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. The Effects of Transactional Leadership of Employees Performace failed to approach the study of personality asan organized whole (Derel 2003).2.2.2 Behavioral theories of leadershipThe trait approach did not yield the expectedresults. As the need for identifying andtraining leaders came to the forefront duringthe World War II, the previous results ledresearches turn to behaviors, rather thantraits as a resource of leadership effectiveness(Nahavandi 2009).2.2.2.1 The Iowa studiesThe University of Iowa studies conducted inthe United States, explored three leadershipstyles to find which was most effective and todetermine their effect on the attitudes andproductivity of the subordinates (Derel,2003). They identified the Authoritarian,Democratic and Laissez Faire Leadershipstyles. These leadership styles exist on acontinuum from autocratic to laissez-faire.Authoritarian style is characterized by aleader who makes all the decisions and passesthe directives to subordinates who areexpected to carry these out under very closesupervision. It is assumed that the leaderknows everything and knows what is best forthe organization and that the leader hasunlimited authority (Derel 2003).Democratic style is characterized by astructured but cooperative approach todecision making. It focuses on grouprelationships and sensitivity to the people inthe organization. This style fosters to improveprofessional competence and lead them towork as team. It is well suited to theenvironments where people have a very highlevel of expertise such as software engineers,lawyers, doctors, mature teachers, etc. Thedemocratic leadership style promotes greaterjob satisfaction and improved morale(Marturano & Gosling 2008).///2.2.2.2 Laissez-faire styleThis is quite the opposite of the Authoritarianstyle. There is the absence of any realleadership and everyone is free to do as theyplease. Usually, with no targets or direction,there is a state of confusion. As the result of it,productivity is usually very low (Marturano &Gosling 2008).As the leadership studies that were aimed atidentifying the appropriate traits did not yieldany conclusive results, a group of people fromthe Ohio State University developed in the1940s and the 1950s a list of 150 statementsfrom their generated responses that included1,800 statements. The list was designed tomeasure nine different behavioral leadershipdimensions. The resulting questionnaire isnow well-known as the LBDQ or the LeadersBehavior Description Questionnaire. As partof the study, the LBDQ was administered tovarious groups of individuals ranging fromcollege students and their rsonnel.Those researches and studies in Ohio identifytwo basic kinds of leader behaviors that maybe engaged to influence their subordinates,namely Consideration and Initiating on when they show theirsubordinates the trust, openness, and concernfor employees' well being. Learders whoemphasize consideration would likely createtrusting, supportive, and as a result, moreproductive work environment (Jones George, 2009) .Initiating Structure. Leaders engage ininitiating structure when they take steps tomake sure that work gets done. It includesbehaviors related to task and goal orientation,such as giving clear directions, monitoringemployees' performance, and planning andsetting work schedules and deadlines. Leaderswho emphasize structure are likely toEconomic Review – Journal of Economics and Business, Vol. XIII, Issue 2, November 2015///9

///. Brahim A. B., Riđić O., Jukić T.emphasize efficiency and effectiveness tosupport employees by identifying what needsto be done in order for them to succeed at thejob or task (Mckee 2012).2.2.2.3 University of Michigan studiesAround the same time the Ohio Universitystudies were under way, researchers atMichigan University began studying thebehavior of effective leaders. The MichiganUniversity researchers came up with twodimensions behavior. The first one wasemployee-oriented,whichemphasizedinterpersonal relationships by taking apersonal interest in the needs of employeesand focusing on engaging them throughsetting and assisting in the attainment of highperformance targets. The second was theproduction-orientedbehavior,whichemphasized technical or job tasks such asefficiency, costs adhering and so on. Thosedimensions are closely related to the onesidentified by the Ohio State Universitydimensions.performances, lowers employee turnover andabsenteeism and grants employee satisfaction.However, the Team Management style wouldnot work in a crisis, because sometimes thereis no time to be sensitive to moral issues. Inaddition, this model encourages managers todevote more time to managing humanresources, because they usually spend moretime managing easier resources (Bolden et al2003).2.2.2.4 Managerial gridThe Managerial Grid (Figure 1) wasdeveloped by Blake and Mouton, who focus ontask (production) and employee (people)orientations of managers (Bolden et. al 2003).In 1964, they developed two dimensionalviews of leadership style based on the concernfor people and concern for production whichcould be plotted along horizontal and verticalaxes (Mckee 2012).As we can see in this model, there are fiveleadership styles that might fall under:Impoverished Management (1, 1), TaskManagement (9, 1), Middle of the RoadManagement (5, 5), Country Club Management(1, 9), and Team Management (9, 9).As a result, Mouton and Blake concluded thatthe Impoverished Management (1,1) is not themost effective, while Team Management (9,9)is the best style because it improves///Figure 2.1. Leadership GridSource: Bolden et. al 2003.2.3The main types of leadersLeaders have been classified into a number ofdifferent types as described below:2.3.1Transactional leadersAs originally described by Burns (1978), thetransactional leaders identify the expectationsof their followers and respond to them byestablishing a close link between effort andreward. Power is given to the leader toevaluate, correct and train subordinates whenperformance needs to be improved and toreward effectiveness when the requiredoutcomes are achieved (Couto 2007).Economic Review – Journal of Economics and Business, Vol. XIII, Issue 2, November 201510

