Transactional leadership is a contemporary leadership style that places rewards and punishment contingent on performance. Working with transactional leaders suits subordinates who prefer stability and routine, whereas high achievers and innovators usually do not get along well with such leaders.
The transactional leader establishes a clear chain of command that clearly outlines a subordinates responsibilities, rewards for compliance, and punishments for non-compliance under the assumption that the subordinate completes the allocated work in anticipation of the reward and in fear of punishment. It bears close similarity to the management by exception approach, where the superior does not involve in the routine issues or work processes of the subordinate, and interves only for pressing issues or during contingencies.
Transactional leadership suits a stable and predictable work environment or where strict adherence to the established procedure is critical. Employees who prefer doing routine and repititive work, and who are not very ambitious get along well with such leaders. The leader sets clear and definite targets, a clear work structure, and fixed reward and punishment systems. The employee remains free to work as they please within such framework to obtain the targets, but has no power to make decisions. The leader expects the employee to ask permission for any deviation from set standards or routines.
“Tell" instead of “Sell"
Transactional leadership assumes that employees willingly give up all authority to their boss for monetary considerations and strives to have complete control over subordinates. They “tell" or direct their subordinates what to do rather than “sell" or motivate their subordinates toward organizational goals. The accompanying lack of social values and disregard of the behavioral approach to management, along with the lack of autonomy or any power to make decisions puts off highly competent achievement oriented subordinates. An enterprising software developer, for instance might develop a new way that cuts down process time considerably. The transactional leader however rather than laud his initiative might criticise him for digressing from his job and experimenting.
The assumption of people working for monetary and other material rewards alone is a serious limitation of this style. As the behavioral approach to management proves, people work for many reasons, such as power, sense of achievement, affiliation, and other factors, and money remains only one of the several factors that motivates people.
Inexperienced and unskilled workers and those who value diversity find working with transactional leaders difficult. The message to the employee is a straightforward “do the duty and get paid." The leader expects and assumes the employee has all necessary skills, competence, resources, and capability to do the job, and do not regard lacking in any one of such traits as excuse for non-performance. The management by exception method, while providing autonomy and non-intrusive work environment for skilled and competent workers nevertheless becomes a disadvantage for the inexperienced and incompetent, as they remain without the constant guidance.
The transactional leadership style apparently promotes a performance-oriented work culture by rewarding performers and weeding out incompetents, and this makes it a popular approach with many managers. Such obsession with competence however has its limitations in that it requires a stable business environment to thrive. The lack of consideration for special contingencies or external factors that may at times affect even the most competent professional. Transactional leadership styles have its uses, but does not rank as a good leadership style to apply at all places and at all times.