Transactional leadership

Style of leadership
Transactional leadership (or transactional management) is a type of leadership style that focuses on the exchange of skills, knowledge, resources, or effort between leaders and their subordinates. This leadership style prioritizes individual interests and extrinsic motivation as means to obtain a desired outcome. It relies on a system of penalties and rewards to achieve short term goals. Although James Downton is generally credited with coining the term "transactional leadership", James MacGregor Burns expanded upon the concept in his influential 1978 book Leadership. [Transactional] leadership occurs when one person takes the intitiative in making contact with others for the purpose of an exchange of valued things. Their purposes are related, at least to the extent that the purposes stand within the bargaining process and can be advanced by maintaining that process. But beyond this the relationship does not go. The bargainers have no enduring purpose that holds them together.|James MacGregor Burns, Leadership, (1978)

Transactional leadership is characterized by two primary factors: contingent rewards and management by exception. Contingent reward concerns the rewards that are granted in recognition of effort and good performance. Management by exception maintains the status quo, intervening only when subordinates do not meet acceptable performance levels or when corrective action is required to improve performance.

Political scholar James MacGregor Burns first developed his typology of leadership in his 1978 book Leadership. He built on the work of German sociologist Max Weber's rational legal model of authority in the context of organizational theory, conceptualizing leadership as a power imbalanced social contract between leaders and subordinates, each of whom has specific goals that may be shared or unrelated. Burns specifically defined and contrasted two dominant types of leadership style: transactional and transformational. He distinguished between the two by explaining that:

The object in [transactional leadership] is a bargain to aid the individual interests of persons or groups going their separate ways. The premise of [transforming leadership] is that, whatever the separate interests persons might hold, they are presently or potentially united in the pursuit of "higher" goals, the realization of which is tested by the achievement of significant change that represents the collective or pooled interests of leaders and followers.|James MacGregor Burns, Leadership, (1978)

Transformational leadership focuses on clear vision, collective benefits and long term value. Transactional leadership focuses on short term goals, bargaining and performance, taking the form of a task oriented transaction.

Within the context of Maslow's hierarchy of needs, transactional leadership works at the basic levels of need satisfaction, where transformational leaders focus on the lower levels of the hierarchy. Transactional leaders use an exchange model, with rewards being given for good work or positive outcomes. Conversely, people with this leadership style also can punish poor work or negative outcomes, until the problem is corrected. One way that transactional leadership focuses on lower level needs is by stressing specific task performance. Transactional leaders are effective in getting specific tasks completed by managing each portion individually. Transactional leaders are concerned with processes rather than forward thinking ideas. Transactional leaders are generally split into three dimensions: contingent reward, management by exception: active, and management by exception: passive. The type of leader who focuses on contingent reward, also known as contingent positive reinforcement, give rewards when the set goals are accomplished on time, ahead of time, or to keep subordinates working at a good pace at different times throughout completion. Contingent rewards are also given when the employee engages in any desired behavior. Management by exception: passive leaders do not monitor employee performance and wait for serious issues to come up before taking any corrective actions.

The multifactor leadership assessment identifies factors in the test taker's leadership style that help identify transactional vs transformational leaders. Individuals who score above 6/12 on contingent reward and management by exception exhibit tendencies to manage using positive and negative reinforcement, transactional management strategies.

Douglas McGregor's Theory Y and Theory X can also be compared with these two leadership styles. Theory X can be compared with Transactional Leadership where managers need to rule by fear and consequences. In this style and theory, negative behavior is punished and employees are motivated through incentives. Theory Y and Transformational Leadership are found to be similar, because the theory and style supports the idea that managers work to encourage their workers. Leaders assume the best of their employees. They believe them to be trusting, respectful, and self motivated. The leaders help to supply the followers with tool they need to excel.

Coaches of athletic teams provide one example of transactional leadership. These leaders motivate their followers by promoting the reward of winning the game. They instil such a high level of commitment that their followers are willing to risk pain and injury to obtain the results that the leader is asking for. Another example of transactional leadership is former US Senator from Wisconsin, Joseph McCarthy, and his ruthless style of accusing people of being Soviet spies during the Cold War. By punishing for deviation from the rules and rewarding followers for bringing him accused communist infiltrators, McCarthy promoted results among followers. This leadership style is especially effective in crisis situations, and another example of this type of leadership was Charles de Gaulle. Through this type of reward and punishment he was able to become the leader of the free French in a crisis situation.