The Impact of Transactional Leadership on Work Performance: The Mediating Role of Work Engagement

Xu Ran, Rozaini Binti Rosli*, Dhakir Abbas Ali

Lincoln University College, Wisma Lincoln, No. 12-18, Jalan SS 6/12, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia

*Corresponding Author’s Email: rozaini@lincoln.edu.my

Abstract

Drawing on the theory of transactional leadership, this study investigates the potential impact of transactional leadership on work performance through the mediating role of work engagement. A survey was conducted among 157 employees from a manufacturing enterprise in China, revealing that transactional leadership significantly and positively influences both work performance and work engagement. Moreover, work engagement fully mediates the relationship between transactional leadership and work performance. This study offers practical management strategies for enterprise leaders, emphasising task-oriented approaches, goal-setting, and motivating employees to invest greater effort through work promotions, material incentives, and other methods, ultimately fostering improved work performance.

Keywords: Social Exchange Theory; Transactional Leadership; Work Engagement; Work Performance Introduction

Introduction

Currently, the Chinese economy is experiencing rapid growth, accompanied by continuous changes in the market environment. This has led to an increasing emphasis on diverse leadership styles within enterprises. Among these, transactional leadership has gained significant traction for its role in enhancing both employee and organisational performance. Rooted in social exchange theory, transactional leadership clearly outlines the expectations between leaders and employees. (Zaw & Takahashi, 2022) By leveraging external incentives like contingent rewards and punishments, it seeks to align the interests of both parties, thereby driving improved performance (Breevaart et al., 2014). In particular, there is a lack of systematic empirical analysis on the mediating role of work engagement between transactional leadership and task performance. Moreover, few studies have delved into the differential effects of the distinct dimensions of transactional leadership (such as contingent reward and contingent punishment) on work engagement and performance (Dong, 2023).

Therefore, this study aims to fill these research gaps with the following specific objectives:

1. To examine the impact of transactional leadership on task performance: Conduct an empirical analysis to determine whether transactional leadership has a significant positive effect on employees' task performance.

2. To test the mediating role of work engagement: Verify whether work engagement mediates the relationship between transactional leadership and task performance, revealing the specific mechanism through which transactional leadership affects performance.

3. To distinguish the effects of different dimensions of transactional leadership: Analyse how the two dimensions—contingent reward and contingent punishment— differentially influence work engagement and task performance.

4. To provide practical recommendations for management: Based on the study’s findings, offer theoretical guidance for managers to formulate effective strategies to enhance employee work engagement and task performance.

By pursuing these objectives, this study seeks to provide new insights into the theory and practice of transactional leadership and further enrich the research on the impact of leadership behaviours on employee performance.

Literature Review

Transactional leadership, introduced by Holten, Bøllingtoft, & Wilms, (2015), posits that the relationship between leaders and subordinates is reciprocal, rooted in the exchange of political, economic, and psychological values. The foundation of this leadership style lies in social exchange relationships, where leaders and their subordinates engage in a contractual exchange process (Hoch et al., 2019). Xiaoping and Ali (2024) employed grounded theory to explore how leaders’ empowering behaviours influence workers’ creative activities, particularly in areas such as personal development, teamwork, and autonomy. Rowold (2005) developed the theory of transactional leadership, which suggests that transactional leadership consists of contingency rewards and exception management. Contingency rewards are task oriented and reward or punish subordinates based on their performance in completing tasks. Exception management is the process of correcting and providing feedback on errors and deviant behaviours made by employees at work. It consists of two dimensions: the process in which managers actively monitor employees' deviant behaviours is called active exception management, and the process in which managers passively guide subordinates' deviant behaviours is called passive exception management (Khan, Khan, Idris, 2021). Park & DeShon (2018) divided transactional leadership into two dimensions: contingency rewards and contingency punishments. Alshammari & Ali (2024) established that the inclusive leadership style has a deliberate impact on employee performance within the Hail health cluster. By fostering workplace dignity, inclusive leadership ensures that employees feel secure, leading to more efficient work and higher quality outputs. Contingency rewards refer to the recognition of subordinates' performance by leaders through rewards in exchange, including providing incentives, material rewards, and work promotions, while subordinates are rewarded by obeying the leader's orders and completing the assigned tasks; Contingency punishment is the process of penalizing or correcting employees who fail to complete their assigned tasks. Previous studies have demonstrated that contingency punishment aligns essentially with Bass' exception management (Murphy & Anderson 2020). However, external means impose both incentives and punishments on employees rather than their autonomous behaviour (Wei, Yuan, & Di 2010). R Within the framework of transactional leadership, research has demonstrated a positive correlation between contingency rewards and improved work performance (Judge & Piccolo, 2004; Basham, 2012; Abi Saad & Agogué, 2023; Urena et al., 2019). nd the same results have been demonstrated in some extreme task scenarios (Lim & Ployhart 2004), but there are also studies showing negative predictive effects (Howell & Avolio, 1993; Bass & Riggio,2006) or no correlation. It is evident that scholars hold varying perspectives on the connection between transactional leadership and work performance. The mechanisms by which transactional leadership influences work performance and its associated variables remain somewhat opaque, representing a "black box" that warrants further investigation. This study posits the following hypotheses: H1: Transactional leadership positively predicts work performance; H1a: contingency rewards positively predict work performance; H1b: contingency punishments positively predict work performance.

