Transactional Leadership was first characterized by Max Weber, who concluded that leadership could be broken down into three distinctive characteristics: Charismatic (Transformer), Traditional (Feudal), and Bureaucratic (Transactional) (Weber 1947). Charismatic Leadership (Transformer) provides employees with the ‘basis of personal trust in the leader and his intention, consciously accept to belief in his charisma, vision, and mission’, therefore a leader practicing this style must lead by example and be respected by subordinates to be successful. Traditional Leaders believe in the legitimacy of governance in the traditional way. Personal loyalty and faithfulness of followers are dominant in this kind of leadership. This method focuses on loyalty and faithfulness to achieve its outcomes. Bureaucratic Transactional Leadership is described by Weber as being ‘the exercise of control on the basis of knowledge and maintained the understanding that employees will be rewarded for successfully completing tasks but may be punished if they do not follow certain rules or expectations.
By using Transactional Leadership in certain areas of business, for example in a sales environment organizations are able to implement aggressive targets and quotas that subordinates will actively pursue in hope of receiving a final reward, such as a bonus, salary increase, or a promotion. Leaders motivate employees with the concept of receiving rewards and this helps employees feel a sense of recognition that is not always available from other styles of leadership. James MacGregor Burns described Transactional Leadership as ‘when one person takes the initiative in making contact with others for the purpose of an exchange of valued things’ but pointed out that although Transactional Leadership can be beneficial in the short term, it can also produce an unhealthy environment for employees and argued this method of management fails to increase the aspirations of individuals. Burns also suggested that the transactional relationship can eventually become one based solely on a bargaining process and can only be sustained by maintaining and in some cases increasing the transaction process and concluded that ‘the leadership must go beyond the transactional reward punishment exchange relationship’. In addition, Bass hypothesized that ‘the role of the transformational leader in enlarging and elevating followers’ motivation, understanding, maturity, and sense of self-worth (Bass, 1997, p.130) was a far better way to lead and made for better long-term outcomes. Transformational Leadership was first theorized by Burns in 1978 as a process that followers and leaders work toward ‘raising one another to higher levels of morality and motivation.’ (Burns, 1978, p4) and when this style of leadership is combined with Transactional Leadership it can inspire employees to perform beyond their perceived capabilities.
In conclusion, Transactional Leadership has its place in an organization, especially in roles that require employees to keep highly motivated while working towards challenging targets. That said, leaders must be aware that just relying on this style of management can also produce rigid working environments for some employees and this can cultivate low morale in teams that could lead to other issues such as high turnover of staff within the business and the loss of valuable skills and resources.