What transactional leadership gets right and wrong about motivating people

Think about Andy Sachs walking into Miranda Priestly’s office in The Devil Wears Prada. Every detail is dictated, every mistake punished, and every success rewarded only if it meets Miranda’s exacting standards.

That’s transactional leadership in action.

Sure, it might sound rigid, but it’s one of the most common styles you’ll find in workplaces around the world. And understanding how it works (and when it could work) could change the way you lead.

What is transactional leadership?

Transactional leadership is built on a deal: you do this, you get that. It’s leadership as an exchange, where structure, rules, and rewards keep everyone moving.

Political scientist James MacGregor Burns explains it as such in his 1978 book, Leadership: “Such leadership occurs when one person takes the initiative in making contact with others for the purpose of an exchange of valued things.”

For instance, if you’ve ever worked under a Miranda Priestly-type boss, you know the deal:

• Do the work → get a reward.
• Fail the work → face a consequence.

It can feel like a carrot-and-stick system, but scholars Bernard Bass and Bruce Avolio later observed more nuance. They broke it into three parts:

• Contingent reward. Leaders make expectations crystal clear and reward you when you deliver.
• Active management by exception. Leaders hover, watching closely, and step in fast if you slip.
• Passive management by exception. Leaders let things ride until something goes wrong, then swoop in to fix it.

This is one of those leadership styles that leaves little room for surprises. Because, let’s face it, having endless shake-ups in the workplace doesn’t always spark creativity.

Ashley Goodall, the author of The Problem with Change, explains that it can flood people with stress instead. “Life in the blender,” as he calls it.

Stability, on the other hand, gives teams the chance to master their roles, build trust, and actually get good at working together. And that’s exactly where the transactional leadership style earns its place.

How do we become effective at making the people around us better? The answer? We become a great leader. It’s what we give in life that matters.

— Monty Moran, trainer of Mindvalley’s The Transformational Leader program

Transactional vs. transformational leadership

“Leadership is our highest calling,” as Monty Moran, the former CEO of Chipotle, points out in his Mindvalley program, The Transformational Leader.

Think about the bosses you’ve had. One makes you feel like you’re just clocking in, trading hours for a paycheck. Another lights a fire under you, making you feel part of something larger than yourself. Both are leading, but they’re playing very different games.

Here’s how they stack up:

Both styles get results. But only one makes people believe they can change the world.

Transactional leadership pros and cons

Every leadership playbook has its perks and pitfalls. Transactional leadership is no exception. It can power your team forward or quietly choke the spark out of it.

If you’ve ever been inside a rule-heavy system (or found yourself running one), you’ll recognize these patterns right away.

When is transactional leadership effective?

Transactional leadership earns its keep when the room needs order, precision, and zero guesswork. For instance:

• In a crisis. When everything’s on fire, clear orders and quick action keep people grounded and focused.
• In high-risk work. Hospitals, airplanes, and military drills all run on strict systems that protect lives.
• On tight deadlines. When the clock is ticking, structure and rewards keep everyone moving toward the finish line.
• With massive teams. Coordinating a large workforce works best when expectations are standardized and performance is measured.
• In performance-driven jobs. Sales quotas, call centers, and bonus-based roles thrive when effort ties directly to results.

The leader’s job is to facilitate the extraction of value from a team.

— Keith Ferrazzi, trainer of Mindvalley’s Ultimate Leadership program

Interestingly, a study on organizations going through change found the same result: when supervisors set clear goals and tied them to rewards, employees actually felt more engaged. And if you’ve ever been in one of these situations, you know how grounding it feels to have someone set the direction and hold the line. 

Drawbacks and disadvantages

The structure works…until it doesn’t. Push transactional leadership too far, and it starts to resemble autocratic leadership, where it’s rule-bound, top-down, and stifling.

And the cracks show up fast:

• Ideas stay locked up. When the goal is compliance, people stop raising bold solutions. Nobody risks sticking their neck out.
• The human side fades. Quotas and checklists make people feel like cogs, not contributors.
• Energy drains out. Constant monitoring and the fear of slipping up drain motivation. Stress and burnout creep in quietly.
• Growth stalls. Teams get faster at today’s tasks but rarely step into new possibilities.
• Lack of motivation sets in. Chasing rewards and avoiding penalties may get results, but it doesn’t spark deep engagement.

It’s equivalent to reward-based management, where, as Monty explains, is “about getting people to do something for you.” And the cost? Culture erodes, connection thins out, and work turns mechanical.

And the thing is, leading isn’t about the person in charge, as Keith Ferrazzi, the CEO of the bestselling author of Never Eat Alone, highlights on myths about leadership. It’s about the people they guide.

15 real-life examples of transactional leadership

Sometimes the best way to understand leadership skills is to see them at work. Here are a few snapshots of transactional leadership examples in action:

1. The sales manager. Monthly quotas decide everything, and missing them means being forgotten.
2. The fast-food supervisor. Every order is timed to the second, with rewards for those who stick to the script.
3. The call center boss. Performance is tracked on screens by calls, tickets resolved, and customer ratings.
4. The military drill sergeant. Obedience is rewarded, and even one slip brings swift punishment.
5. The airline captain. Checklists rule the cockpit, leaving no room for improvisation.
6. The hospital administrator. Compliance is rewarded, and mistakes are corrected immediately.
7. The school principal. Attendance and grades decide privileges, while falling behind leads to detention.
8. The law firm partner. Associates live by billable hours, and only those who exceed targets climb.
9. The construction foreman. Deadlines and safety rules dominate, and cutting corners gets you removed.
10. The pro sports coach. Playing time goes to those with stats and wins, while mistakes land players on the bench.
11. The retail store manager. Cashiers are judged on speed and upsells, with bonuses for top performers.
12. The warehouse supervisor. Workers are measured by units per hour, with rewards for high output.
13. The hotel general manager. Staff promotions depend on customer reviews and service scores.
14. The corporate project manager. Success is defined by deadlines hit and budgets kept.
15. The boot camp fitness trainer. Do the reps and you’re praised; slack off and you’re punished.

