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International Journal of Humanities and Social Science Invention (IJHSSI)
ISSN (Online): 2319 – 7722, ISSN (Print): 2319 – 7714
www.ijhssi.org ||Volume 8 Issue 11 Ser. III || November 2019 || PP 46-58
www.ijhssi.org 46 | P a g e
Transformational and Transactional Leadership Styles on
Employee Performance
Asst Prof Agron Hoxha
Kolegji Heimerer
ABSTRACT: The purpose of this study was to examine the effect of leadership styles, namely transformational
and transactional leadership on employee performance.The sample consisted of 333 leaders and subordinates
of different managerial levels, job responsibilities, gender, and education backgrounds drawn from a
telecommunications company in Malaysia. Measures used included the Multifactor Leadership Questionnaire
(MLQ) and Employee Performancescale. This study found that the transformational leadership style had
positive effect on employee performance. The results of this study will contribute to a better understanding
about the roles and functions of leadership styles, particularly transformational leadership towards
increasingemployee performance in Malaysian work organizations.
Keywords: Transformational leadership, Transactional leadership, Employee performance.
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Date of Submission: 04-11-2019 Date of acceptance: 22-11-2019
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I. INTRODUCTION
The purpose of this study was to examine the effect of leadership on employee performance. The
positive effect of transformational leadership has been shown in previous research where it has been reported
that transformational leadership showed positive significant relationships with employee performance (Avolio,
1999; Behery, 2008; Emery & Barker, 2007).
Employee Performance
Previous studies have indicated that positive organizational outcomes consist of both individual and
organizational level indicators. Among individual outcomes studied were employee performance (Gyu-Chang
Yu & Jong-Sung Park, 2006), organizational commitment (Kovjanic, Schuh, Jonas, Quebeke& Van Dick,
2012), customer satisfaction and improved employee retention (Sundaray, 2011). Organizational level outcomes
on the other hand, included profit (Gyu-Chang Yu & Jong-Sung Park, 2006;Sundaray, 2011), company
efficiency (Febriansyah 2010), quality, organizational performance and improved organizational adaptability
(Sundaray, 2011).
This division into individual and organizational outcomes is also evident in the use of terms related to
POO such as positive organizational behavior (POB) and positive organizational scholarship (POS). Positive
organizational behavior (POB) has been defined as:
“positively oriented human resource strengths and psychological capacities that can be measured,
developed, and effectively managed for performance improvement in today‟s workplace” (Luthans, 2002, p.
59). POB refers to characteristics of motivated and efficient employees within the organization. These
characteristics include hope, optimism, resiliency, and self-efficacy (Youssef &Luthans, 2007). Self-efficacy
describes employees who are confident in their abilities to accomplish their tasks. Hope refers to employees‟
motivation towards achieving their goals. Optimism on the other hand, describes employees who have strong
expectancies about achieving positive organizational outcomes. Resiliency is attributed to employees who are
able to recover after encountering conflict or even failure. These four characteristics of employees are key
indicators of positive organizational behavior (Giachetti& So, 2009; Malik, 2013) and must be strong among
employees in order to achieve positive organizational outcomes (Malik, 2013; Youssef &Luthans, 2007).
Positive organizational scholarship (POS) has been defined as representing:
“an expanded perspective that includes instrumental concerns but puts an increased emphasis on ideas
of “goodness” and positive human potential. It encompasses attention to the enablers (e.g., processes,
capabilities, structures, methods), the motivations (e.g., unselfish, altruistic, contribution without regard to self),
and the outcomes or effects (e.g., vitality, meaning, exhilaration, high quality relationships) associated with
positive phenomena” (Cameron, 2003, p.4).
POS is more interested in examining work related outcomes that go beyond individual behaviors
(Bakker &Schaufeli, 2008). POS is rather interested in examining the organizational aspects that can lead to
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positive work-related results. POB is focused on developing positive individual characteristics, whereas POS
assumes individuals have positive attributes which are used to achieve POO.
POB is suggested to be more related to the influences of employees‟ psychological state s, such as the
levels stress or motivation, on their work performance. Whereas, POS is more focused towards analyzing
employees‟ performance at the organizational level. According to Luthans and Avolio (2009) the main
difference between POB and POS is that POB determines organizational performance based on individuals‟
behaviors, whereas, POS emphasizes organizational outcomes before individual outcomes.
Both POB and POS are focused on improving organizational outcomes but they influence POO at
different levels. POB focuses on changing behaviors of employees in order to perform better, hence, it is more
focused on improving employee performance towards improving organizational effectiveness (Donaldson &Ko,
2010) However, POS focuses more on analyzing organizational performance as a whole rather than employee
performance individually.
Employee performance is measured through employee performance, which is reported to be one of
main desired outcomes of organizations. Akin and Hopelain (1986) in their study have stated that:
“productivity occurs when management, supervisors, and workers focus primarily on the work being
done and on how things go right” (p. 32).
