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Job performance and satisfaction is correlated to an individual’s interactions with their leader. The effect a transactional leaders has on a follower’s satisfaction and performance as been mixed as being both positive and negative. Transactional leadership employs three different techniques. The contingent reward technique is based on an employee receiving a reward for outstanding performance and if the expected performance is not achieved the employee will incur a penalty. Active management by exception is where the leader throughout the task process monitors the employee, identifying deviations in standards that need corrections. Passive management by exception is when the leader does nothing until after the task is complete and then notifies employees of the deficiencies in their performance.

Studies on transactional leadership have shown that it can be effective in certain organizations or if combined with other leadership styles. Each technique has a different effect on job performance and satisfaction. Positive relationships between follower satisfaction and performance have been shown in the contingent reward and active management by exception techniques. There is a negative relationship between passive management by exception with follower job satisfaction and performance. Transactional leadership must not be the only leadership style utilized for organization success.



Transactional Leadership

The leader and follower relationships are important for an organization’s success. An individual’s leadership style will have either a positive or negative impact on an employee’s job satisfaction and performance. A leader is effective when the contributions they provide are aligned with the goals and visions of the organization (Wofford, Goodwin, & Whittington, 1998). Studies have been conducted that show a correlation between leadership styles, employee satisfaction, and job performance (Pillai, Schriesheim, & Williams, 1999). According to Bass (1990), a small number of relationships between leaders and followers depend on the leaders actual power to convince people to do their job; instead an explanation of the standards is explained with the reward that will receive once the task is accomplish with satisfaction. When the relationship between a leader and subordinate is based on transactions or a cycle of interactions or bargains, the leadership style being used is called transactional leadership (Howell & Bruce, 1993). This paper will discuss the transactional leadership theory and the effects on employee performance within an organization.

Transactional Leadership Theory

James McGregor Burns first developed transactional leadership, which he described as inspiring employees through contingent-reward, based exchanges (Jung & Avolio, 1999). Transactional leaders will set expectations, explain the benefits for exceptional performance, and provide feedback on employee performance (Jung & Avolio, 1999). Bernard Bass derived his theory of transactional leadership from Burns by looking at the relationship between a leader and follower along with the activity levels of the leader (Howell & Avolio, 1993). Transactional leaders expect employees to be dedicated to goal completion, have the expectation that they will complete the goal, and expect to receive a reward for successful performance (Wofford et al., 1998). In order to attain specified goals, transactional leaders will use different types of leader-follower relationships; these relationships are described as either contingent reward, active management by exception or passive management by exception (Howell & Avolio, 1993).

Transactional Contingent Reward Leadership

Jane Howell and Bruce Avolio (1993) described contingent reward leadership as a constructive exchange between leaders and employees where the employee is rewarded or disciplined based on job performance. When leaders use this technique they encourage compliance since employees value rewards over punishments for their performance (Sarros & Santora, 2001). The leader establishes an employee expectancy of some type of monetary or tangible reward when their performance is good (Lyons & Schneider, 2009). Since transactional contingent reward leadership explicitly explains leader expectations and offers rewards or incentives when goals are satisfactorily completed, this leadership style should result in individuals and groups achieving expected levels of performance to avoid disciplinary action (Bass, Jung, Avolio, & Berson, 2003).

Transactional Management by Exception Leadership

Leaders who utilize the management by exception technique, mainly focus on identifying mistakes, there are two management by exception techniques used, active and passive (Howell & Hall-Merenda, 1999). According to Howell and Avolio (1993), leaders who actively monitor employees’ performance to anticipate mistakes and implement corrective measures before mistakes become a problem are practicing the active management by exception technique To ensure acceptable task completion the leader will set standards, search for deviations, and correct as necessary to maintain performance standards (Howell & Avolio, 1993). These leaders stimulate employees by encouraging them to maintain set standards and avoid mistakes (Lyons & Schneider 2009). A passive management by exception leader typically will not take corrective action until after a problem emerges (Bass et al., 2003). These leaders do not actively monitor employee performance and usually correct unacceptable performance deviations once the task is complete (Lyons & Schneider, 2009). According to Howell and Hall-Merenda (1999), the outcome of management by exception is “negative feed back, punishment, and discipline”(p. 681).

Transactional Leadership Effects

Transactional leadership has shown to have a: Low-quality leader-member exchange characterized by downward influence, economic exchange, and a formal role-defined relationship, in which leaders make requests of followers based on their organizational position, and followers comply because of their reporting relationship to the leader and the leader’s control of rewards. Under transactional leadership, followers are motivated to fulfill their self-interests (Howell & Hall-Merenda, 1999, p 682).

A study conducted by Howell and Avolio (1993) suggest that positive unit performance was a result of other leadership styles not associated with transactional leadership. An organization where the leadership attempts to use their position to control employees, or an employee perceptions is that the reward is not fulfilled for the performance, could potentially result in employees’ dissatisfaction with the organization causing a decrease in satisfaction and performance (Howell & Avolio, 1993).

