Transactional leadership: All that you need to know

In every grade during my schooling, if I scored the marks my father aspired, he gifted me something I love. If I failed to achieve his desired results, I lost his present for that year. His gift or no-gift methodology motivated me to study hard. 

At the end of my schooling, I realized I topped most of my grades, leaving my classmates far behind.  

That’s precisely what you need to replicate as a transactional leader.

Transactional leadership, popularly known as managerial leadership, is a telling leadership style. Rather than inspiring employees or helping them, you motivate them to perform based on incentives and punishments.

You can achieve this by setting the right rewards and penalties that are standardized as per the performance of employees. This persuades them to deliver exceptional outcomes. 

As a transactional leader, you set the standard of performance as per the requirement of your organization. For instance, for each employee in the sales team, you may set a goal of attaining sales worth a number of dollars (as per your quarterly target for the sales department). 

If your employees achieve the figure, you allocate a monetary bonus; else, you reduce a specific percent of their compensation.

Thus, the transactional leadership style is simply a give and take process. You achieve the organizational objectives by serving the self-interest of your employees. 

Before we discuss how you can apply this style in your organization, let’s first understand its assumptions and components. 

Assumptions of Transactional leadership:

The transactional style of leadership was first described by Max Weber in 1947 and then by Bernard Bass in 1981. 

You need to understand the assumptions of this style to know the environment for which this style is effective. If you believe these assumptions do not match your organization’s culture, you may consider mixing this style with other leadership styles (give link).

With this in mind, let’s have a look at the underlying assumptions of Transactional Leadership:

Employees perform best when the chain of command is definite and clear: 

In one of my newly formed teams, I brought in a few senior folks who had similar levels of experience of about a decade. The idea was that they had the maturity to handle themselves and other less experienced members. Hence, I could use laissez-faire methods and concentrate on other projects. 

However, after a few months, the team’s performance was continuously going down! The less experienced folks had defects in their assignments, they missed deadlines, and the same piece of work was worked upon multiple times by different team members. 

What was wrong? These people were performing well individually in their previous projects.

When I started analyzing, I realized there were ego clashes. Each senior member thought they were leading the team. The difference in opinion amongst them confused the less experienced folks. The hierarchy of the team wasn’t clear to them.

The team needed an organized structure and a clearly defined source of commands. I brought them on the same page, sorted existing issues, and decided on who is going to head the team through consensual discussions in multiple meetings.

There was a set direction once a defined person was leading the team. Hence, the efficiency and productivity of the group went up drastically.

This instance is a classic case of how an unclear chain of commands can hinder the performance of your team. 

Transactional leadership helps in bringing out the best in people by having a precise and definite objective; the clarity of purpose results in improved performance. 

Rewards and punishments are motivators:

To get effective results as a transactional leader, you need to create a system of rewards and punishments– honor employees if they achieve their targets and penalize them if they miss it. The transactional leadership style assumes that this methodology works best to motivate employees and achieve requisite outcomes.

As a transactional leader, you focus only on the lower level needs in Maslow’s hierarchy of needs. The first four levels are deficiency needs (D-needs), and the top-level is known as growth or being needs (B-needs). The requirements at the lower levels of the hierarchy must be satisfied before attending the needs higher up.

Rewards and punishment work as the best motivators for satiating the D-needs of your employees. By recognizing their good through rewards, you increase their self-esteem and encourage them to perform better. Similarly, punishing them for not attaining their goals, pushes them to try harder. 

The primary objective of the employees is to obey the commands of the leader:

The transactional leadership style ensures that the current system, processes, and procedures work at maximum efficiency. It does not allow creativity and out-of-the-box thinking. Hence, it assumes that the primary goal of your subordinates is to follow your instructions without altering the status-quo.

You should abide by the existing structure of your organization to get the best results as a transactional leader. You need to follow the hierarchy in your company and accomplish results as per the current processes. To achieve this, you will need to allocate tasks to your employees and expect them to follow your commands.

Milgram’s Studies on Obedience to Authority reveal the relationship between obedience and leadership. According to the study, authorities, through their power, can push people to obey the commands of even giving a shock to others. 