Productivity refers to the quality of employee performance in the organization (Gyu-Chang Yu & Jong-
Sung Park, 2006). Furthermore, it was suggested that the quality of employee performance is indicated by the
level of employee performance (Patton & King, 1985). For example, the productivity of sales department
employees was evaluated based on how much sales they have made, and whether they have met the target. High
performers were those who met the sales or revenue target. In other words, employees who were considered
productive in the organization were also considered to be high performers (MacKenzie, Podsakoff& Fetter,
1993).
Organizational Leadership
This research has adopted the relational perspective on leadership which emphasizes high quality
interpersonal relationships between leaders and followers (Daft, 2008). The relational perspective has been
described as a process “that meaningfully engages all participants and enables each person to contribute to
achieving the vision” (Daft, 2008: p. 21). Uhl-Bien (2006) views the relational perspective as focusing on “the
social dynamics by which leadership relationships form and evolve in the workplace” (p. 672). This perspective
views the quality of the relationship between leader and followers as a significant influence on leader
effectiveness.
An important relational theory is transformational leadership which is characterized by the leader‟s
ability to bring about significant change in followers (Daft, 2008). Transformational leaders challenge
employees to change their ways of working to be more innovative when faced with challenge. Transactional
leaders however, maintain the same situation and meet challenges by increasing the efficiency of existing work
processes (Bass &Avolio, 1990). The transformational and transactional leadership styles are defined in greater
details and discussed in the next section. While there have been many studies, both foreign (Behery, 2008;
Emery & Barker, 2007; Organ, 1988) and local (Ansari, Ahmad &Aafaqi, 2004;Jayasingam& Cheng, 2009;
Olanrewaju, 2009) which highlight the effectiveness of transformational leadership, this leadership style has
also been criticized because of the potential for leader abuse of followers‟ trust (St-Hilaire, 2008).
Critics of transformational leadership have questioned the morality and fairness of transformational
leaders claiming that transformational leaders use empowerment and trust of employees as means to achieve
organizational outcomes rather than the development of employees (Smith, Montagno&Kuzmenko, 2004).
Transformational leaders are reported to abuse their power by manipulating employees to work beyond their
expectations without any reward. In addition, Stone, Russell and Patterson (2003) have observed that
transformational leaders can exert a very powerful influence over followers, who offer them trust and respect.
It has been reported that:
“some leaders may have narcissistic tendencies, thriving on power and manipulation. Moreover, some
followers may have dependent characters and form strong and unfortunate bonds with their leaders”
(Gachunga&Nedge, 2014: p.8).
Malaysian leadership studies have found support favoring transformational leadership as the more
effective leadership style than the transactional leadership style. The transformational leadership style has
shown positive and significant correlations with outcome variables namely, extra effort, effectiveness and
satisfaction (Amirul&Daud, 2012), organizational growth and profitability (Arham, 2014). Similarly, Voon, Lo,
Ngui and Ayob (2011) have reported that the transformational leadership style has a stronger relationship with
job satisfaction. This finding suggests that employees in Malaysian organizations reported to be happier when
led by transformational leaders.
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Contrary to the above studies, some Malaysian studies that investigated the relationship between
leadership styles and positive organizational outcomes (POO) such as organizational performance and employee
performance, found that both transformational and transactional leadership styles have an effect on positive
outcomes. Both transformational and transactional leadership styles showed significant positive relationships
with organizational performance measured as sales growth, employment growth, market value growth,
profitability and perception of overall performance (Aziz, Mahmood & Abdullah, 2012), trust and distributive
justice (Ismail, Mohamad, Mohamed, Raifuddin&Zhen, 2010) and organizational commitment (Lo, Ramayah&
Min, 2009). However, some studies have reported the opposite effect, that transactional leadership has a
stronger effect on organizational performance (Arham&Muenjohn, 2012; Gill, 1998). This suggests that despite
the majority of studies favoring transformational leadership in Malaysia, transactional leadership is still
observed to be effective (Arham&Muenjohn, 2012). Some recent studies have proposed that both
transformational and transactional leadership styles need to be practiced in Malaysian culture (Arham, Boucher
&Muenjohn, 2013; Ismail, Mohamad, Mohamed, Raifuddin&Zhen, 2010; Soieb, Othman &D‟Silva, 2013).
Transformational And Transactional Leadership Styles
Leadership refers to the process of influencing others in order to achieve assigned goals in an
organization (Bass, 1985; Fiedler & Garcia, 1987; Marturano& Gosling, 2008; Yukl, 1994). Further, leaders are
responsible to lead, direct, and coordinate with members to meet their expected goals (Burns, 1978; Fiedler &
Garcia, 1987). A frequently used definition of leadership comes from the book “Leadership” by James Mac -
Gregor Burns (1978) who stated that:
“Leadership is the reciprocal process of mobilizing, by persons which motivates certain motives and
values, various economic, political and other resources, in a context of competition and conflict, in order to
realize goals independently or mutually held by both leaders and followers” (Burns, 1978: p.425).