Transactional Leadership plays a significant role in effective leadership, especially in situations that tend to have more difficult processes, or when the leader will be required to motivate an individual based on his or her strengths and weakness (Bass et al., 2003). “ Under transactional leaders, employees are more likely to be concerned about the fairness of outcomes than fairness of procedures because their relationship is based on the outcomes they receive in exchange for their effort” (Pillai et al., 1999). Since transactional leaders are more concerned with employee performance and reward for a job well done, the vision of the organization can be lost in the process (Wofford et al., 1998).

Studies have shown that the contingent reward leadership had an encouraging effect on employee satisfaction and performance (Howell & Hall-Merenda, 1999). Since contingent reward establishes a foundation that if an employee performs at a certain level they will receive an award, the leader can expect that the employee will continue to satisfactorily complete assigned tasks at the expected level to continue to receive the reward. This behavior will increase the followers’ performance (Howell & Avolio, 1993). Contingent reward leaders assist in a positive leader-follower relationship since the leader clarifies job expectations of the follower, they share their own job expectations and ensures there is a defined working relationship that is clear and concise (Howell & Hall-Merenda, 1999). In a military setting there is a constant change of personnel so transactional contingent reward leadership is successful in providing organization structure and clear mission goals, this leadership style will maintain unit cohesion (Bass et al., 2003).

Studies on management by exception have shown mixed results on employee satisfaction and performance, which is mainly due to employee resentment from continuous reprimand (Howell & Hall-Merenda, 1999).  Howell and Avolio (1993) states that when leaders delay setting standards and waiting to take action until issues occur has a damaging effect on job satisfaction and performance, this mainly happens in passive management by exception.  A study conducted to examine unit strength, structure, and how each predicts unit performance showed that active management by expectance proved to be successful while passive management by expectance proved to be unsuccessful (Bass et al., 2003).


Bass (1990) has conducted numerous studies with his colleagues on transactional leadership, it is his stance that using this leadership style is a “prescription for mediocrity, this is particularly true if the leader relies heavily on passive management by exception, intervening with his or her group only when procedures and standards for accomplishing tasks are not being met” (p. 20). Transactional leaders use punishment as a threat to ensure employees’ work performance are within standards, “a technique that is ineffective and, in the long run, likely to be counterproductive” (Bass, 1990, p. 21). Transactional leadership assumes that the employee is motivated by the guarantee of compensation or the prevention of discipline and that the leader is in charge of these, which in most organizations this is not the case (Bass, 1990).

Many organizations have leadership roles that are defined by positions within the organization. The ability to give rewards or punishment will be outlined in the position description of the individual leader. Bass (1990) states that in many organizations leaders do not have the power to provide employees with the monetary rewards or promotions. Since transactional leadership is dependent on the rewards or punishments that can be given by a leader this leadership style will not be effective in all organizations.

Transactional leadership can be effective in certain organizations or when combined with other leadership styles. The military is an organization where transactional leadership can be utilized and be effective. There is a distinct chain of command where leaders have positional power over followers. Leaders give punishments and rewards to followers based on performance. The higher positional authority an individual has the more authority and power to give rewards or discipline individuals. Advancement to higher pay grades are based on how well an individual performs and how the leader views the individual. The military has a set of standards and codes that each person must abide by. When personnel do not meet the standards they are disciplined. Military leaders are authorized to take away a member’s pay, freedom, and rank as a consequence for poor performance. In order for an organization to be successful they must ensure they employ the right leaders since studies have shown that leadership styles do affect employee performance and satisfaction.






















Bass, B. (1990). From transactional to transformational leadership: learning to share the        vision. Organizational Dynamics, 18(3), 19-31. Retrieved from

Bass, B., Jung, D., Avolio, B., & Berson, Y. (2003). Predicting unit performance by        assessing transformational and transactional leadership. Journal of Applied Psychology, 88(2), 207-218. doi:10.1037/0021-9010.88.2.207

Howell, J., & Avolio, B. (1993). Transformational leadership, transactional leadership, locus of control, and support for innovation: key predictors of consolidated-business-unit performance. Journal of Applied Psychology, 78(6), 891-902. doi:10.1037/0021-9010.78.6.891

Howell, J., & Hall-Merenda, K. (1999). The Ties That Bind: The impact of leader-member exchange, transformational and transactional leadership, and distance on predicting follower performance. Journal of Applied Psychology, 84(5), 680-694. Retrieved from

Jung, D., & Avolio, B. (1999). Effects of leadership style and followers cultural orientation on performance in group and individual task conditions. Academy of Management Journal, 42(2), 208-218. Retrieved from

Lyons, J., & Schneider, T. (2009). The effects of leadership style on stress outcomes. Leadership Quarterly, 20(5), 737-748. doi:10.1016/j.leaqua.2009.06.010

Pillai, R., Schriesheim, C., & Williams, E. (1999). Fairness perceptions and trust as mediators for transformational and transactional leadership: a two-sample study. Journal of Management, 25(6), 897-933. Retrieved from

Sarros, J., & Santora J. (2001). The transformational-transactional leadership model in practice. Leadership & Organization Development Journal, 22(7/8), 383-393. Retrieved from

Wofford, J., Goodwin, V., & Whittington, J. (1998). A field study of a cognitive approach          to understanding transformational and transactional leadership. Leadership          Quarterly, 9(1), 55-84. Retrieved from            n#description.


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