You can use this study to understand that your instructions to employees are a powerful tool to get desired results from them. If you are clear with your commands, they are bound to follow them.

Subordinates require careful monitoring to meet expectations :

By now, you are aware that your employees need to know the hierarchy of your organization, and they believe that they need to follow your instructions. Also, you have built a system of rewards and punishments standardized across employee performance.

But is that enough?

Not really! Transactional leadership assumes that your employees need external motivation. Hence, if you keep an eye on their work, they will be inspired to do it to the best of their abilities.  

You need to monitor the performance of your employees closely. It prevents any deviation of your employees from their targets and pushes them to stretch themselves to complete their assignments.

You can use various methodologies for monitoring employees like daily task allocation registration, conducting meetings to discuss progress on tasks, and giving feedback. 

Through close monitoring, you will be able to focus your employees on their tasks and imbibe discipline in them. Also, you can review their work and make changes if needed. 

To understand further, you need to have a look at the core components of transactional leadership.

Components of Transactional Leadership Style:

The fundamental constituents of transactional leadership are Supervision, organizing, and assessing performance. These form the basis of the style, and you should apply them throughout your organization. Following is a brief description of these elements:


You need to focus on controlling your employees by giving them proper guidance. There have to be clear guidelines that specifically mention what is acceptable and what will be considered inappropriate. Then you need to ensure that your subordinates strictly follow these guidelines.

Supervising your employees need not include close monitoring. However, it can be related but not restricted to the handling of customer data, ensuring the project is on schedule, allocation of assignments, and tasks to group members, among others. 

In my team, for instance, we have a clear guideline of sending an update everyday on the work accomplished in the day. With this process in place, I can track the progress of my team members and guide them if they are stuck and need help. It also allows me to ask them to put extra efforts if they are behind schedule.


You need to be a good organizer of business activities to use the transactional leadership style effectively. These activities can include ensuring an efficient business plan for your organization, setting up meetings to discuss organizational objectives, and creating deadlines to meet them.

You also need to put in place rules, procedures, and standards that your subordinates need to follow. Your organizational structure is the backbone of setting up these aspects. What this means is, you will need to consider the hierarchy, policies, and protocols of your organization while deriving the regulations for your employees.

When you set up standards and expectations, you increase the efficiency and productivity of your employees. 

For example, you can distribute a list of activities that your employees need to follow.  This can include their minimum working hours, deadlines of assignments, and minimum standards of products or services that you expect them to deliver. When your employees perform to meet these objectives, they are bound to be efficient.

Assessing performance:

In the first two components, you have set the expectations from your employees as per organization standards and supervised employees to check if they are meeting those expectations. 

What’s next? What if your employees meet those expectations, and what if they don’t?

You need to evaluate the performance of your employees.

The driving factor of this style is a reward and punishment system based on how well your employees have performed in the objectives you have set. You need to evaluate their output and decide whether it deserves punishment or reward.

For instance, many IT organizations have a variable component in the compensation of their employees. This component, which is a certain percentage of the salary of employees (typically five to ten percent), is linked with their performance. If the employees achieve organizational goals, they get their variable components; else it is discarded.

With such mechanisms, you can assess employee performance and reward them as per their efficiency and productivity.

Now, you are aware of the assumptions of the transactional leadership style and also know its basic building blocks. The next step is to apply this leadership in your business. The following are some guidelines you can use. 

How to apply transactional leadership:

As can be seen in the figure below, your interaction with your employees in transactional leadership can fall into four different categories- contingent rewards, Active Management by Exception (AMBE), passive management by exception (PMBE), and laissez-faire.

Let’s discuss the categories one by one:

Contingent Reward

The incentives that you give your employees for meeting specific goals are contingent rewards. They motivate your employees and provide positive reinforcement for a job well done.

