The influence of transformational and transactional leadership on employee retention: mediating role of employee engagement

Abstract

Purpose

The study aims to investigate the relationship between transformational, transactional leadership and employee retention with the mediating effect of employee engagement.

Design/methodology/approach

Using judgemental sampling, data were collected from 650 employees serving at different levels in the pharmaceutical industry of Bangladesh. Structural equation modeling was employed to test the hypothesized relationships using AMOS.

Findings

The study found that transformational and transactional leadership significantly impact employee retention. The direct effects of transformational leadership (TFL) on employee engagement were found to be significant, while transactional leadership (TSL) has no significant direct influence on employee engagement. The output of the mediation analysis revealed that employee engagement significantly mediates the relationship between TFL and employee retention, whereas it showed an insignificant relationship between TSL and employee retention.

Practical implications

Based on the findings and the literature support, it can be postulated that an appropriate leadership style, especially TFL, that drives employee engagement can influence employees to stay with the organization longer. The study recommends that managers and leaders comprehend the importance of leadership and its appropriateness to retain valued employees by ensuring high workplace engagement.

Originality/value

The study would provide a unique insight into TFL and TSL practices and their impact on the pharmaceutical industry’s employee retention. This study also extends the research on employee engagement as a mediator between TFL and TSL and employee retention.

Citation

Ali, M., Niu, X. and Rubel, M.R.B. (2024), "The influence of transformational and transactional leadership on employee retention: mediating role of employee engagement", Management Matters, Vol. 21 No. 2, pp. 164-190. https://doi.org/10.1108/MANM-03-2024-0022

1. Introduction

Amidst globalization and rigid competition in the global marketplace, retaining and engaging qualified employees become a growing challenge for organizations (Chopra et al., 2024; Mukherjee et al., 2019). Retaining employees is crucial for gaining competitive advantages and organizational success (Islam et al., 2024; Kim et al., 2020). In a knowledge-based society, organizations need to retain employees with expertise and experience who have the potential to serve in the best possible ways (Islam et al., 2024). Employee retention is a major concern for organizations to adapt to the ever-changing business environment. Employee retention is a process in which the employees are encouraged to remain with the organization for the maximum period of time (Khalid and Nawab, 2018). No organization expects a high turnover rate, which negatively influences business performance and reduces the organization’s reputation (Ali and Ullah, 2023; Arasanmi and Krishna, 2019). Acquiring and properly placing the right employees is challenging, but keeping them serving is more challenging (Lee et al., 2022). The researchers claim that employee retention is crucial, and companies need to focus on retention strategies (Chopra et al., 2024; Mukherjee et al., 2019). However, noticeable attention is absent for retaining employees, particularly, in Asian contexts like Bangladesh. The literature demonstrates that Asian countries have abundant young talents serving in different organizations, but there is a shortage of mobility and career sustainability (Eva, 2015 Arasanmi and Krishna, 2019; Lee et al., 2022). Engaging employees is also a big challenge for organizations in this region. Employee engagement is an essential factor that connects employees physically and psychologically. Employee engagement refers to the extent to which employees are employed and devote themselves toward their roles physically, cognitively and emotionally (Aboramadan and Kundi, 2020; Kahn, 1990). The more the employees are engaged, the more productive they are (Ali et al., 2021). Therefore, employee engagement is an essential predictor of organizational success. Employee wants meaning in their job, and it is the responsibility of the leaders to add vitality to their work. Prior research stated that an effective leadership approach could make the job meaningful and boost employee intention to stay (Kim et al., 2020).

Retaining employees has become a great challenge for Bangladesh’s private sector, irrespective of industry. Average employee turnover in Bangladesh’s public and private sectors is about 9% and 27%, respectively (Rubel et al., 2017). However, this challenge is acute in the pharmaceutical industry of Bangladesh. The job-switching rate of employees in the pharmaceutical industry is also alarming (Jalil et al., 2017). Tazin (2016) stated that retaining highly qualified and professional employees is a significant challenge for pharmaceutical companies. Akter (2018) found that pharmaceutical employees tend to quit their jobs due to inadequate compensation, lack of career growth and training opportunities, ultimately increasing the turnover rate. As a result, the development of this industry is not always upward moving and faces unexpected fluctuation (Jalil et al., 2017). Moreover, high turnover decreases productivity and increases the organization’s cost (Islam et al., 2024). Hence, retaining employees in this industry is a buzzword that should be investigated.

