achieving certain goals, so they must ensure their team is doing their job properly.

  • Practical: You must be practical to be a good transactional leader. Making level-headed decisions independently is necessary, but they must do it within an organization's constraints. This means transactional leaders don't need to be innovative to make decisions, but they need to be practical.

  • Motivated by self-interest: Self-interest motivates both managers and employees under transactional leadership. Both parties receive a reward if they do well, so they do whatever it takes to meet their goals. Teamwork is rare under transactional leadership.

  • Discourages independent thinking: Transactional leadership does not encourage employees to think independently, as they could stray from the status quo. Creativity, innovation and independence do not work under transactional leadership.

  • Emphasizes corporate structure: Transactional leaders place a lot of importance on the hierarchy and culture of an organization. Everything employees do must follow the set rules and go through proper channels. For example, if an employee wants to present a software issue, they have to tell their supervisor, who then reports it to upper management. This hierarchal process is time-consuming, but bypassing it is insubordination.

Related: Leadership Skills: Definition and Examples

Advantages of transactional leadership

Although transactional leadership may seem harsh or unappealing, there are plenty of advantages to using it in certain industries or environments. Here are the primary advantages of transactional leadership in the workplace:

Motivational

Giving employees a reward when they reach a certain goal or complete a project and punishment when they don't can motivate them to work harder. Transactional leadership also ensures managers clearly explain goals, so employees know exactly what they're working towards.

Achievable goals

Goals are easier to achieve when they're clearly defined. For example, a graphic designer may not know exactly when their work is complete because art is subjective. Transactional leadership ensures goals have a defined endpoint, making them more easily measured and achievable. Goals under this management are commonly short-term and lead to a larger long-term goal. This makes them much easier to reach, giving employees the confidence they need to pursue their next goal.

Related: How to Set Team Goals at Work (With Examples and Tips)

Set chain of command

Democratic leadership styles can blur the lines between upper management and their team. Transactional leadership creates a clear chain of command, so everyone knows their role and what the company expects of them. So even if someone works in a similar position to yours, there's no confusion about what you need to do or who you report to.

Simple to implement

Transactional leadership is a simple process. Managers don't need extensive training to do their jobs. They just have to enforce the organization's rules. Transactional leaders do not need specific leadership or personality traits, so implementing the system at any company is easy. However, the role is more well-suited to some personality types than others. For example, creative people who love to share ideas with others likely prefer a more collaborative leadership style.

Easy to follow

Transactional leaders give employees detailed and easy-to-implement instructions to finish their tasks efficiently. This ensures employees don't misinterpret anything or get confused by vague instructions.

Easy to measure success

It's easier to measure success in transactional leadership environments. You can easily define success by whether an employee meets their goals. Being able to gauge an employee's success helps managers ensure their team works efficiently and allows them to increase rewards or punishments accordingly.

Related: What Is Task-Oriented Leadership? (With Benefits and Skills)

Disadvantages of transactional leadership

As with any leadership style, transactional leadership has some disadvantages. These disadvantages vary depending on the industry, as transactional leadership does not thrive in creative environments, but does in goal-oriented ones.

Here are some notable disadvantages of transactional leadership in the workplace:

Eliminates individuality

As transactional leadership follows a strict set of regulations, there is no room for individuality. Employees must follow the best practices that their manager sets to reach specific goals. Violating policies, not following instructions or not meeting goals can all lead to employees receiving a punishment, making it hard to make confident decisions on their own.

Limited innovation and creativity

Similarly, transactional leadership limits innovation and creativity from employees as they rarely get to voice their opinion or ideas at work. Employees must focus on their assigned tasks, so they never think about fresh ways of doing things. Even if they come up with ideas, transactional leaders rarely ask for employees' opinions or input. This leaves little to no creative freedom and innovation for employees.

Over-reliance on the leader

When the leader handles all decision-making, delegating, problem-solving and more, employees may become overly reliant on them. Team members follow what their manager says, so they get used to having someone make decisions for them. Transactional leadership creates more followers than leaders, which is a problem for employees that want to advance their careers.

Ineffectiveness of the reward system

Although some employees thrive in an environment that uses a reward and punishment system, others don't. Rewards aren't a motivator for every employee, and they may need to motivate themselves to get their work done. If you find more satisfaction from things like learning a new skill, working with a team or receiving praise, you may prefer another style of leadership to transactional.

Limits teamwork

Transactional leaders encourage employees to complete their tasks individually to reach certain goals, thus limiting teamwork. Some employees may even turn against each other by stealing customers or clients to meet quotas. This can lead to a hostile work environment.

Costly mistakes

Transactional leaders have a hands-off approach to leading their team. This means employees receive little feedback, so if they're doing their job incorrectly, they may not find out for weeks or months. Correcting these types of mistakes can be costly for the company and can make some employees feel insecure or misguided about their performance.

Lack of empathy

Transactional leaders tend to lack empathetic skills, as their only focus at work is ensuring employees reach their objectives. Transactional leaders want the work done on time, regardless of the employee's feelings or thoughts. This can lead to employees feeling unsatisfied at work.

There are so many leadership styles, but transactional leadership drives employees forward and motivates them to achieve goals and hit performance targets. It's an effective way to manage employees who need clear objectives, work on individual tasks and thrive in a little healthy competition.

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