To have the system of contingent rewards in place, you need to set goals for your employees. It is suggested you follow the SMART principle while setting-up goals as explained below:

Specific:  You should clearly define expectations in your goal. Avoid using generalised sentences like ‘we want to generate profit.’ You are better off stating the figure of profit like ‘we want to produce a profit of a million dollars’

Measurable: You should clearly define your goal with the help of quantifiable entities like quality, quantity, and cost. It helps in easily tracking your target. Avoid saying, ‘we want to increase social influence to generate profit.’ Instead, specify exactly how you want to increase social influence. You can state, ‘we want to have a profit of a million dollars by generating fifty-thousand leads through social media websites.’

Attainable/Achievable: Make sure your goal is challenging but attainable at the same time. In the example ‘we want to have a profit of a million dollars by generating fifty-thousand leads through social media websites,’ you should be sure that ‘fifty-thousand’ and ‘million dollars’ are figures which are attainable. If not, consider more practical numbers.

Relevant/Realistic: Your goal should serve the higher-level goals of the business to be relevant. You need to align the purpose of your goal with the objectives of your business. 

Also, ensure you are aware of the hurdles you may face while working on your goal. Setting realistic targets helps you gain clarity about the roadblocks you may encounter.

Time-bound: Having a defined period to attain your goal helps you to be efficient and productive. You must clearly state the time-frame- ‘We want to have a profit of a million dollars by generating fifty-thousand leads through social media websites in the next quarter.’

Active Management by Exception:

You now have clearly defined goals and rewards for your team. What’s next?

You give the team the resources they need to achieve goals and monitor their progress.

The aim of active management by exception is to ensure that you identify areas where there are chances of mistake and take preventive measures before such a situation arises. 

You need to ensure that your team operates as per the standards to achieve the goal. You should treat any deviation from the acceptable processes and procedures as exceptions. The process of identifying the unexpected is called management by exception. 

To elaborate, let’s continue with our goal of ‘achieving a profit of a million dollars by generating fifty-thousand leads through social media websites in the next quarter.’

If the expected expenses on operations of this goal are $60,000 and your team is operating at $30,000 or $90,000, you need to assess the reason and take corrective action quickly. 

Passive Management by Exception:

The difference between active and passive management by exception is the timing of your intervention. You are proactive when you are exhibiting active management by exception. You closely monitor the tasks your team is performing, and immediately take action when you notice any deviation. 

However, when you use passive management by exception methodology, you allow your team to conduct work as they want and get involved only when the results are different from the expectations. You use the system of rewards and punishments you had set-up, to penalize the team for not meeting expectations and take corrective action.

Passive management by exception is useful where you are sure of your team’s capabilities to achieve the goal. Also, you know that in case of deviation, you will be able to rectify the situation and take corrective measures quickly. 

Laissez Faire:

When you interact with your employees in the Laissez-Faire style of transformational leadership, you simply set the goal and expect results to follow by giving your team the environment to make decisions and the liberty to set up processes. You do not care about their needs.

For instance, you would set the goal of achieving a certain amount of profit in a specific time. After that, you take a hands-off approach and abdicate responsibilities. You leave it up to the team to decide on operating expenses, funding, or any other resource they would require to achieve their target. 

Laissez-Faire interaction creates a relaxed environment for your team as they have the complete freedom to opt for methodologies to achieve their goals. However, it can also lead to your team to lack direction. You should apply this method to self-motivated groups with highly experienced professionals. 

Now, you are aware of how you can apply transactional leadership. Following is an awesome video that can give you more insights:

Where is Transactional leadership style effective?

Once you are aware of the methodologies of a management style, you need to know the situations where you can apply it. Following are a few scenarios where you can use transactional leadership:

  • If there is a crisis in your organization, you need quick results. The crisis can be related to data security, economic or financial stability, or product recalls, among others. Your primary aim in such situations is to get work done from your subordinates as quickly as possible and maintain status-quo.

According to research by Tilburg University, the transactional leadership style has the right characteristics to help your organization get through a crisis. Your coercive power as a transactional leader and the rewards-punishment system you design can influence the desired behavior in a crisis.