According to Burns (1978), leadership refers to the stimulation of employees to achieve certain goals
that leaders and employees expect. He associates leadership with leaders and employees together, not with the
leader or leader activities alone. Burns (1978) shifted the main focus of organizational leadership from the
behaviors and actions of individuals to the interaction between leaders and their followers as one group working
towards mutual benefit (Burns, 2003). Thus, he made significant contributions to the schools of transformational
and transactional leadership styles. Leadership style as compared to the general definition of leadership explains
specific manners and approaches that a leader or manager uses to interact with others. While leadership refers to
persuading employees to accomplish their tasks, leadership style describes the way in which a particular leader
gets the task done. In addition, leadership style refers to the skills that the particular leader uses to accomplish
the task (Berkowitz, 2010). Depending on the type of work or different situations in an organization, a leader
might exercise one of a variety of leadership styles.
Transformational leadership occurs when employees are motivated to meet the highly challenging
expectations of the organization. Transformational leaders tend to help employees find new ways to meet
organizational challenges (Bass &Avolio, 1994; Behery, 2008; Burns, 1978). The most frequently used
definition of transformational leadership referred to a leader‟s behavior, influential traits, power and situational
variables that influence employee performance in a positive direction such as motivating employees to work
more than expected and enjoy the work they do (Behery, 2008).
Bass and Avolio (1994) identified four main dimensions of transformational leadership namely
idealized influence, inspirational motivation, intellectual stimulation and individual consideration. Each of the
four dimensions explains the characteristics of a transformational leader in an organization. Idealized influence
refers to the leader who becomes a model for his employees. In this dimension, leaders apply their highest moral
and ethical standards towards employees or followers rather than practicing power and authority in leading
followers. In modern organizations, employees are more skillful and they expect their abilities to be
acknowledged. When employees are acknowledged for their contributions, it is more likely that they will
reciprocate the behavior of the leader with respect and improve their performance. Inspirational motivation on
the other hand, refers to a leader who gives meaning to different challenges at the work place. Leaders with this
behavior inspire followers by providing meaning to followers‟ work and effort. These leaders emphasize
explaining the importance of their roles and performance to employees in the organization. This makes
employees regard themselves as an important asset of the organization rather than a regular employee.
Intellectual stimulation means leaders motivate followers by providing them with a variety of problem solving
skills. This leader behavior makes followers aware of their intellect and skills that they have in solving problems
or challenges in the work place. Followers need to be encouraged to express their thoughts and vision towards
the organization and to be taughtto look at issues in different ways, thinking before acting and being accurate
with decisions. Individualized consideration refers to a situation whereby a leader has a personalized
relationship with each employee, paying special attention to individuals in an organization. In other words this
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behavior focuses on how to treat employees as your colleagues with neither prejudice nor doubt, and seeing a
future in them.
The general definition of transformational leadership suggests that transformational leaders help
transform employees from ordinary performers to extraordinary performers (Bass &Avolio, 1994; Behery,
2008; Burns, 1978). While transformational leadership emphasizes stimulating employees to perform beyond
the organization‟s expectation, transactional leadership emphasizes maintaining the existing process of work and
culture in an organization (Boemer, Eisenbeiss&Griesser, 2007). In other words, transformational leadership
helps followers transform their behavior from traditional to new ways of thinking and to be innovative in the
working environment. Transformational leadership is interested in motivation, goal attainment, teamwork and
behaviors that help employees find meaning in their work and at the same time enjoy their work (Behery, 2008).
The transactional leadership style has been reported to be a market-based exchange process where
leaders and employees negotiate tasks for different types of rewards (Bass, 1995;Behery, 2008; Burns, 1978;
MacKenzie, Podsakoff& Rich, 2001). The transactional leader forms a mutual agreement with the employee
about his or her responsibilities and expectations are kept closely to that agreement (Bass, 1985; Bass &Avolio,
1994). In addition, transactional leadership is also characterized by reward and punishment oriented leaders
(Bass &Avolio, 1994; Behery, 2008).
There are two main dimensions of transactional leadership namely contingent reward and management
by exception (Bass, 1995). Contingent rewards refer to rewards such as an increase of salary or promotion after
the employee has successfully accomplished the assigned task. Contingent reward is a sign of recognition
towards employees for their good performance. Management by exception on the other hand, refers to a leader
who monitors employees to observe if they are doing what they are supposed to do and intervenes when
employees do not meet the requirements. According to Bass &Avolio (1995), “Management by exception
(transactional leadership) allows the status quo to continue without being addressed until things go wrong before
a leader would intervene to make correction” (p. 97). Management by exception describes leaders who evaluate
their subordinates‟ performance based on mistakes made while doing their tasks.
