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BusinessTransactional Leadership: Definition, Examples, and Implementation

August 5, 2018

Transactional leadership style involves a system of rewards and punishment based on the performance of an employee. It is an effective leadership approach that focuses solely on the relationship between a leader and his subordinates. This style of leadership is considered border authoritative and can stifle if not engaged in the right way.

What Is Transactional Leadership?

They can define it as the setting of goals and using rewards or punishment to motivate and manage the subordinates. The system encourages employees to achieve their best through rules and regulations in a heavily structured environment.

Over the years there have been many thinkers on this theory and framework. In fact, many of the greatest managerial minds have discredited transactional leadership theory over other styles such as charismatic or pure, authoritative leadership. However, successful business tycoons such as Bill Gates swear by transactional leadership and have reaped results as proof that in the right setting this style can work.

They derive transactional style of leadership from a combination of many concepts such as:

  • Theory X by McGregor
  • Maslow’s Hierarchy of Needs
  • Definitions by James McGregor  Burns & Bernard M. Bass
  • Max Weber’s Transactional. They have considered leadership All these theories, ideas and definitions while creating transactional leadership style.

The Core Elements

They base transactional style of leadership on a ‘telling’ style. It does not depend upon charisma or transformational abilities of a leader. It focuses on the results and performance structure. The leader transacts with his employees. If the subordinates perform a task satisfactorily and meet the goals, rewards are exchanged with them.

The three core building blocks or elements are:

1. Supervision

The leader sets out specific guidelines that have to be followed by all the employees. It does not mean that the supervision is carried out by enhanced monitoring.

2. Performance

This is the heart of this style of leadership. If an employee provides satisfactory performance as per the stipulated guidelines then a reward shall follow or else a punishment.

3. Organizational Structure

There is tremendous emphasis placed on rules, regulations, guidelines, procedures and standards. The framework is set up by a leader and followed by the subordinates.

To ensure that transactional style of leadership works it is important that a leader focuses on right application of these three core blocks. The style cannot work effectively if even a single element is missing.

The Assumptions

They base this leadership style on four assumptions to provide the structural efficiency and operational capability of an organization.

1. Leadership Framework

The most obvious assumption of this theory is that subordinate performance is better when the leader is clear headed and direct. This style believes that workers need guidance and express motivation in the manner of reward to complete their tasks effectively. The behavior of subordinates is such that they cannot function when the directives are unclear.

2. Rewards Are the Only Motivation

The model is emphatic about the presence of a reward and punishment model. The leader must use rewards such as financial bonuses to motivate an employee to perform his best while punishments such as loss of job provide a guarantee. The second assumption is based on the belief that only these rewards or punishments can motivate a subordinate to perform his best.

3. Power Transfer

The third assumption is that a subordinate transfers the power into the hands of a leader when he signs the employment contract. The belief is that employees give authority to a leader or manager in exchange for financial and other benefits.

4. Monitoring Performance

The last assumption is that performance can be of inferior quality and must be constantly monitored or scrutinized by a leader. The employees work only for rewards and are not actually motivated by the work. This means that performance can be inconsistent and hence, a leader must keep an eye out until they complete the process to guarantee quality.


Throughout history, there have been many leaders who have acquired results by using transactional style. It is easier to get to the heart of this concept by understanding how leaders from the world of politics and business practiced it.

Charles De Gaulle

Gaulle was a French General who played a key role in setting up the French Republic. He was also the first president for a decade from 1959. Charles De Gaulle used a ‘telling’ and ‘direct’ style of leadership that has been acquainted with a transactional approach. He made use of the reward and punishment structure effectively in motivating his subordinates to perform to their best capacity.

The Gaulle quote that claims, “Deliberation is the work of many men. Action, of one alone” explains the transactional framework. A leader’s role in Gaulle’s view was decisive – telling people exactly what was needed of them.

Joseph McCarthy

McCarthy was a US senator and another political figure to display transactional qualities in everyday leadership. He took a strong stand against Communists in the 1950s when he suggested that the top levels of US government infiltrated with Soviet and Communist spies.

He used rewards methods to encourage his followers to come forward with information about spies. He employed the transactional framework of expectations effectively in his governance. However, he soon let his extreme actions get the better of him following a censure by the US Senate.

Amstrad Organization

There have been many examples of transactional style of leadership in the business world as well. Sir Alan Sugar was a British businessman who took Amstrad organization to great heights by way of his successful leadership. His transactional qualities were apparent in his running of the successful reality TV show ‘The Apprentice’.

The show clearly portrays the reward and punishment nature of this style of leadership with people who could follow Sir Alan’s orders to move forward. Sir Alan also understood the importance of following rules and norms. He would frequently put his head down for the betterment of business.

AA Company

Tim Parker made an effectual use of transactional abilities turnaround to completely the British Motoring Company AA. In 2004, Parker took notice of the problems faced by the company and identified the cause behind it. He recognized inefficiency, loss of members, low productivity and tardiness as the major issues.

He set on a path to reconstruct the company from the inside out. He punished all those who were inefficient while rewarding the productive ones. There were big changes made and several job dismissals. However, Parker understood the need and steadfastly changed the organization with an iron hand.

The company almost doubled profits during the first few months that made employees also realize their shortcomings.


Transactional style of leadership requires an organization with set ways. There needs to be rules, regulations and a clear framework. A good area where this style of leadership can be implemented is in well-established companies. It is also extremely beneficial when an organization has fixed operations. For instance, a manufacturing plant has repetitive processes. Hence, a leader can set goals and provide rewards for increased productivity with punishments to those who cannot achieve the set goals.

The transactional style is widely used within the sales team of many businesses. There is no direct supervision required in marketing sectors. Productivity is measured by the set targets that the employees aim to achieve. A manager can use transactional qualities by granting a bonus to those employees that surpass their targets.

The transactional approach, however, has a one-size fits all limitation. It is generally suitable only for the lower levels of management and employees who are lowest in the hierarchy chain. You require a more dynamic management style to deal with senior management. This can only be discerned by a true transactional leader.

Transactional Leader Qu​alities

There are many inherent characteristics that are required to be a successful transactional leader. These are:



The leader needs a more practical approach as he is concerned with the daily running of the business. You do not require the pragmatic approach of a visionary who develops long-term goals.


Direct Approach

It is important to have a direct approach to situations and life. A transactional leader must be able to provide straightforward solutions and direct guidelines to all employees. Without a direct approach, the leadership style shall not be a success.



Being able to respond to situations is the key to the transactional style of leadership. For instance, a leader needs to be swift in meting out punishment where goals or targets are not met.


Transactional leadership style has many benefits that are potent enough to make an organization profitable in a matter of months. It is a good leadership approach to deal with daily tasks and manage everyday corporate affairs. It also makes the management of many employees an easy task by putting in place rules, goals and rewards. However, transactional leadership depends upon the manager for its success — it might not suit a manager that abdicates responsibility and avoids decision making.

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