  • If you have a system that has similar, regular, and well-defined work with already tested working solutions, you can consider applying a transactional leadership style. You need not encourage employees to search for solutions or have an out-of-the-box creative outlook in these conditions. 
  • As the design of the transactional leadership style maintains the integrity and performance of your group, it is highly effective if you need to execute fixed operations in your business. Also, you can use this style if you require similar activities to be performed in a specific manner every time. 
  • If you need to work for a well-established company with a large work environment, the stress is on the structure of the organization. Hence, transactional leadership, with its straightforward approach, is a perfect choice and can quickly get effective outcomes.

Final Thoughts

Transactional leadership is a great way to maintain order and structure in your organization. With a fair balance of assignments and rewards, you can achieve the desired results from your employees. 

However, you need to hit the right nodes while applying this style, as it can easily border Autocratic leadership. You should not seem to be authoritarian. Creating the right system of rewards and punishments as per employee performance is the key. 

If you focus on achieving clearly defined objectives with regular reviews and stick to the format set-out, transactional leadership can be a great tool in your leadership armory.

Want to expand on the discussion? We would love to hear your opinion. Do let us know how effective you find transactional leadership style in your organization.

Career Advice

4 Reasons why Situational leadership ensures your success

Jack Stahl, former chief executive at Coca-Cola and Revlon, mentioned an experience with one of his predecessors Doug Ivester in one of his interviews

Ivester asked him to work on a team project with a rigid deadline. The task was to prepare a prospectus for the public offering of Coca-Cola’s bottling division. When Ivester asked for a review, the draft was far more incomplete than what Stahl expected. Even the new company’s phone number was missing from the first page.

The reason?

Stahl had assigned some parts of the project to his subordinates without sufficient supervision. He realized he needs to balance between high-level management and getting into the details when necessary.

That’s what you need to do as a situational leader. You need to adjust yourself according to the requirements of the business scenario, and the experience and competency level of your subordinates. 

Before we discuss why this is the most effective leadership style, let’s first get into its nitty-gritty.  

Fundamentals of Situational leadership:

Previously known as ‘the life cycle theory of leadership,’ situational leadership has been developed by Kenneth Blanchard and Paul Hersey.  

It refers to your ability to adjust your leadership style to fit the development level of your employees. With this type of leadership, your subordinates need not adapt to your style. On the contrary, you adjust yourself according to their needs.

In the current times, with teams across the corporate world having a blend of heterogeneous professionals from varied backgrounds and work experiences, situational leadership is the most effective leadership style. 

The situational leadership theory divides leadership styles into four types, which are to be used depending on the maturity level of your employees. As explained in the figure below, they are directing(S1), coaching(S2), supporting(S3), and delegating(S4) corresponding to the development level of your employees, which includes their competence and commitment, from D1 to D4 respectively.

Let’s discuss these styles one by one:


In this type of situational leadership style, you call all the shots: You tell people what, why, when, and how to do things. Your behavior has to be highly commanding and need not be as supportive. This style is close to autocratic leadership. 

While exhibiting directing style in a typical corporate set-up, you need to use micromanagement techniques to get into the details of every task and assignment. You have to delve into the specifics of every piece of work and make sure your subordinates complete it as expected. 

You can map this style with the D1 level of employees. They possess low task competence and high commitment, and hence need clear instructions and guidance. When you use directing leadership style, you develop the proficiency of your employees by providing them with precise directions.


When your subordinates have gained a certain minimum competency level, you need to exhibit the coaching style of situational leadership. In this methodology, you have to be highly directive and supportive of your employees.

You need to help your team members to improve their skills and look to build a relationship of trust with them to develop a team. To attain this, you should make decisions after a discussion with your team members and let them know the reasoning behind the final resolution.

For instance, you can have a team meeting to discuss the status of tasks and also to make crucial decisions for the team collaboratively. 

You can map this style with the D2 level of employees. They possess some task competence but are low on commitment. Hence, not only do you need to give clear instructions and guidance but also provide them with encouragement and support.


You need to use the supporting style of leadership when your team members are good at task competencies but are not consistent in performance. Since, at this stage, they already have the necessary skills to complete their work, you need not go for a commanding approach.

