What’s it: Transactional leadership is a leadership style in which the leader uses rewards and punishments to encourage subordinate obedience. We also call this leadership style as managerial leadership.
Followers obey, follow, and carry out work according to the leader’s orders. As compensation, they receive rewards. If it does not match expectations, leaders apply penalties, such as telling them to overtime or not raise their positions.
Examples of transactional leadership
Sports coaches are a good example of transactional leadership. They motivate athletes to apply discipline in training. They instill a high level of commitment to do their best to win prizes. Suppose some athletes do not show a high will to progress. In that case, coaches will ignore them and exclude them from international competitions.
In the business world, large companies often have many transactional leaders. The company has a stable position in the market and encourages leaders to demand system compliance. They usually set targets to achieve. If the subordinates show high performance and reach the target, they appreciate it. If not, they will replace it with another subordinate.
Two examples of transactional leaders in business are Bill Gates and Howard Schultz. Meanwhile, in politics and government, there are Joseph McCarthy and Charles de Gaulle.
Characteristics of transactional leadership
This leadership style assumes individuals are not motivated to perform their tasks. Therefore, to manage the organization, leaders use rewards and punishments to encourage subordinates to comply. They also develop structure, instructions, and supervision to encourage subordinates to carry out tasks and jobs.
Subordinates will do their job only if there is a reward. For that, leaders must offer compensation, so they are willing to carry out their duties. They also use punishment to deter their subordinates and not repeat mistakes.
Following are some of the characteristics of transactional leadership.
- Rewards and punishments are the motivation for subordinates to carry out their duties and obey. That is the main reason for subordinates to do their best and avoid mistakes.
- Standards and benchmarks for good performance are clearly stated. Creativity and innovation are not the main focus. Instead, the most important thing is to carry out duties according to the leader’s standards.
- The organization’s mission, systems, rules, instructions, and chain of command structure are central to organizing the company. Leaders’ power lies in their formal authority and responsibilities within the organization.
- Transactional leaders do not seek to change the status quo but instead run the company according to existing rules and systems. They are highly resistant to change.
- The leader oversees subordinates’ performance and ensures they work according to goals, standards, and targets.
- Leaders tend to think in boxes to solve problems. They are adept at handling routine affairs but are confused when they encounter problems that require creative solutions.
Difference between transactional leadership and transformational leadership
Transformational leaders create a shared vision and inspire subordinates to achieve and exceed expectations. They challenge the status quo and set goals beyond those that already exist today. They are more future-oriented.
Transformational leaders encourage subordinates to be more creative and innovative. Doing things differently and trying to better shape the work environment. Such an environment increases the subordinates’ level of motivation and morality because the leader values their ideas. Ultimately, subordinates and leaders have a deeper emotional bond than in transactional leadership.
In contrast, transactional leaders focus more on routines. They develop a vision and a set of rules and instructions for achieving it. To encourage subordinates, they make use of extrinsic motivations: reward and punishment.
Advantages of transactional leadership
The positives of transactional leadership are:
- Clearer direction. Leaders link the organization’s mission and goals with each subordinate’s standard rules and procedures and targets. They set SMART goals: specific, measurable, achievable, realistic, and timely. To achieve the desired results, they use rewards and punishments.
- Timely results. This leadership style makes it possible to achieve short-term goals quickly. That is, reward and punishment motivations allow subordinates to perform at their best and as quickly as possible, thus enabling them to get good grades.
- Consistent results. Leaders enforce existing procedures and protocols. They actively supervise the work of their subordinates, whether it has met the standard or not. They also take corrective action to prevent more significant mistakes. If a subordinate does what they do, they get a reward. If not, punishment will follow.
Disadvantages of transactional leadership
Critics view transactional leadership styles as bad for several reasons:
- Rigid work environment. The motivation for carrying out a task is reward and punishment. It leaves employees with no incentive to be more creative and innovative. Also, subordinates do not have emotional ties and commitment to their leader.
- Passive. Leaders intervene only when subordinates perform not according to expectations or meet standards. They just try to implement procedures and have no out-of-the-box thinking.
- Low innovation and creativity. Neither is a prerequisite for being awarded an award. In fact, leaders often ignore innovative ideas if they are not by existing plans and goals.
- Low emotional ties. Subordinates obey when there is money or at least avoid punishment. It is not due to a high commitment to a shared vision as in transformational leadership or charisma as in charismatic leadership.
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