Moreover, although individuals recognise work engagement as a positive trait in their roles, a unified definition of the concept remains elusive. Lifang and Ali (2024) conducted a study exploring the complexities of designing and implementing performance management systems in Chinese organisations, drawing comparisons with challenges faced by various commerce and sectoral associations across other countries. Kahn first proposed the concept of "personal involvement" in work in 1990, which has received considerable attention from researchers in the field of human resources since its inception (Haugen & Davis, 2018; Gupta & Sharma, 2018). Kahn (1990) described personal involvement in work as the ability of organisational members to immerse themselves fully in their work roles, allowing them to freely express their authentic selves. He provided a comprehensive framework for understanding work involvement through three dimensions: physiological, cognitive, and emotional. Additionally, Saad et al. (2022) underscore the importance of integrating self-efficacy cues into training programs, which significantly influence perceived employee performance. Their study delves into the mediating role that individuals' self-efficacy beliefs play in the connection between training initiatives and employee performance outcomes. He pointed out that individuals who are engaged in work exhibit caution, focus, and agility in cognition. Being able to actively participate in work tasks physiologically and emotionally, one can express their true feelings in real work and establish good relationships with others. Schaufeli, Desart, & De Witte, (2020) initiated the study of work engagement as a counterbalance to work burnout, defining it as the converse of the three core dimensions of burnout: emotional exhaustion, cynicism, and reduced personal accomplishment. They conceptualised work engagement through three opposing dimensions: high energy, deep involvement, and high efficacy.

Nowadays, the academic community mostly adopts Cummings et al.'s (2018) definition of work engagement, which they believe is a positive, fulfilling, more lasting, and universal emotional cognitive state, manifested through three dimensions: vitality, dedication, and focus. Previous studies have shown that high work engagement, as a positive work attitude, can lead to improvements and enhancements in employee performance (Noesgaard & Jørgensen, 2024). The goal of performance management is to ensure that teams and individuals have the tools they need to grow, receive well-deserved recognition for motivation, and understand their responsibilities. Performance management ensures that the organization's values are reflected in daily operations and that teams are aligned on priorities (Lifang & Ali, 2024).

Based on social exchange theory, subordinates are required to complete tasks assigned by their superiors within a specified time frame in order to receive work promotions and other material rewards or honours, thereby improving work performance. In addition, based on the characteristics of transactional leadership, it can be found that transactional leadership is task oriented. Leaders engage in social exchange with employees through giving them promotion opportunities, material rewards, and other means, providing ample opportunities for their career development. Lifang & Ali (2024) suggest that the high-performance management system achieves superior organisational performance through scientific methods like recruitment, selection, training, and promotion. However, this inevitably creates pressure and challenges for employees. Balancing high-performance management with employee well- being requires self-efficacy as an intermediary adjustment. Such measures will make employees full of hope for the future and willing to invest energy in their future career development, thereby enabling them to focus more on their work and improve work performance.

Work engagement is a positive, continuous state of mind that reflects the enthusiasm and recognition of employees for their work, and the higher the work engagement, the harder the employee will work harder and produce higher work performance. Harter, Schmidt, & Hayes (2002) found that employee engagement has a positive impact on organisational performance outcomes (e.g., productivity). Bakker, Demerouti, & Ten Brummelhuis, (2012) found a positive correlation between work engagement and task and relationship performance. Bolino, Turnley, & Anderson, (2016) found that highly engaged employees are more energetic, dedicated, and focused, and therefore more likely to produce positive behaviours and outcomes. Gupta & Sharma (2018) discovered that fully engaged employees exhibit behavioural, cognitive, and emotional work states that align with the organisation's desired work state. Parker, Bindl, & Strauss (2010) empirically demonstrated that work engagement has a positive impact on the work environment. When employees are highly engaged, they receive support from the organisation and their peers, which leads to more work resources and improved self- performance. Harter (2000) conducted an empirical analysis of datafrom 2000 firms and found that work engagement had a significant positive impact on employees' productivity and job performance under different firm scenarios. The turnover rate has a significant negative impact. Some scholars use motivation theory to analyze the relationship between work engagement and job performance, believing that employees' motivation has a significant positive impact on job performance. A sense of accomplishment motivates employees to put in more effort. The higher the work commitment, the more energetic the employee is at work, and the higher the sense of self-fulfillment can get. As a result, the higher the work engagement, the higher the work performance. According to the motivational potential theory of work resources, Bakker, Demerouti, & Ten Brummelhuis (2012) concluded that weekly work effort can positively predict the level of weekly work performance.