. The Effects of Transactional Leadership of Employees Performace 2.3.2Transformational leadersAs defined by Bass (1990), the purpose oftransformational leaders is to empower theirfollowers and encourage them to ‘do morethan they are originally expected to do’.Transformational leaders motivate followersto perform at higher levels, to exert greatereffort, and to show more commitment. Bassidentified three principal leadership processesfor achieving various outcomes, such as: (1)heightening followers’ awareness about theimportance and value of designated goals andthe means to achieve them; (2) inducingfollowers to transcend their self-interests forthe good of the group and its goals; and (3)meeting followers’ higher-order needs.Transformationalleadersprovideencouragement and support to followers;assist their development by promoting growthopportunities, and show trust and respect forthem as individuals. They build ///performance indicators to strengthen currentprogram and strategy management. Thosesteps will outline a method for identifyingoutcomes and relevant outputs, developingappropriate performance indicators andstrengthening performance reporting –leading to more effective and efficientprograms and strategies. Those steps arestructured as six steps (shown in Figure 3).Charismatic leadersThey have compelling personalities and theability to rouse people to follow them throughthe sheer force of the impression they make.As originally described by Weber (1947),charismaticleadersareachievementorientated, calculated risk-takers and goodcommunicators. They achieve motivationaloutcomes through four mechanisms: (1)changing follower perceptions of the nature ofwork itself; (2) offering an appealing futurevision; (3) developing a deep collectiveidentity among followers and (4) heighteningboth individual and collective self-efficacy(e.g. people’s belief in themselves and whatthey can do) (Couto 2007).2.4Steps to measure organizationalperformanceThe steps to measure organizationalperformance will assist directorates inselectinganddesigningappropriateFigure 2.2. The steps in measuring performance(Source: Organizational Performancemeasurement and reporting guide, 2013. p. 2)1.Plan: Good planning does not guaranteegood performance, but it can assist indeveloping more robust performancemeasurement systems and finding aclearer course of action. A useful tool inplanning is program logic, which involvesaligning top level company outcomes,company priorities, directorate servicesand costs;2.Select performance indicators: Thissection provides more information onselecting appropriate and measureableperformance indicators. The performanceof programs or strategies should bemeasured at each level of the logic model;Economic Review – Journal of Economics and Business, Vol. XIII, Issue 2, November 2015///11

///. Brahim A. B., Riđić O., Jukić T.3.Conduct program: The project is deliveredto effect change and should beimplemented in line with the programimplementation plan;4.Collect data and monitor performance:Program planning, design and selection ofindicators are key components of aperformancemeasurementsystem.However, these steps are essentiallymeaningless if data is not collectedagainst each of the indicators. Measuringperformance requires the timely andrelevant collation and analysis of data.Data must be gathered by set timeframesand must be accurate, comprehensive andcomparable;5.6.Analyze and report: The utility ofperformance information is limited if it isnot communicated effectively andintegrated back into the planning cycle;Evaluate and modify: Once the data forthe performance indicators are collected,analyzed and communicated, considerevaluatingboththeperformanceindicators selected and the program orstrategy being measured. Evaluating theprogram or strategy can inform leaders’decisions about planning, capability andresource allocation (O.P. Measurement,2013).2.5 Link between transactional leadershipand performanceSince transactional leadership is based on asystem of rewards and penalties, it does notoffer much in terms of inspiration, to motivatepeople to go beyond the basics. Given this fact,the followers of transactional leaders mightget complacent and develop a tendency toachieve minimal expectations only that wouldhelp them avoid penalties (Bass 1990). Thus,the leader and the follower are in anagreement on what the follower wouldreceive upon achieving the negotiated level ofperformance. The success of such leadership///depends on the level of satisfaction the leaderand followers have in following this system ofperformance based appraisals. Thus, theexpected causal chain where leadership stylepositively affects employee motivation, whichtranslates into improved employee andorganizational performance, does not seem tobe applicable to transactional leadership.(Bass 1990) (see Figure 2.3.).LEADERSHIP STYLEaffectsEMPLOYEEMOTIVATIONImproved motivationleads to improvedaffectsEMPLOYEEPERFORMANCEaffectsImproved performance oforganizational employeesleads to improvedORGANIZATIONALPERFORMANCEFigure 2.3. Ali Bousbia B. Master thesis,International University of Sarajevo (2015, p. 37)As a matter of fact, a study conducted byHowell & Avolio (1993) confirms thatcontingent reward leadership has a negativeimpact on the followers' performance.Contingent reward is viewed as "an active andpositive exchange between leaders andfollowers whereby followers are awarded foraccomplishing agreed upon objective". Ifmanagers do not effectively follow-up on thecontingentrewardpromises,therebydisplaying behavioral inconsistency, they areviewed as ineffective leaders. Furthermore,Howell & Avolio (1993) suggest that the levelEconomic Review – Journal of Economics and Business, Vol. XIII, Issue 2, November 201512