Further, management by exception is divided into active and passive management by exception. Active
management by exception refers to a leader who regularly monitors employees to make sure that the assigned
tasks are completed. Active management by exception describes the behaviors of leaders who are responsible to
monitor the performance of employees and intervene if any problem arises. They will be ready to correct the
problem if necessary. Passive management by exception on the other hand, refers to leaders who monitor
employees only when they do not meet the requirements for completing assigned tasks. This type of leadership
describes leaders who are not interested in the performance of employees unless a problem is brought to their
attention, rather than being there when the problem arises. In addition, when the problem is brought to the
attention of leaders who observe passive management by exception, they respond with negative feedback.
Both, transformational and transactional leadership styles have been practiced for the last three decades
since Burns (1978) introduced them. Bass (1985) has suggested that both transformational and transactional
leadership styles are important for positive organizational outcomes. However, in 1999, Bass reported that
changes and advancements in the marketplace and workforce over the last two decades had resulted in the need
to promote transformational leadership more and demote transactional leadership. In addition, it was found that
transactional leadership was more important in the past when employees were mainly driven by financial
resources (Olanrewaju, 2009). In this regard, Montgomery (1996) reported that:
“transformational leadership works well when important organizational changes are needed because the
environment has shifted and the organization needs to respond and break old routines” (p. 461).
Malaysians researchers have also suggested that with the current globalized economy, greater emphasis
needs to be placed on the transformational leadership style, compared to the transactional style of leadership, in
order to break the old routines and energize work environments through inspirational leadership (Ismail,
Mohamad, Mohamed, Raifuddin&Zhen, 2010; Olanrewaju, 2009).
Transformational leadership style was found to contribute to organizational effectiveness more than
transactional leadership (Organ, 1988; Emery & Barker, 2007; Behery, 2008). In addition, in previous studies it
was also noted that most of the positive characteristics of leadership such as encouragement, imparting
confidence, acknowledging competence, motivating, encouraging innovation and many other positive behaviors
are credited to transformational leaders (Yukl, 2006). However, the transformational leadership style is not
necessarily suited to all types of organizations (Tseng & Huang, 2009). Previous studies have suggested that one
style of leadership cannot be generalized as the effective style for all organizations and situations (Rad
&Yarmuhammadian, 2006). For instance in the study done by Obiwuru, Okwu, Apka and Nwankwere (2011) it
was reported that in smaller organizations, the transactional leadership style was more related to increase of
performance than the transformational leadership style. The same study suggested that organizations need to
transit to the transformational leadership style as they grow. Although some studies have reported that the
transformational leadership style made stronger contributions to positive organizational outcomes, the
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transactional leadership style has also been reported as an effective style in some organizations. Therefore, in
the present study both the transformational and transactional leadership styles will be investigated in relation to
positive organizational outcomes.
Transformational Leadership and Employee Performance
Previous studies have consistently reported positive relationships between the transformational
leadership style and employee performance, work commitment and job satisfaction (Bass &Avolio, 1993;
Emery & Barker, 2007; Walumbwa, Wang, Lawler &Kan Shi, 2004) and employee engagement (Soeib, Othman
&D‟Silva, 2013). However, only few studies have examined the relationship between transformational
leadership and organizational effectiveness (Koenea, Vogelaarb&Soeters, 2002; Zhu, Chew & Spangler, 2005).
Emery and Barker (2007) conducted a research using a sample of 124 managers and 389 subordinates
from the food and banking industries to examine the nature of the relationship between leadership styles and
employee performance. They found that employees were more satisfied with the transformational leadership
style than transactional leadership. This study found that the transformational leadership style made a greater
contribution to organizational commitment, and job and leader satisfaction. Similarly, Walumbwa, Wang,
Lawler and Kan Shi (2004) reported that, compared to other leadership styles, transformational leadership was
found to enhance employees‟ levels of organizational commitment and job satisfaction in the organization.
Employees who were led by transformational leaders reported stronger levels of confidence in their capability to
perform their tasks (Walumbwa et al., 2004). Transformational leadership was found to have a strong effect on
employee outcomes in different countries as well. For instance, Walumbwa, Orwa, Wang and Lawler (2005)
conducted a research to compare the relationship between transformational leadership and organizational
commitment and satisfaction in Kenya (158 participants) and USA (189 participants). Consistent with previous
studies, transformational leadership was found to be positively related to organizational commitment in both
countries. Similarly, a significant positive relationship was observed between transformational leadership and
satisfaction with leader and work (Walumbawa et al, 2005). Although, it was initially predicted that the effect of
transformational leadership would vary between Western cultures and African culture, the results showed that
transformational leadership was equally effective in both cultures (Walumbwa et al, 2004; Walumbawa et al,
2005). The present study was conducted in Malaysia, and it is reported that Malaysia is known to be
collectivistic in nature (Hofstede, 1991) thus, suggesting that Malaysian leaders are more likely to emphasize
maintaining supportive relationships more than rewarding individual performance. Bass (1990) has reported that
the transformational leadership style is more appropriate for collectivistic cultures than other styles of
leadership. It was expected that the transformational leadership style would make better contribution to
employees‟ individual performance that transactional leadership style
Transactional Leadership and Employee Performance
Previous researchers have compared the effectiveness of transformational leadership to transactional
leadership. The results of these studies show that in some instances transactional leadership has contributed to
organizational performance more than transformational leadership style (Arham&Muenjohn, 2012; Gill, 1998).