Research Hypotheses

Therefore, this study hypothesises that: H2: transactional leadership has a positive predictive effect on work engagement; H2a: contingent rewards have a positive predictive effect on work engagement; H2b: contingent punishments have a positive predictive effect on work engagement; H3: Work engagement mediates the relationship between transactional leadership and work performance. Therefore, Khaiyal & Ali (2022) explore the relationship between the enhancement of human quality and investment efficiency. They propose that using costly human resource processes, whether explicit or implicit, improves employee quality, which in turn increases investment efficiency.

Methodology

Sample and Data Collection

The survey data in this article primarily originates from a manufacturing enterprise on the eastern coast of China, with empirical data collected via paper questionnaires. Out of 157 distributed questionnaires, 10 were deemed invalid due to significant missing information, unclear responses, or obvious response patterns. Consequently, 147 valid questionnaires were retained, resulting in an effective response rate of 93.6%.

Measures

This study utilised the transactional leadership questionnaire developed by MacKenzie, Podsakoff, & Rich, (2018), which includes two dimensions: contingency rewards and contingency punishments. Employees rated their immediate supervisors on a scale from "1" (strongly disagree) to "5" (strongly agree). For this scale, Cronbach's alpha is 0.846. Schaufeli, Desart, & De Witte, (2020) simplified version of the work engagement questionnaire, consisting of nine items, covers three dimensions: vitality, dedication, and focus. This self- assessment questionnaire uses a Likert 7-point scale, where "1" denotes "strongly disagree" and "7" indicates "strongly agree," with higher scores indicating greater work engagement. The Cronbach’s alpha for this questionnaire is 0.972. The work performance questionnaire is based on Yousef’s (2020) 7-item Role-Based Performance Scale, which includes 2 reverse-scoring items. Direct superiors evaluate their subordinates using the Cronbach's alpha of 0.898.

Results

Descriptive Statistics and Correlation Analysis

Table 1 presents descriptive statistics and correlation analysis of each variable. From the correlation of various variables, transactional leadership is significantly positively correlated with work performance (β=0.267, p<0.01), contingency rewards are significantly positively correlated with work performance (β=0.275, p<0.01), and contingency punishments are significantly positively correlated with work performance (β=0.212, p<0.05). There is a significant positive correlation between transactional leadership and work engagement (β=0.486, p<0.01), a significant positive correlation between contingent rewards and work engagement (β=0.530, p<0.01), and a significant positive correlation between contingent punishments and work engagement (β=0.330, p<0.01).

Table 1: Descriptive Statistics and Correlation Analysis

Source: SPSS29.0 output

The Relationship Between Transactional Leadership, Work Performance, And Work Engagement

As shown in Table 2, the adjusted R2 values for the relationship between transactional leadership and work performance and work engagement are 0.064 and 0.231, respectively. This indicates that transactional leadership has a significant positive predictive effect on work performance and work engagement, with variance explained by 6.4% and 23.1%, respectively. H1 and H2 are supported. In the relationship between contingent rewards and work performance, the impact of contingent rewards (β = 0.273, p<0.01) on work performance reached a significant level, with a variance explained by 6.9%, indicating that contingent rewards have a significant positive predictive effect on work performance. In the relationship between contingency punishment and work performance, contingency punishment (β=0.220, p<0.01) has a significant impact on work performance, with a variance contribution of 3.8%. This indicates that contingency punishment has a significant positive predictive effect on work performance, as confirmed by H1a and H1b. In the relationship between contingent rewards and contingent punishments and work engagement, contingent rewards (β=0.915, p<0.001) explained 27.6% of the variance in work engagement, indicating that contingent rewards have a positive predictive effect on work engagement. The contribution of contingency punishment (β=0.597, p<0.001) to thevariability of work engagement is 10.3%, indicating that contingency punishment has a significant positive predictive effect on work engagement. Therefore, H2a and H2b are supported.

Table 2: Regression Analysis of Transactional Leadership and Work Performance and Work Engagement

Source: SPSS29.0 output

The Mediating Role of Work Engagement

This study mainly focusses on the mediating role of work engagement between transactional leadership and work performance. Therefore, a hypothetical model is constructed, as shown in Figure 1.

Figure 1: The Mediating Role Model of Work Engagement

This study investigated transactional leadership and work engagement as independent variables with work performance as the dependent variable and tested the mediating role of work engagement between transactional leadership and work performance. The results, detailed in Table 3, show:

Step 1: Regression analysis with transactional leadership as the independent variable and work performance as the dependent variable yielded a c-path coefficient of β=0.295 (p<0.01).