Your primary focus in this style has to be relationship building with your employees and their inclusion in important decisions. This style is close to democratic style of leadership. You need to give your team the liberty to accomplish tasks on their own and not get into the details of every assignment.

This style is suitable for employees at the D3 level. They have all the necessary skill sets to deliver their piece of work; however, their commitment is not consistent. You need to handle them by giving them more autonomy and greater scope to develop self-leadership.


When you have a team of highly competent and self-motivated individuals, your job is to monitor progress and be a part of important decisions. You need to focus on neither supportive nor directive behavior. Instead, your focus should be on high-level goals and on providing opportunities for growth to employees.

This style is close to a laissez-faire style of leadership. You can take a hands-off approach and delegate work. Your employees can create plans and attain goals on their own. However, you need to make sure employees regularly update you on the tasks they perform. The delegating stage of situational leadership helps you develop future leaders.

As described, the employees with whom you can use delegating leadership style are high on competence as well as commitment; they are the D4 level of employees. They are motivated, competent, and confident.

How does the cycle of situational leadership benefit your organization?

If you get a team or individuals at D1 level of employee maturity, you can follow all the steps from S1 to S4 as described to develop individuals of D4 level. In other words, at the end of the situational leadership cycle, you are able to generate employees with very strong skills and commitment.

Have a look at the following video on situational leadership to understand the facets of this leadership style further: 

Situational leadership, due to various reasons, can help you become a better leader. I have boiled down to four broad reasons why situational leaders are bound to be successful. Following is a description of them one by one. 

4 Reasons why Situational leadership is a recipe for success:

1. You need not rely on one size fits all formula

When I started my career, my manager asked me to send daily updates on the status of my assignments. This regular monitoring of my work pushed me to deliver as per his expectations. 

Slowly, as I gained experience, he changed the frequency of my updates from daily to weekly. Later, I stopped giving him any details of my work, and he intervened in my assignments only when I asked for help. 

Does it seem simple and obvious to you? The leader changing his style with the experience level of his employee is as easy as it can get. Isn’t it?

Well, the KenBlanchard company does not think so. According to them, 54% of leaders use only one leadership style, regardless of the situation. 

The most crucial aspect of being a successful leader is to be able to adapt to a variety of business needs. That’s what situational leadership allows you to accomplish. 

Situational leadership does not refer to a single tool that will work in every situation. It does not talk about a fixed method to be used all the time for all the business operations. 

As a situational leader, you choose the methodologies as per the situation at hand. For instance, you are directive with less experienced team members working on complex tasks, whereas you will be supportive when they become skilled.

It gives you an advantage over other leaders. You can fit in different teams with distinct mindsets and competency level, and get the best out of each one of them.

Your skill to be able to work in different scenarios and adjust yourself to business requirements and the maturity level of employees gives you an edge over leaders who lack these qualities. It allows you to provide the desired results more efficiently than them as they use only a particular leadership style in all situations.

2. You gain skill sets of all leadership styles

As a situational leader, you learn the qualities of all types of leadership styles. The directing style of situational leadership is a close parallel to autocratic methodology. You direct people and offer minimum support while using the directing style.

Similarly, to implement the coaching and the supporting styles of situational leadership, you need to develop democratic attributes. And, when you get into the phase of delegating, you should be aware of laissez-faire leadership tools. 

Situational leadership thus encompasses the unique aspect of having the characteristics of all types of leadership styles. As a situational leader, you gain the capacity to display multifaceted leadership principles depending on the needs of your business. 

How do these skills ensure your success?

The corporate environment comprises of a blend of experienced experts and budding millennial professionals. With your ability to be able to adjust to the needs of the complete spectrum of employees, you are a perfect match for leadership roles. You can get the desired results by getting the best out of all types of subordinates.

Leaders that do not possess situational leadership skills tend to be unilateral in their approach. They may achieve the desired results, but not in all scenarios. They also are not able to get the best out of their employees. Hence, leaders with other leadership styles will get the required business outcomes only in specific frameworks.