. The Effects of Transactional Leadership of Employees Performace of contingent reward leadership is dependenton organizational context and settings. Forexample, an organization undergoing changemight suffer from a transactional leadershipstyle. The penalties, awarded in such a systemof managing by exception, have a negativeimpact on performance and satisfaction. Thisstems from the fact the leader passivelyawaits problems before taking any action. Byfollowing this strategy, the leader ensures thatcorrective action is taken when required andin doing so he reinforces the roles andexpectations for the followers. Hence, thisbehavior represents an important aspect oftransactional leadership (Bass 1990).Jayasingam, Ansari & Jantan (2009) discussedthat the coercive power has been linked withineffective leadership. Transactional leadersmake use of reward and coercive power.Coercive power is based on "the target'sperception that the agent has the ability toinflict various organizational punishments"and it appears that transactional leaders aremore likely to adopt coercive power. Workingin fear of losing one's job, or fear or demotion,only makes an employee ineffective andunproductive because the employee spendsmost of his/her time worrying about theconsequences if the expectations of theleaders are not met.As it can be observed, a transactional leaderrelies heavily on power and authority to leadhis members. Power play and the use of a"reward and penalty" system thus play anintegral role in such a leadership style. Asdiscussed through various researches,transactional leadership measures are not soeffective and in most cases can de-motivateemployees. There are suggestions that effectsof leadership styles on employee performanceare dependent on the organizational contextand settings. If, as Howell & Avolio (1993)argued, an organization undergoing changemight suffer from a transactional leadershipstyle, could the opposite be true? Specifically,if an organization has a long history and///operates under a more or less unchangedbusiness model over a long period of time,could transactional leadership actuallyimprove the organization’s performance?More to the point, is it possible that Algerianbanks’ managers transactional leadershipstyle (of course, if they indeed practice suchstyle of leadership) have tangible effects onemployee motivation?2.6 The categories to measureperformanceFirstly, we need to solve this question, why dowe measure performance? We may say, toevaluate how well (i.e., how effectively,efficiently, and profitability) organizations aredoing in achieving their goals in their missionstatements.Secondly, by which techniques or approachescan we measure performance? Manyresearchers argue that the characteristics forperformancemeasurementwouldbedifferent, depending on the different purposesof measuring performance.2.6.1Accounting measuresAccounting measures represent the mostcommon and readily available means ofmeasuring organizational performance; thevalidity of their use is found in the extensiveevidence showing that accounting andeconomic returns are related. A summary ofaccounting measures is shown as follows: Cash flow from operations; Earnings before interest and taxes (EBIT); Earningsbeforeinterest,taxes,depreciation, and amortization (EBITDA); Market share; Net operating profits (also known asearnings); Net operating profit after tax [NOPAT]; Profit margin; Return on assets (ROA); Return on book-valued assets; Return on capital employed (ROCE);Economic Review – Journal of Economics and Business, Vol. XIII, Issue 2, November 2015///13