“The leader’s job is to facilitate the extraction of value from a team,” Keith explains. And as a transactional leader, you’d be driving value by rewarding compliance and correcting missteps.

Your leadership style: Are you a transactional leader?

Time for a gut check. How much of this style lives in your leadership DNA?

Answer yes or no to each:

1. Have you ever laid down detailed rules so people know exactly how to work?
2. Is performance in your team often tied to rewards like bonuses, promotions, or perks?
3. When expectations slip, do penalties or warnings come into play?
4. Do you mainly measure success through numbers, metrics, and deadlines?
5. Would you say consistency and efficiency matter more to you than experimentation?
6. Do you feel more comfortable making sure people follow the rules than trying to rally them around a big vision?
7. When you assign tasks, do you spell out exactly how they should be done?
8. In your team, is recognition given mostly for hitting goals rather than for creativity or effort?
9. Do short-term achievements, like this quarter’s results, capture more of your focus than long-term innovation?
10. When people work with you, are they expected to follow established procedures instead of creating new ones?

Your results:

• 8–10 yes answers → You’re strongly transactional. Rules, order, and rewards are your leadership DNA.
• 5–7 yes answers → You’re situational. You use transactional methods often but can be flexible when needed.
• 0–4 yes answers → You lean transformational. Vision and inspiration drive you more than structure.

How and when to transition from transactional to transformational leadership

Shifting styles doesn’t mean abandoning structure. More like, it’s to know when to move from control into inspiration. That’s where real leadership lives.

“How do we become effective at making the people around us better?” Monty poses in his Mindvalley program. “The answer? We become a great leader. It’s what we give in life that matters.”

It’s not abstract. You bring it to life when you offer your people both structure and inspiration.

A doctoral study found that the most effective leaders weave transactional and transformational behaviors together. So the real art here is knowing when to move from control to inspiration, and how to blend both.

When to transition

So how do you know it’s time to shift gears? Watch your team closely. These signals often show up before you even realize you’ve outgrown pure structure:

• Morale is draining. Even when targets are hit, the energy feels flat.
• Ideas dry up. People meet goals but stop volunteering bold solutions.
• Top talent is leaving. Turnover or quiet quitting rises among high performers.
• Creativity is needed. The work demands adaptation, innovation, or long-term thinking.
• Problems can’t be scripted. You need people to solve challenges you can’t map out.
• Trust outweighs rules. Results depend on relationships more than procedures.
• Growth is the focus. The organization is planning for scale, not just delivery.

That turning point became clear for one Mindvalley member. Chuck Smith, an electrical systems engineer from the U.S., was leading 140 people when his company’s culture slipped into entitlement and “not my job” mindset.

“I needed to be a better leader before I push it down to my managers and team,” he shares on Mindvalley Stories. Applying Monty’s approach, he and his team grew “better at taking ownership and accountability to what is in front of [them].”

That’s the moment of transition. Transactional tools keep the wheels turning, but transformational leadership reignites ownership and energy.

How to transition

The shift begins the moment you stop tightening control and start creating conditions for people to rise. Monty says it “can’t be had simply through hard work, willpower, or a desire to succeed” but rather “about human connection, vulnerability, and love.”

One Mindvalley member, Angela Denise, felt this shift firsthand. Before going through Monty’s program, she led with a military mindset: structured, disciplined, and guarded.

What she discovered was that people rise when you let them see the real you. “Leading people in a nurturing way gives the ability of care and truthfulness,” she says.

That’s where your own transition begins. Here’s how you can start moving into transformational leadership:

• Lead yourself first. Model the openness you want in your team.
• Create safety for candor. Make honesty free of punishment.
• Empower instead of control. Give ownership and let people prove themselves.
• Anchor everything in purpose. Tie the work to something that matters.
• Shift rewards into recognition. Celebrate growth and contribution, not just numbers.
• Turn feedback into fuel. Let the team coach each other upward.
• Stay present in the struggle. Show up most when things get messy.

The fact of the matter is, leadership isn’t meant to be carried alone. Keith calls it teamship. In a Mindvalley Book club interview, he explains the focus is on “the role of the team supporting each other to achieve the mission.”

While that idea is powerful in and of itself, Monty grounds it in love and service. “Leading,” he says, “entails helping others become the best version of themselves by giving as effectively as possible of ourselves.”

Gain more insights from Monty:

Awaken your unstoppable 

Most leaders manage with rules and rewards. The great ones? They lead with love.

Now imagine walking into a room and your presence lights it up, your team feels safe to be real, and culture itself becomes the fuel for extraordinary results.

That’s the essence of Monty Moran’s The Transformational Leader. The former Chipotle CEO shares the same principles that helped him turn a small burrito shop into one of the world’s most beloved brands.

And right now, you can join his free class and experience a taste of the program that’s changing how thousands of people show up at work and in life.

One such person is Elaine Lepage, a retiree from Canada. After 37 years in a toxic management culture, she chose early retirement just to reclaim her well-being. Looking back, she explains:

This quest re-affirmed my curiosity on what I always admired about inspirational leaders and why we need to surround ourselves more with this positive mindset.

Because here’s the thing: the world doesn’t need more managers. It needs transformational leaders like you.

Welcome in.