The transactional leadership theory is one, which is most widespread and commonly used in most organizations. it's based on transactions or deals made between an employe and an organization or between followers and leaders. A transactional leadership is based on a military like clear chain of command with a ‘Carrot and Stick‘. Philosophy. In short, it's a proven method of running an organization wherein, through reward and punishment, things get done. If one is familiar with Maslov’s hierarchy of needs, then one will understand that this theory will work with people, whose needs in the bottom half of the pyramid (food, shelter, security), aren't satisfied. The basic assumptions of transactional leadership are the following: