Transactional leadership is a leadership style that sets clear goals and objectives for the followers who get rewarded or punished for compliance or non-compliance with these goals. First described by the sociologist Max Weber, this theory focuses on supervising and managing employees and their group performance. Transactional leadership is frequently used in business in which employees are encouraged to perform in line with organizational standards through a system of rewards. Failing to meet the desired organizational expectation, the employees are also punished.
Transactional leadership begins by negotiating a contract with an employee who is offered a salary and other benefits for working in a company and the company and the supervisor of the employee get an authority over him when he joins the organization. His yearly targets and goals are set by his manager or supervisor and the employee is expected to fulfill the targets and goals set for him. If he fulfills the targets and achieves the goals, then he is either rewarded with incentives or an increase in salary or a promotion. If he fails to meet the targets and falls short of meeting the objectives desired of him, then he is punished either through demotion or no increase in salary, depending on the gravity of the situation and how his performance affects the overall organizational objective.
Transactional leadership could be seen the way some companies use employee retention strategies. For example, a company in order to retain its employees may reward the employees working in the organization for more than 5 years with a 10-20% increase in paychecks so that employees feel encouraged to show their loyalty and devotion to the organization. Similar way the same company might put a clause in the job contract that anyone leaving the organization within less than a year after joining might need to pay an agreed sum back to the organization.