Step 2: Regression analysis with transactional leadership as the independent variable and work

engagement as the dependent variable yielded a path coefficient of β=0.937 (p<0.001).

Step 3: Regression analysis with both transactional leadership and work engagement as independent variables and work performance as the dependent variable yielded a b-path coefficient of β=0.134 and a c’-path coefficient of β=0.180 (p > 0.05).

The significant decrease and lack of significance in the c’-path coefficient compared to the c- path coefficient indicate that work engagement fully mediates the relationship between transactional leadership and work performance, supporting hypothesis H3. The total effect is 0.295, and the mediation effect is 0.115, accounting for 39.98% of the total effect. A bootstrap mediation test with 5000 samples, conducted according to Hayes (2017), showed that the mediation effect was significant, with a 95% confidence interval not including "0" (LLCI=0.0238, ULCI=-0.2351), confirming the mediation effect of 0.1151. Furthermore, after controlling for work engagement, transactional leadership had no significant impact on work performance, with a confidence interval of "0" (LLCI = -0.0201, ULCI = 0.3792). Thus, work engagement mediates the effect of transactional leadership on work performance.

Table 3: Regression Analysis of Transactional Leadership and Work Performance and Work Engagement

Source: SPSS29.0 output

Discussion

This study found that transactional leadership significantly enhances work performance through the mediating effect of work engagement. Both contingent reward and contingent punishment, as sub-dimensions of transactional leadership, have a positive impact on work performance and engagement. Consistent with prior research, this study supports the notion that contingent rewards positively influence employee performance (Judge & Piccolo, 2004). However, it diverges from some earlier studies that reported a negative or non-significant relationship between transactional leadership and performance (Howell, & Avolio, 1993). These discrepancies may be due to cultural differences or variations in organisational context.

This study contributes to the transactional leadership literature by elucidating the ‘black box’ of how transactional leadership influences performance through work engagement. It provides empirical support for the social exchange theory by demonstrating that work engagement fully mediates the relationship between transactional leadership and work performance. The findings suggest that managers should focus on enhancing work engagement through transactional leadership practices such as providing contingent rewards and actively managing exceptions. This approach could help improve employee performance and, ultimately, organisational productivity.

This study has certain limitations that should be acknowledged. Firstly, the sample source is relatively homogeneous, primarily drawn from a single region, which may limit the representativeness of the findings (Perrin et al., 2012). Future research could enhance the robustness of the results by expanding the sample size and including participants from diverse geographic locations. This would improve both the reliability and the generalisability of the research outcomes, allowing for more comprehensive insights into leadership behaviour and its impact across different cultural and organisational contexts. Secondly, the use of self- reported questionnaires for measuring work engagement introducespotential bias, as these self- assessments may not accurately capture the dynamics of the leader-follower relationship (Spurlock, 2023). To mitigate this issue, future studies might consider using a multi-source feedback approach, wherein both subordinates and their superiors independently assess leadership behaviours and work engagement. This method could help reduce the perception errors that often accompany self-reported data. Lastly, while this study focused broadly on

transactional leadership, it did not delve deeply into its specific sub-dimensions, such as contingent reward and contingent punishment. These sub-dimensions may have varying impacts on work performance (Wuryaningrat, Hidayat, & Kumajas, 2024). Future research should aim to dissect these dimensions further to determine which aspects of transactional leadership most significantly influence employee outcomes. Recent studies suggest that certain leadership behaviours can either enhance or undermine work engagement depending on the context and the individual’s perception of these ehaviors. Investigating these nuances could provide more targeted strategies for improving leadership effectiveness in organisational settings.

Conclusion

This article examines employees of a manufacturing enterprise in eastern China, focussing on the role of work engagement as a mediating variable between transactional leadership and work performance. The findings reveal that transactional leadership positively influences work performance. Specifically, the sub-dimensions of transactional leadership—contingency rewards and contingency punishments—also positively impact work performance. Furthermore, transactional leadership enhances employees' work engagement, with flexible rewards and punishments significantly boosting work engagement. Work engagement completely mediates the relationship between transactional leadership and job performance. This study not only expands research on transactional leadership behaviour but also offers practical insights for guiding employee performance in organisations.

This study's limitations include a single data source, reliance on subordinate self-assessment, and limited exploration of transactional leadership sub-dimensions; future research should expand the sample, use multiple report sources, and investigate the effects of specific leadership dimensions.

Conflict of Interest

The authors declare that they have no conflict of interests.

Acknowledgment

The authors extend their heartfelt thanks to those who have helped me for their insightful guidance and constructive feedback, which greatly contributed to the development of this paper. Special appreciation is also extended for their unwavering support throughout the research process.

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