The Transactional Theory

Transactional theories, also known as exchange theories of leadership, emerged in the 1970s. These theories are characterized by a transaction between the leader and the followersOpens in new window. In fact, the theory values a positive and mutually beneficial relationship between leader and followers.

Transactional theory is based on a leadership approach which recognizes rewards and punishment as key aspects of achieving compliance by followers.

The transactional theorists argue that individuals in general seek to maximize pleasurable experiences and reduce unpleasurable experiences.

This perspective argued that effective leaders must adequately reward (or punish) followers for performing (not performing) leader-assigned tasks. In other words, transactional leaders promote compliance by followersOpens in new window through both rewards and punishments. Through a rewards and punishments system, transactional leaders are able to keep followers motivated for the short term.

Transactional leaders look to keep things the same and pay attention to followers’ work in order to assess performance versus underperformance and to allocate rewards and punishment.

Transactional leaders therefore focus on increasing the efficiency of established routines and procedures and are more concerned with following existing rules than with making changes to the structure of the organization.