Researchers have identified different reasons which can enhance employee retention, for instance, perceived organizational support and organizational commitment (Arasanmi and Krishna, 2019), corporate social responsibility (Kim et al., 2020), green human resource management (green HRM) and psychological empowerment (Islam et al., 2022), HR practices and work environment (Islam et al., 2024), contacting knowledge contract and psychological contract (Nayak et al., 2021). Earlier literature also identified leadership practices, such as transformational leadership (TFL) and transactional leadership (TSL), as an important predictor of employee retention (Thomas and Aurora, 2024; Tian et al., 2020; Ohunakin et al., 2019; Krishna et al., 2022). TFL is a process of raising moral values and ethical issues and mobilizing followers towards reform (Yukl, 2010). Under this leadership theory, leaders go beyond self-interest and inspire followers to achieve the goals which are good for the group and organization (Ali et al., 2023). On the other hand, TSL occurs when leaders offer subordinates rewards and disciplines based on their level of performance (Yukl, 2010). Under this leadership style, leaders motivate followers by appealing to the leader’s self-interests (Burns, 1978) and followers are expected to perform their duties and responsibilities according to the instructions of the leader (Ali et al., 2023). In Asian and South Asian contexts, fewer studies have identified considering leadership practices and employee retention (Iqbal et al., 2022). Moreover, there is a research gap concerning TFL, TSL and employee retention in South Asian and local contexts. Furthermore, in the context of Bangladesh, leadership practices get less emphasis in the literature (Jabber et al., 2023) and few studies have explored the influence of leadership practices on different employee work outcomes in the organization. Specifically, there is a paucity of research on TFL and TSL practices on employee retention. Moreover, there is a research gap in the context of pharmaceuticals focusing on leadership practices, employee retention and employee engagement as work outcomes in the local and global context (Ali, 2021).

Another focus of the current research is to see the mediating effect of employee engagement between TFL, TSL and employee retention. Work engagement was covered in numerous studies, whereas less research has been found that explored the probable relationship between leadership attitude and employee engagement in wider HR literature (Gemeda and Lee, 2020). There is a lack of empirical findings that connect work engagement with leadership style (Kwarteng et al., 2024). Moreover, despite evidence on the relationship between leadership styles and employee retention (Park and Pierce, 2020), studies exploring the mediating role of work engagement in the link between leadership and retention were insignificant. Therefore, the present research focused on assessing the association between leadership style, employee engagement and retention, considering employee engagement as a mediating variable (Figure 1). Moreover, research pertaining to retention in the pharmaceutical sector is ignored, particularly in the context of Bangladesh. The existing literature on retention as a significant element of strategic HRM is insufficient, and there is a dearth of empirical research on retention in developing countries.

Even though employee retention is an extensive research area, still many scholars are working on this to resolve the turnover problem of organizations (Climek et al., 2024). Academic researchers have recommended that leadership style could have an immense influence on employee retention even in various contexts (Park and Pierce, 2020; Younas and Waseem Bari, 2020). The current study focuses on two prominent approaches of leadership namely: transformational and transactional, in relation to their importance in enhancing the employee retention state of the organizations. There is a gap found in earlier literature between the relationship of specific/single leadership style and their association either with employee engagement or retention. Therefore, this study incorporates two approaches of leadership and employee engagement to explore their impact on employee retention. Employee engagement might bring a new intuition into mediating impacts on the relationship between individual leadership approaches and employee retention. Thus, this study imparts an effort to connect the gap in the existing literature regarding the linkage between TFL, TSL, employee engagement and retention.

The study contributes to the body of knowledge regarding how leadership can play a crucial role in retaining and engaging employees. For this purpose, social exchange theory was incorporated. The study provides a comprehensive comparative analysis between TFL and TSL. It indicates how this differentiation can help practitioners understand each leadership style for retaining and engaging employees in the context of the pharmaceutical industry of Bangladesh. Moreover, the practitioners might have clear insights into the impact of TFL and TSL on employee retention directly and indirectly through employee engagement. Therefore, the study will help them to decide about the leadership style and apply the appropriate one to change the situation positively by ensuring high engagement and devotion of the subordinates.