For instance, an empirical study in Yemen has shown that transactional leadership was more effective than
transformational leadership (Ahmad &Gelaidan, 2011). This study suggested that employees in public
companies in Yemen preferred working with transactional leaders over transformational leaders. The results
showed that transactional leadership made a stronger contribution to employees‟ affective commitment to
change than transformational leadership. In addition, the transactional leadership style has also been shown to
have a stronger contribution to employee performance and job dedication (Suryanarayana, 2011) indicating that
transactional leaders are better in persuading employees to perform well. The transactional leadership style has
also been found to be a stronger influencing strategy than the transformational leadership style (Deluga, 1988).
The transactional leadership style has been reported to have a positive influence on employees‟ behaviors
(Ismail et al, 2010). This result suggested that the transactional leadership style contributed the job satisfaction
(Howell &Avolio, 1993; Ismail et al, 2010; Yukl, 1994) and stress reduction (Rowold&Schlotz, 2009).
While, some researchers argue that transactional leadership is negatively related to organizational
performance(Behery, 2008; Emery & Barker, 2007; Organ, 1988), most prominent leadership researchers claim
that transactional leadership is as necessary in an organization as transformational leadership style (Bass, 1985).
Transactional leadership was also important to positively influence organizational performance (Aziz,
Mahmood & Abdullah, 2012) trust and distributive justice with employees (Ismail, Mohamad, Mohamed,
Raifuddin& Zhen, 2010) and employee commitment (Lo, Ramayah& Min, 2009). Previous Malaysian studies
have also reported that Malaysian leaders were more directive and autocratic in their relationship with their
followers (Jayasingam& Cheng, 2009; Gill, 1998), suggesting that employees had little opportunity to
participate or become involved in decision making. In other words, in the past, employee creativity and
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innovativeness was restricted and yet, this leadership style was reported to be effective (Ansari et al., 2004). In
addition, Ansari and his colleagues (2004) have reported that in the Malaysian context, organizational hierarchy
is well respected and employees are expected to obey the orders of their superiors. Further, in the Malaysian
context, leaders are expected to use their authority over their subordinates. This type of relationship is against
the practices of transformational leaders. Conversely, this relationship is more related to transactional
leadership.
However, researchers who have argued that compared to the transactional leadership style,
transformational leadership has a stronger relationship with organizational effectiveness (Behery, 2008;
Emery& Barker, 2007; Organ, 1988) found many flaws with the transactional leadership style. These studies
showed that the transactional leadership style is effective in terms of keeping subordinates happy and satisfied
as indicated by Howell and Avolio, (1993), Yukl (1994) and Ismail et al (2010).But, the problem with
transactional leadership is how to motivate and guide employees to achieve higher individual and organizational
performance (You-De Dai, You-Yu Dai Kuan-Yang Chen and Hui-Chun Wu, 2013). Transactional leaders are
direct and action oriented leaders who work within the existing organizational culture (Odumeru&Ogbonna,
2013). This could be perceived as positive leader behavior in certain cultures, but, for organizations that look for
continuous improvement, this is not perceived as positive. This style of leadership was effective in the past
(Ansari et al., 2004; Jayasingam, 2009), but not in the present organizations.
In the present globalized economy the transactional leadership style is observed to be less effective. On
the contrary, employees in current organizations have requested for transformational leadership more than
transactional leadership (Bass, 1999; Evans, 2005; Ismail at al., 2011). Many studies have reported that the
transactional leadership style has a negative impact on positive organizational outcomes (Evans, 2005; Erkutlu,
2008; You-De Dai et al., 2013). The above studies reported that transactional leadership was negatively related
to work performance and job satisfaction (Evans, 2005; Erkutlu, 2008), and organizational commitment
(Behery, 2008; Emery & Barker, 2007; You-De Dai et al., 2013).
This is because transactional leaders were not inclined to motivate employees about the meaning of
performance and tasks given to them. Employees reported that transactional leaders are not concerned about the
feelings of employees or individual consideration. In certain cases, reward motivated employees but did not
contribute to performance enhancement (Evans, 2005;Erkutlu, 2008; Rowold&Schlotz, 2009). Rewards from
transactional leaders are not always meaningful to employees, as it does not contribute to enhancing knowledge
and building innovation but encourages the repetition of the same behaviors (Erkutlu, 2008).
In general, some studies showed that the transactional leadership style was more effective than the
transformational leadership style (Gill, 1998; Arham&Muenjohn, 2012), others showed the opposite indicating
that the transactional leadership style is negatively related to job performance (Evans, 2005; Erkutlu, 2008) and
yet, Bass (1985) reported that transactional leadership is important for achieving positive organizational
outcomes. One possible reason for these mixed results on the relationships between reward and leadership styles
is because the dimension of transactional leadership namely contingent reward is associated with both
transformational and transactional leadership styles (Tejada, Scandura& Pillai, 2001). Therefore, according to
Tejada, et al (2001), contingent reward can also be a dimension of transformational leadership, but reward was
not found to be positively related to enhancement of employee and organizational performance.