/// . Brahim A. B., Riđić O., Jukić T.Return on equity (ROE);Return on investment (ROI);Return on invested capital (ROIC);Variance in accounting profitability;Sales and Sales growth. (Carton & Hoffer2006).2.6.2Financial market measuresA summary of financial market measures isshown as follows: Beta coefficient; Earnings-per-share (EPS); Jensen’s alpha; Market value (or market capitalization)(numbers of shares x price per share); Price-to-earnings ratio (P/E ratio); Return on market-valued assets; Stock price; Total shareholders return (TSR) andTracking stocks.2.6.3 Mixed accounting / financial marketmeasure.An advantage of those measures is that theyare better able to balance risk (largely ignoredby accounting measures) against operationalperformance issues that are sometimes lost inmarket measures. According to Carton &Hoffer (2006) more recent studies haveproduced equivocal results, with accountingmeasures retaining incremental explanatorypower. A summary of those measures isshown as follows: Balanced scorecard, Cash flow per share; Cash flow return on investment (CFROI),Cash value added (CVA); Discounted cash flows (DCF), Economicvalue added (EVA); Internal rate of return (IRR), Market-tobook value; Market value added (MVA), Net presentvalue (NPV); Shareholder value analysis (SVA), Tobin’s q, Total business return (TBR), Warrantedequity value (WEV);/// Weighted average cost of capital (WACC)and Z-score (Pierre et al 2009).2.6.4SurvivalSurvival is a common dependent variable ociologyandentrepreneurship where increasing attentionis given to ecological explanations of firmperformance (DTI, n.d.) (Pierre et al 2009).2.6.5ProfitabilityProfitability is the primary goal of all businessventures. Without profitability the businesswill not survive in the long run. In addition,profitability is measured with income andexpenses and it can be defined as eitheraccounting profits or economic profits(Hofstrand 2009). The reasons for computingprofitability are: firstly, to check the state oforganization; secondly, increasing profitabilityis one of the most important tasks of thebusiness managers, so mangers constantlylook for ways to change the business toimprove profits (DTI, n.d.).We can calculate productivity as outputsdivided by inputs, which can be quoted as:Expected productivity [(expected output) /(resources expected to be consumed)] orActual productivity [(actual output) /(resources actually consumed)] (DTI, n.d.),(Pierre et al 2009).2.6.6EfficiencyEfficiency is the measure of how well or howproductively resources are used to achieve agoal. Efficiency can also be quoted as:Efficiency [(Resource actually used x100%)/ (Resources planned to be used)] (DTI, n.d.)(Jones & George 2009).Economic Review – Journal of Economics and Business, Vol. XIII, Issue 2, November 201514

. The Effects of Transactional Leadership of Employees Performace METHODOLOGY3.1General approachThe data for the study were gathered from132 surveyed employed in five bankinginstitutions in Algeria. The study was carriedout in the summer of 2014, in a crosssectional time-line manner.The survey instrument was then pre-tested. Itwas sent to ten national employees(irrespective of their organizational position)who were not subjects of the study. Based ontheir inputs, the questionnaire was slightlyrevised.The survey was conducted over 67 days (from28-07-2014 to 03-10-2014) by fielding aquestionnaire on hard copies. The researcherchecked for logic and consistency at the timeof data entry and coding.In order to increase the response rate, areminder visit or telephone call was placed toall the participants, one week after the surveyadministration.Selecting a sample is a fundamental elementof a positivistic study. The researcheremployed purposive sampling to selectparticipants that are representative of thepopulation. To do this, the researcherconsidered factors that might influence thepopulation:generaldemographiccharacteristics (gender, age, and education),job description (manager/non-manager), andexperience with organization (length ofemployment with organization), etc. Then theresearcher purposefully selected a samplethat adequately represented the targetpopulation on these variables.This study lies with five institutions bankingin Algeria; Bank of Agriculture and RuralDevelopment,LoanAlgerianPeople,Algerian s Exterior Bank, Albaraka Bank andGulf Bank Algerian.4RESULTS4.1Data analysisIn total, 21 (95.5%) of the managerrespondents were male and one (4.5%) wasfemale.Table 4.1. Respondents’ Gender Frequency –ManagersValidThe researcher wrote an introductory note forthe participants to explain the intent andpurpose of the research and to solicitcooperation. They were advised that theirparticipation in the research project wascompletely voluntary and they were under noobligation to participate; that all informationwould be used only for the purpose of thestudy; and that they could obtain findingsupon request. It was made clear that thisresearch was for the purposes of 3.2Valid PercentEffectivenessisthemeasureofappropriateness of the goals that managershave selected for the organization to pursueand of the degree to which the organizationachieves those goals Effectiveness ca

Leadership, Transactional Leadership, Organizations, Performance. JEL: M54. 1 INTRODUCTION . The concept and definition of leadership and style may differ from one person, or situation, to the other. The word "leadership" has been used in various aspects of human endeavor, such as: politics, businesses, academia, social works, etc.