For instance, the following are a few situations along with the leadership styles, which are generally considered tailor-made for them. A situational leader would be able to adjust to all of them.

  • A group of inexperienced employees working on a complex task that they need to deliver with a rigid deadline
    – Autocratic leadership style is perfect for this scenario.

However, as a situational leader, you will be able to use directing approach in this situation and achieve positive results.

  • A company is undergoing restructuring, and you need to work with employees to make long term profitable decisions. – Leaders amalgamate the Transformational and Democratic styles in such situations. 

However, with the coaching style of situational leadership, you will be able to handle these scenarios.

  • A company is undergoing restructuring and you need to work with employees to make long term profitable decisions. -Transformational and Democratic styles need to be amalgamated in such situations. 

But you too can be successful using skills of supporting style of situational leadership.

  • A team consists of senior experienced, highly motivated, expert professionals.
    – Laissez-Faire leadership style is considered to be suitable for handling such team members.

However, with the delegating style of situational leadership, you can handle them with equal ease. 

3. Situational leadership is more flexible than other styles of leadership

Leaders who do not possess situational leadership skills tend to start practicing leadership by the thought, ‘What’s my role, and how do I lead?’

However, when you exhibit leadership by using qualities of a situational leader, you start by thinking, ‘Whom am I leading, and what do they need from me to achieve success?’

By adjusting yourself to the requirements of your employees, you become more flexible. You get into the shape of the situation and get the best out of everyone by satiating their wants. 

How do leaders with other leadership styles behave in different situations?

A transactional leader would fit a reward-penalty system in all situations, an autocrat would look to dictate terms even with self-motivated employees, and a democratic leader looks to make decisions taking input from everyone, including the inexperienced ones. These leadership styles, along with all others, are rigid and fail if applied with a unilateral approach.

Situational leadership, on the other hand, is all about working your way out as per the situation. Your actions depend on the maturity level of employees, the complexity of tasks, and the needs of the business. Thus, you can fit into all types of teams, industry demands, and leadership roles.

Also, as a situational leader, by customizing your leadership skills, you can adapt to the changing customer needs and evolving technologies. This ability to tailor your approach makes you more flexible than leaders with other leadership styles.

4. Situational Leadership creates a healthy and comfortable work-environment

As a situational leader, you analyze the readiness level of your employees and adjust your style accordingly, which helps to create a comfortable space for them. They do not work with the fear of meeting deadlines and start enjoying the challenges of their tasks. 

Also, you support your employees through their learning curve and give them the liberty to take time to develop new skills. With this freedom, they can express themselves better, which creates a healthy work environment. As a result, they perform their job duties with more efficiency and productivity.

The other thing you attempt is to build a relationship-behavior with your employees. You determine relationship-behavior by the level of support you need to give your employees as per the phase of the situational leadership cycle. 

To comprehend this better, have a look at the following list of relationship behaviors and task behaviors that you need to adopt along with corresponding situational styles. Your ability to develop these relationship behaviors creates a positive atmosphere at your workplace :

Directing/ Telling               : High Task and Low Relationship

Selling/Coaching              : High Task and High Relationship

Participating/Supporting   : Low Task and High Relationship

Delegating                        : Low Task and Low Relationship

High relationship means your focus is on exhibiting a high level of support for your team members. You concentrate on satisfying their needs and develop positive repo with them. Low relationship, on the other hand, requires you to give direction to your employees only in their assignments.

Final Thoughts:

Situational leadership makes you a polymath. You gain multiple qualities and skill sets by adapting to the situational leadership style. It gives you the capacity to decipher complex business issues and simplify them as per the maturity of your employees. 

Also, you develop the ability to stretch yourself to meet the requirements of your business by satiating the needs of your subordinates.

All these attributes make you the perfect choice for leadership roles in the corporate world. With tonnes of advantages of situational leadership, there is no reason for you not to be successful once you start applying it in your workplace.

It’s Your Turn

Let us know what you think about the situational leadership style. How would you apply it in your work environment? Do you agree with the explanation, or you have additional suggestions? Share your experience and knowledge in the comments section below.