Transactional leadership however, was found to be strong in one aspect which is the influencing strategy. The
transactional leadership style was found to be stronger as an influencing strategy on employees compared to
transformational leadership. In terms of influencing strategies, transactional leaders scored higher but not
necessarily in a positive way (Deluga, 1988). It could be that because of their managerial power to control and
instruct employees, they have greater influence on employees compared to transformational leaders. However,
this type of leadership could make followers merely comply with instructions; transactional leaders are less able
to generate motivation or commitment to task objectives (Deluga, 1988; Zagorsek, Dimovski&Skerlavaj, 2009).
Although, transactional leadership was found to be a significant influencing style of leadership, transformational
leadership was found to be more effective in building employee-employer relations. This was investigated by
Bass (1985) using a sample of 117 participants in a manufacturing company. It was found that the
transformational leadership style resulted in better leader-employee relationships. While transactional leaders
are interested in giving orders, rewards or other tangible transactions, transformational leaders build trust and
loyalty in followers. Leadership styles were measured using the MLQ. The number of participants in this study
(Bass, 1985) was not large enough for the results to be generalized but this is the only study found investigating
the relationship between leadership styles, influencing strategies and leadership effectiveness. Another study by
Evans (2005) using a sample of 194 employees from UAE banks interviewed respondents about the relationship
between leadership style and their behavioral outcomes. The researcher reported that transformational leadership
had a significant positive relationship on employee satisfaction. Conversely, transactional leadership showed no
significant relationship with employee job satisfaction.
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The above studies have reported mixed results on the relationship between transactional leadership and
organizational outcomes. Some reported that, in small organizations the transactional leadership style made a
stronger contribution to work performance than transformational leadership (Obiwuru, Okwu,
Apka&Nwankwere, 2011). Previous studies agreed that the transactional leadership style was effective in the
past when people were oriented towards financial resources (Jayasingam, 2009). In addition, Suryanarayan
(2011) has also found that transactional leadership was stronger than transformational leadership in relation to
job performance. Yet, many studies have reported that both transformational leadership and transactional
leadership are positive predictors of individual and organizational effectiveness (Bass, 1985; Trottier, 2008;
Zopiatis and Constani, 2010; Obiwuru, et al, 2011).
II. METHOD
The purpose of this study was to assess the effect of leadership styles on employee performance.
Leadership styles namely transformational and transactional leaderships were identified as independent
variables. Employee performance as dependent variables.
Research Design
The study was cross-sectional in nature and used the quantitative approach. The purpose of using a
cross-sectional design was so that data could be collected from a large number of participants at one point of
time (Creswell, 2003). Using this design assisted the researcher to utilize self-administering questionnaires to
measure the styles of leadership and positive organizational outcomes among a sample of Malaysian respondent.
Participants
In this study, a total of 333 individuals participated. 140 of the participants were males and 193 were
female. Participants were selected from different departments of a telecommunications company in Malaysia as
shown in Table 1 below. Participants were aged between 20 to 56 years with a mean age of 33.7 years.
Participants had different levels of education where 26 had completed their secondary school, 37 completed pre-
university degrees or diplomas, 227 had bachelor degrees and 43 were master graduates. Of all participants, 23
were junior executives, 122 assistant managers, 109 managers, 26 senior managers and 53 non-executives.
Table 1 Characteristics of the second sample
Socio-demographic Factors
Frequencies
Percent
Age
less-25
23
6.9
26-30
110
33.0
31-35
68
20.4
36-40
53
15.9
41-45
33
9.9
46-50
25
7.5
51-more
21
6.3
Gender
male
140
42.0
female
193
58.0
Marital Status
single
84
25.2
married
243
73.0
divorced
3
.9
widower
3
.9
Education
secondary
26
7.8
diploma/pre-university
37
11.1
bachelor degree
227
68.2
masters
43
12.9
Job Position
junior/executive
23
6.9
assistant manager
122
36.6
manager
109
32.7
senior manager
26
7.8
non-executive
53
15.9
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Measures
The questionnaire used in this study contained six main scales. The Multifactor Leadership
Questionnaire (MLQ) consisting of 28 items was used to measure styles of organizational leadership styles. The
Positive Organizational Outcomes measure consisting of 13 items was used to measure how well the
organization had performed in terms of employee performance and organizational
effectiveness.Transformational and Transactional Leadership: The Multifactor Leadership Questionnaire (MLQ)
Form 5-X Rater (Bass &Avolio, 2004) was used to explore the differences between transactional and
transformational styles of leadership. This scale consists of 45 questions which included: attributed charisma,
idealized influence, inspirational motivation, intellectual stimulation, individual consideration, contingent
reward, management-by-exception (passive), management-by-exception (active), laissez-faire leadership, extra
effort, effectiveness and satisfaction. The MLQ measures the full range of leadership styles, starting from the
avoidant style of leadership to an inspirational style. In addition, this scale has been used in various industries
and different organizational settings such as governmental, private and non-profit organizations from various
countries (Bass &Avolio, 2004). In past studies, the MLQ instrument showed high levels of reliability and
validity (Connell, 2005). In addition, the MLQ has been used in the Malaysian context and shown to have
significant scores of validity and reliability (Jamaludin, Abd Rahman, Makhbul& Idris, 2011). Jamaludin et al.,
(2011) in their study reported Cronbach‟s alpha of .81 for the transformational scale and .84 for the transactional
scale. Therefore, the researcher decided to use the MLQ scale in the present study.