2. Literature review

2.1 Social exchange theory

Employment sustainability involves a series of transactions between leaders and employees in the form of exchanging benefits (Rubel et al., 2020). Social exchange theory (SET) can be viewed as a building block of employment relationships (Blau, 1964; Rubel et al., 2020). SET assumes an exchange relationship and trustworthiness between the involved parties who try to fulfil their mutual responsibilities (Blau, 1964). Blau also advocated that intended involvements of individual actions are instigated by the returns they expect to receive from other parties. Therefore, SET might be a suitable theoretical model to elucidate employee retention by leadership style and reciprocating engagement through long-term relation (Aboramadan and Kundi, 2020; Rubel et al., 2020).

SET advocates that social exchanges between leaders and followers are a bidirectional transaction (Blau, 1964). Leader exchanges required resources with their followers, which are reciprocated by the behavioral outcomes and performance of the subordinates (Babalola et al., 2021). This theory also illustrates that subordinates' positive and negative actions and behaviors depend on the leaders' approaches through mutual reciprocity (Aboramadan and Kundi, 2020). A good number of studies rooted in SET explored how leadership promotes employee intentions and work-outcomes in a positive manner (Aboramadan and Kundi, 2020). Hence, based on the previous literature support, the study believes that when employees positively perceive their leaders' behaviors, they tend to reciprocate with positive outcomes such as intention to stay longer, work engagement, high commitment, etc.

The assumptions of SET can be related to the present research framework. Specifically, the components of TSL are considered as the mechanism of economic exchange. Employees become enthusiastic to be engaged and stay with the organization when they find contingent reward and active management by exception which are considered as the supports provided by the leaders. The rewards act as an exchange force for the employees to be highly engaged with the assigned responsibilities (Ali et al., 2023) and serve the organization for longer (Ali and Ullah, 2023). On the contrary, TFL is contemplated as the component of social exchange. Transformational leaders highlight the vision and prioritize morality and ethics, which improves employee motivation and perceived support. Employees find social support as transformational leaders believe in appreciation and participation (Ali et al., 2023). Thus, the social exchange of TFL encourages employee reciprocity through engagement and intention to work for the organizations. Therefore, the study extends the application of SET to TFL, TSL, employee engagement and retention.

2.2 Employee retention

In order to accomplish objectives and keep organizations productive, it is highly required to keep devoted and desirable employees, which can be defined as employee retention (Khalid and Nawab, 2018). Retention refers to the capability of the organizations to keep employees serving in the job for a more extended period (Lee et al., 2022). Mwita and Kinemo (2018) stated that organizations invest time and resources to attract, hire and train employees; therefore, retaining them is crucial as it is not easy to convert an employee into a contributor. Irrespective of the sectors, retaining valued employees is essential for all kinds of organizations as turnover costs the organization. Turnover drains employees, which affects organizational performance (Kundu and Lata, 2017; Thomas and Aurora, 2024). High turnover leads to adverse outcomes for which an organization suffers, which involves high costs, interruption in regular workflow and lack of expertise from the employee side (Islam et al., 2024; Khalid and Nawab, 2018).

Employees are the most significant strategic assets to gain sustainable competitive advantages as they are non-substitutable (Kundu and Lata, 2017). Organizations perceive employee retention as a competitive point because of a gap between talent supply and talent demand. Additionally, employee retention is an important parameter to measure the organization’s strength and the caliber of the organizational leaders (Kundu and Lata, 2017). Scholars suggested various retention strategies like job variety, job rotation, working environment, financial and non-financial rewards, fringe benefits, learning opportunities, career development opportunities, work-life balance, challenging work, supportive colleagues and attitudes of leaders (Kundu and Lata, 2017). A good relationship with the leader increases subordinates' psychological attachment to the organization (Ali et al., 2023).

