Transformational vs. transactional leadership

In plain terms

Transactional leadership is leadership as a deal. The leader sets out what is expected, rewards people when they deliver and steps in when things go wrong. Two transactional behaviors examined in a 2021 meta-analysis are contingent reward, meaning recognition tied to agreed performance, and management by exception, meaning attention to mistakes and deviations (Young et al., 2021).

Transformational leadership is leadership as a change in what people want. The idea, in plain terms, is that the leader gives people a reason to care about a goal beyond their own deal with the organization, so that they put in effort the exchange alone would not buy.

The two are often presented as opposites. Judge and Piccolo (2004) examined them as parts of one range of leadership, and transformational leadership and contingent reward were strongly correlated, so leaders rated high on one are usually rated high on the other.

Where it came from

The idea began in political science. James MacGregor Burns, a political scientist at Williams College, developed the notion of transformational leadership and, in Times Higher Education's words, largely forged a new discipline with works such as his 1978 book Leadership (Burns, 1978; Times Higher Education, 2014).

Bernard Bass published Leadership and Performance Beyond Expectations in 1985 (Bass, 1985). Organizational research since then usually measures what Judge and Piccolo (2004) call the full range of leadership: transformational, transactional and laissez-faire, or hands-off, leadership.

In change management, the distinction also appears inside a model. The Burke-Litwin model splits the parts of an organization into transformational factors, such as mission, strategy, leadership and culture, and transactional factors, such as structure, systems, management practices and climate (Burke & Litwin, 1992).

What the research says

The Evidence Library holds several meta-analyses on these styles and three randomized training experiments. The meta-analyses pool correlations, so they show which styles go with better outcomes, not that a style causes them. The training experiments are the stronger test of whether leadership can be changed.

Both styles relate to outcomes, and they overlap. Judge and Piccolo (2004) pooled 626 correlations from 87 sources (rated Medium from its abstract). Transformational leadership had the highest overall validity, .44. Contingent reward came next at .39, and laissez-faire leadership was negatively related, at -.37. Management by exception was inconsistently related to outcomes. On several criteria contingent reward had stronger relations than transformational leadership did, and the two were correlated at .80, which means leaders rated high on one are usually rated high on the other.

Each style adds something the other does not. A meta-analysis of 117 samples found transformational leadership positively related to follower performance, more strongly for contextual performance, such as helping others, than for task performance (Wang et al., 2011, rated Medium from its abstract). It added to contingent reward in predicting contextual and team performance. For individual task performance it did not, and contingent reward added beyond transformational leadership instead.

Transactional leadership cuts both ways. A meta-analytic model found that transactional behaviors had both positive and negative indirect links with follower performance (Young et al., 2021, rated Medium from its abstract). Contingent reward went with a better leader-follower relationship but less empowerment; management by exception went with more empowerment but a weaker relationship.

In change, transformational leadership goes with more openness. Across 30 studies and 12,240 participants, transformational leadership was positively correlated with commitment, openness and readiness for change and negatively correlated with resistance and cynicism about change, but not significantly with support for change (Peng et al., 2021, rated Medium from its abstract).

Leaders can be trained toward both. Three randomized field experiments in the Evidence Library tested leadership training.

• The largest randomly assigned leaders from public and private organizations to transformational, transactional or combined training, or to a control group. Employee responses from 463 organizations, including schools, daycare centers and bank units, showed the training could change leadership behavior, with some evidence of effects on test results in the schools (Jacobsen et al., 2022, rated High for the leadership-behavior result and Medium for the school-test result, from its abstract).
• In a military field experiment in Israel, leaders given transformational leadership training, compared with leaders given other training, had direct followers who developed more on some measures, and their recruits scored higher on two of five objective tests (Dvir et al., 2002, rated Medium after a full-text read). Only 12 squads were randomized and several effects were marginal.
• In one bank, 20 managers were randomly assigned to training or control. The abstract reports significant effects but is cut off before it names them (Barling et al., 1996, rated Medium from its abstract).

Transformational leadership versus newer styles. Hoch and colleagues (2018) compared authentic, ethical and servant leadership with transformational leadership (rated Medium from its abstract). Authentic and ethical leadership correlated highly with transformational leadership and added little. Servant leadership, the authors write, showed more promise as a stand-alone approach.

By level. In 360-degree ratings of managers from 38 UK manufacturers, transformational leadership was rated effective at every level, transactional leadership only at lower levels, and hands-off leadership at none (Edwards & Gill, 2012, an Atlas study rated low). It is one survey in one sector.

Where the evidence is thin

1. Cause. The meta-analyses pool correlational studies. The training experiments show leadership behavior can change, but only two of them report some evidence on objective performance measures: school test results in the largest trial and recruit test scores in the military trial.
2. Measurement overlap. With transformational leadership and contingent reward correlated at .80 (Judge & Piccolo, 2004), and authentic and ethical leadership overlapping heavily with transformational leadership (Hoch et al., 2018), it is hard to say how distinct these styles are as behaviors.
3. Change outcomes. Peng and colleagues (2021) measured reactions to change, such as openness and resistance. The studies here do not test whether a change led by a more transformational leader is more likely to be completed or to deliver its goals.

How it maps to the Unfrozen Loop

1. Week 0
   Before you start
2. 1
   Surface both ways
3. 2
   Make sense together, top included

   Transformational leadership asks leaders to explain why a change matters. The Loop asks the people above to work out what the change means together with the managers who will carry it.

4. 3
   Start it close to the work
5. 4
   Review on a rhythm, then hold the pace

   Contingent reward, the core of transactional leadership, is a review on a rhythm: agree what good looks like, check it and recognize it. In the meta-analyses below it held its own against transformational leadership on several outcomes.

6. 5
   The middle’s own weather
7. Ring
   Safe to speak, and speaking changes something

Highlighted parts are the ones this idea speaks to. The mapping is my reading, not a tested finding. See the whole Loop and the evidence for each part.

Common misreadings

"Transactional means old-fashioned." Contingent reward rivaled transformational leadership on several outcomes and added beyond it for individual task performance (Judge & Piccolo, 2004; Wang et al., 2011).

"You are one type or the other." Transformational leadership and contingent reward are correlated at .80 in Judge and Piccolo's data. Leaders rated high on one tend to be rated high on the other.

"Charisma is the whole of it." The training trials above taught behaviors, and employees noticed the change (Jacobsen et al., 2022). The trials above suggest style can be changed through training, not only a matter of who the leader is.

Using it well

1. Keep the deal clear. Before asking people to care about a change, make sure they know what is expected of them in it and how it will be recognized. That is contingent reward, and it held its own in the meta-analyses.
2. Then explain why it matters. Write two or three sentences on what the change makes possible for the people affected, in their terms, and test it on someone who will carry it out.
3. Watch the hands-off moments. Laissez-faire leadership was negatively related to outcomes (-.37) in Judge and Piccolo's meta-analysis (2004). During a change, one version is a leader who announces and then disappears. Put your next check-in on the calendar now.