In the present study, the researcher excluded items that did not belong to idealized influence,
inspirational motivation, intellectual stimulation, individual consideration, contingent reward, management-by-
exception (passive) and management-by-exception (active). More specifically, four items that belong to laissez-
faire such as” avoids getting involved when important issues arise”, “is absent when needed”, “avoids making
decisions” and “delays responding to urgent questions” were omitted. Laissez-faire has also been referred to as a
non-leadership factor (Bass, 1990), and it was reported to be negatively related to employee satisfaction,
performance and commitment (Yilmaz & Ergun, 2008). Therefore, these items were omitted because they did
not contribute to measuring transactional and transformational leadership. The researcher was more interested to
investigate the impact of transformational and transactional leadership styles. The total number of items was
used consisted of 28 items, 16 of which belonged to transformational and 12 to transactional styles of
leadership.
Employee Performance: Employee performance was measured using the modified version of The
World Health Organization Health and Work Performance Questionnaire (HPQ) as developed by Kessler,
Barber, Beck, Berglund, Cleary, McKenas, Pronk, Simon, Stang, Ustun, and Wang (2003). HPQ is a self-report
measure designed to assess absenteeism, work performance and job related accidents. However, since the
present study had no interest in examining absenteeism or job related accidents, only items that measured level
of employee performance were used. For the present study only three items that rated employees‟ own overall
performance (i.e. 1. “how would you rate your usual job performance over the past year or two?” 2. “how would
you rate your overall job performance on the days you worked during the past 4 weeks?”) and the performance
of coworkers of similar jobs (i.e. “how would you rate the usual job performance of most workers in a job
similar to yours?”) were used. The HPQ instrument has been found to be reliable and valid (Scuffham,
Vecchio&Whiteford, 2013).
Factor Analysis
An exploratory factor analyses was conductedto understand the factor structure between items of all
scales.Prior to conducting a regression and other data analysis for the present study, the researcher tested if the
measure results were influenced by common method variance (CMV). CMV refers to the „„variance that is
attributable to the measurement methodrather than to the constructs the measures represent‟‟
(Podsakoff,MacKenzie, Lee, &Podsakoff, 2003: 879).
The results of Kaiser-Meyer-Olkin (KMO) Measureof Sampling Adequacy and the Bartlett's Test of
Sphericityareshown in Table 2. A KMO value of .95 was found indicating adequate sampling. The Bartlett‟s test
was significant at p=.001 which indicates that there are some relationships between the variables in factor
analysis.
Table 2 KMO and Bartlett's Test for overall variables
Kaiser-Meyer-Olkin Measure of Sampling Adequacy.
.945
Bartlett's Test of Sphericity
Approx. Chi-Square
39469.260
Df
7260
Sig.
.000
Transformational and Transactional Leadership Styles on Employee Performance
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Leadership Measures
The output in Table 2 indicates that the MLQ measure loaded on four different factors. Especially,
respondents have clearly differentiated between transformational and transactional leadership styles.Results
from table 3 showed that idealized influence, individualized consideration, intellectual stimulation and
inspirational motivation formed one factor with the eigenvalue of 12.84 indicating that respondents have not
differentiated between components of transformational leadership.Whereas, in regards to transactional
leadership style, contingent rewards, management-by exception passive and active, formed the second
(eigenvalue of 3.536), the third (eigenvalue of 1.49) and the fourth (eigenvalue of 1.05) factor respectively,
meaning that respondents have made clear distinction between leaders who practice contingent reward,
management by exception active and management by exception passive. Table 3 shows that an item from
management by exception active (i.e. “focuses attention on mistakes and deviations from standard”)loaded in
line with contingent reward indicating that respondent perceived the item as opposite to rewarding if mistakes
found by their leader, and therefore loaded together with contingent reward. Therefore, for the further analysis
this item will be treated as contingent reward. For the present study MLQ consists of four components namely
transformational leadership (16 items with alpha value of .96), contingent reward (five items with alpha value of
.82), management by exception active (3 items with alpha value of .80) and the management by exception
passive (4 items with alpha value of .86). All four subscales revealed high reliability between items.