2.3 Employee engagement

Kahn (1990) conceptualized engagement as a means of employee devotion to their physical and emotional roles. It reflects personal energies to drive into the role behaviors and find the self within that role (Hameduddin and Lee, 2019). Engagement consists of three prime components: absorption, dedication and vigor (Aboramadan and Kundi, 2020; Schaufeli et al., 2006). The extent of employee enthusiasm toward the role is absorption, whereas dedication indicates the level of employee concentration while performing the roles (Ali et al., 2020). Vigor denotes the extent to which employees become ready to invest time, energy and effort (Ali et al., 2020). Work engagement is an essential determinant of individual and organizational outcomes (Aboramadan and Kundi, 2020), such as in-role and extra-role behavior, employee commitment, job satisfaction, productivity, performance in the workplace, organizational citizenship behavior (OCB) and high involvement (Hameduddin and Lee, 2019; Kwarteng et al., 2024; Rubel et al., 2018; Yousf and Khurshid, 2024).

Engaged employees are more likely to stay with the organization and eager to learn about the organizational process (Chopra et al., 2024; Kundu and Lata, 2017). Employee engagement is the combination of employees' emotional and cognitive commitment to the organization (Li et al., 2021). Employees are likely to be more empowered and repay more in the organizational process if they are more engaged (Kwarteng et al., 2024). Certain factors play a crucial role in engaging employees like human resource practices (opportunities for career growth, compensation and rewards, working environment, training and development) (Kundu and Lata, 2017), supportive boss (Kwarteng et al., 2024; Li et al., 2021), favorable working environment (Kundu and Lata, 2017), etc. Moreover, the leadership styles the leaders apply are the critical determinants of employee engagement (Ali and Ullah, 2023). Employees become inspired by the vision set by the leader, rewards communicated with the subordinates and even by the attitude of the leaders (Kwarteng et al., 2024).

2.4 Transformational leadership

TFL is defined as a “style of leadership that transforms followers to rise above their self-interest by altering their morale, ideals, interests and values, motivating them to perform better than initially expected” (Pieterse et al., 2010, p. 610). TFL goes beyond the self-interest of the leaders. This leadership is an approach to raising employees' moral and ethical values toward change and reform (Yukl, 2010). Transformational leaders emphasize adaptation, develop a vision and inspire followers to accomplish that vision (Bakker et al., 2022; Kwarteng et al., 2024). This is an approach whereby leaders instigate the subordinates to identify interests and goals and to achieve beyond expectations (Ali et al., 2023; Buil et al., 2019). Transformational leaders play an essential role in effective management and bringing changes to the organization. Such leaders have the calibre to transform an organization by articulating a vision through clarifying and empowering employees to work to achieve that vision.

TFL contains four important behaviors: idealized influence, inspirational motivation, intellectual stimulation and individualized consideration (Bass, 1990; Buil et al., 2019). Idealized influence is termed charisma and denotes leaders reflecting moral and ethical behavior. They act just as a model for followers by remaining confident and holding a high standard of personality. Inspirational motivation refers to the ability to instigate followers' intentions by articulating an inspirational vision. Transformational leaders stimulate subordinates by presenting and empowering them to go for the vision. Intellectual stimulation involves a leader’s ability to inspire followers to innovate and create, demonstrate new challenges and problems and energize them to find new ideas and ways to solve problems. Finally, individualized consideration means taking care of subordinates' needs, paying attention to their growth and development and providing learning opportunities through coaching and mentoring. As a result of these features, previous studies supported that TFL is more successful than other leadership approaches in enhancing positive behavioral outcomes like employee commitment, job satisfaction, OCB, service behavior, employee engagement and intention to stay (Ali et al., 2023; Ali and Ullah, 2023; Buil et al., 2019; Kwarteng et al., 2024; Park and Pierce, 2020; Thomas and Aurora, 2024).

