Transactional Versus Transformational Leadership: Contrasting Their Impact on Employee Psychological Well-Being, Job Satisfaction, and Work-Life Balance in the Private Sector

Abstract

Leadership is the practice whereby an individual pursues influence over others and empowers, stimulates, and supervises their tasks to help accomplish organizational or group goals. In private organizations such as banks, transactional and transformational leadership styles are frequently employed. Although they are used in these sectors, their impact on employee well-being is not known. Hence this study aimed contrasting impacts of transformational and transactional leadership on employee well-being. This research adopts a mixed-methods approach, combining quantitative surveys with qualitative interviews to offer a comprehensive perspective. The findings show that transformational leadership is generally more effective in promoting positive employee wellbeing compared to transactional leadership. Transformational leadership, characterized by the leader’s ability to inspire and motivate employees, provide emotional support, and foster a shared vision, was found to enhance job satisfaction and work-life balance significantly. Conversely, transactional leadership, which emphasizes structure, clear expectations, and rewards and punishments for specific performance outcomes, presented a more nuanced impact on employee well-being and job satisfaction and its focus on performance targets and extrinsic rewards was associated with increased stress among employees. However, the study also highlights some limitations of transformational leadership, particularly regarding consistent emotional support suggesting areas for improvement. The study underscores combining transformational leadership with selected transactional elements could optimize employee well-being hence banks should prioritize transformational leadership training to develop a more engaged workforce, while selectively incorporating transactional elements such as clear communication and structured rewards to enhance job satisfaction and employee well-being. Future research might explore the long-term effects of blended leadership styles across various sectors to further support these findings. This study ultimately adds to the broader understanding of leadership’s role in shaping employee outcomes whilst emphasizing the importance of a balanced approach that enhances employee well-being.