Table 3 Factor Loadings of MLQ (transformational and transactional)
Nr
Items
Transformational
Leadership
Contingent
Reward
Management by
Exception-Passive
Management by
Exception-Active
e
1
Transformation-IS
.674
3
Transformation-IS
.756
12
Transformation-IS
.737
14
Transformation-IS
.745
2
Transformation-II
.725
6
Transformation-II
.820
9
Transformation-II
.757
15
Transformation-II
.700
4
Transformation-IM
.789
5
Transformation-IM
.772
10
Transformation-IM
.787
16
Transformation-IM
.724
7
Transformation-IC
.706
8
Transformation-IC
.630
11
Transformation-IC
.720
13
Transformation-IC
.757
1
Transactional-CR
.626
4
Transactional-CR
.665
6
Transactional-CR
.608
12
Transactional-CR
.521
3
Transactional-MBEA
.592
9
Transactional-MBEA
.639
10
Transactional-MBEA
.779
11
Transactional-MBEA
.700
5
Transactional-MBEP
.869
7
Transactional-MBEP
.830
8
Transactional-MBEP
.828
2
Transactional-MBEP
.760
Transformational and Transactional Leadership Styles on Employee Performance
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III. RESULTS
In the present study a self-administered questionnaire was utilized to examine the relationships between
leadership styles, employee performance.
Multiple Regression Analysis
Multiple regression analysis was used to predict how well the independent factors such as
organizational leadership styles (transformational and transactional) were able to predict employee
performance among Malaysian respondents. These analyses were conducted in four stages. The first stage
analyzed the prediction level of leadership styles including transformational, contingent reward, management by
exception active and passive on employee performance as shown in Table 4.3.
The first step of the multiple regression analysis showed that age group, gender, education and job position
alone accounted for only eight percent of variation in employee performance among respondents and the model
was significant as shown in the Table 4.3.
Table 4.3 Multiple regression analysis for leadership on employee performance
R 2
F
SE
Beta
t-score
Sig.
Step 1
.08
2.2
.012
Step 2
.18
4.1
.001
Transformational Leadership
.02
.27
3.61
.001
Contingent Reward
.07
.02
.29
.774
Management by Exception Active
.08
.05
.71
.480
Management by Exception Passive
.04
.10
1.75
.082
Regression coefficients are significant at the .001 level ** and the .05 level *
The second step involved the addition of leadership styles namely transformational and sub-
dimensions of the transactional leadership style to the multiple regression analysis which resulted in an increase
in variance explained from (R² = .08, F = 2.2, p ≤ .012) to (R² = .18, F = 4.1, p ≤ .001) with significant change in
R² value (∆ R² = .10, p ≤ .001).
Transformational leadership style significantly predicts employee performance. One of the main tenets
of transformational leadership was reported to encourage employees to perform better and therefore contribute
to employee performance.
The regression correlations as shown in Table 4.3 indicated that the strongest predictor of employee
performance was transformational leadership style (β = 27, p ≤ .001).
Results in Table 4.3 indicated that components of transactional leadership namely contingent reward,
management by exception active and management by exception passive were shown to be insignificant
predictors of employee performance. The transactional leadership style was found to have no significant
influence on employee performance.
IV. DISCUSSION
The main goal of this paper was to expand upon previous research about the effect of leadership styles
namely transformational and transactional leadership on employeeperformance in the Malaysian context. This
section discusses the direct effects of leadership styles on employee performance based on the results regression
analysis.
The results indicated that the transformational leadership style significantly predicted employee
performance. This result was consistent with previous studies reporting that transformational leadership has
shown a significantly positive relationship with employee performance (Avolio, 1999; Emery & Barker, 2007;
Behery, 2008).The transformational leadership style was found to be strongly supported in Malaysian culture as
well, indicating that transformational leadership is effective cross-culturally. The results in this study supported
previous research, which reported that Malaysian leaders are moving towards transformational leadership (Lo,
Min &Songan, 2010).
On the contrary, the transactional leadership style including contingent reward, management by
exception active and passive did not significantly predict employee performance. This result supported previous
studies that claimed transactional leadership had an insignificant effect on employee performance (Evans,
2005;Erkutlu, 2008; Rowold&Schlotz, 2009).
Transformational and Transactional Leadership Styles on Employee Performance
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Based on the significant direct effects observed between the transformational leadership style and employee
performance, the present paper concluded that the transformational leadership style, as compared to the
transactional leadership style, had significant effect on the individual performance of employees.
V. CONCLUSION
The main goal of this study was to examine the effect of leadership styles observed in the Malaysian
context. Using the regression analysis, the researcher examined the strengths of the relationships between
independent variables namely transformational leadership, transactional leadership and the depended variable
namely employee performance.
Overall, as predicted by the researcher, the transformational leadership style was shown to predict
positive employee performance more than transactional leadership style.
Finally, it is expected that this study will encourage other studies to further investigate other possible extraneous
factors in addition to leadership styles that can influence employee performance.
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