2.5 Transactional leadership

TSL focuses on the transaction or exchange of interests between leaders and followers (Ali et al., 2023; Alrowwad et al., 2020). This exchange relies on the leader who communicates the goals, tasks or duties and specifies the conditions and rewards for accomplishing the goals and completing the assignments. Transactional leaders clarify what to do and how satisfactory performance will be rewarded (Bass and Avolio, 1994). The transaction can be the exchange of psychological or material rewards given by the leaders, which can be strengthened through the threat of punishment. This leadership approach conceptualizes the idea of effective leadership by promoting desired behavior by offering rewards and preventing unwanted behavior by giving physical and psychological penalties (Ali et al., 2023; Alrowwad et al., 2020; Bass and Bass, 2008). There are three crucial components of TSL: contingent reward, active management-by-exception and passive management-by-exception (Bass, 1996). As a motivating factor, contingent reward indicates the ability and persistence of the leader in clearly postulating expectations and communicating the outcomes and benefits to the followers (Raziq et al., 2018). In this regard, a leader who specifies the rewards of task accomplishment can expect higher performance from the followers (Raziq et al., 2018). On the contrary, active management-by-exception reflects the managing quality of the leaders (Alrowwad et al., 2020). Here, the leader tries to maintain the organization’s status quo. Inversely, passive management-by-exception refers to the involvement of the leader and his/her actions only in case of the emergence of problems (Alrowwad et al., 2020).

Transactional leaders allow employees limited or no participation in decision-making (Dai et al., 2013). Transactional leaders apply compensation methods to improve employee performance, such as rewards for high performance and reprimands for low performance (Burns, 1978). TSL limits the individual development of innovative skills and deters individual and organizational performance (Dai et al., 2013). However, studies also found TSL is an influential positive leadership approach connected with employee behavioral outcomes like OCB, intention to stay, employee commitment and engagement (Ali et al., 2023; Gemeda and Lee, 2020; Ha and Moon, 2023; Sobaih et al., 2020).

3. Hypotheses

3.1 Transformational, transactional leadership and employee retention

Retaining employees, specifically within the context of dyad linkage between the leaders and followers, is vital for sustainable performance and competitive advantages (Tian et al., 2020). Chen and Wu (2017) stated that leadership style plays a significant predicting role in affecting employee intention to stay. The factors influencing employees' retention intention are likely to influence their turnover (Sobaih et al., 2020). TFL is an important determinant of employee retention in the organization and also contributes to employability and stronger ties with employees over time in organizations (Thomas and Aurora, 2024). Sobaih et al. (2020) investigated how both TFL and TSL affect hotel employees' intention to stay with the organization and found that TFL had a more significant positive impact on employees' choice to stay than TSL. Additionally, they recommended emphasizing more investment in TFL to reduce the extent of employee turnover. Park and Pierce (2020) found that TFL negatively impacted the turnover intention of child welfare workers. On the other hand, Wells and Peachey (2011) revealed that TFL and TSL could reduce turnover intention and enhance employee attachment to the job and organization.

Confirming SET, the leaders' abilities to exchange and inspire are the critical determinants to retaining employees in the organization (Zhang et al., 2018). Employees tend to reveal positive behaviors, for instance, staying with the organization, when the get proper treatment, motivation and rewards as an exchange relationship (Sobaih et al., 2020). Employees reciprocate the social exchange (idealized influence, inspirational motivation, intellectual stimulation and individualized consideration) of TFL and economic exchange (contingent reward) of TSL through dedicated attachment to the organization for a longer period of time. Therefore, the current research predicts the relationship between TFL, TSL and employee retention in the following directions.

H1a.

TFL is positively related to employee retention.

H1b.

TSL is positively related to employee retention.

3.2 Transformational, transactional leadership and employee engagement

Leaders may have direct and indirect multiplier impacts on the drivers of employee engagement. The components of leadership style stimulate employee inclination toward work and enhance their skills which positively influences employee engagement (Li et al., 2021). A leader’s positive attitude affects the followers' positive behavior, which, in turn, enhances workforce engagement in the workplace (Popli and Rizvi, 2016). Leaders not only play a role in increasing work engagement but also create a culture of engagement in the entire organization (Popli and Rizvi, 2016). Popli and Rizvi (2016) also stated that TSL and TFL contributes to higher engagement levels of frontline employees. Balwant et al. (2019) expressed that TFL played an influential role in increasing employee engagement and job resources significantly moderated the relationship.

Moreover, TFL was also found as a moderating determinant; for example, Hai et al. (2020) claimed the significant moderating role of TFL in the relationship between high-performance HR practices and employee engagement. Aboramadan and Kundi (2020) investigated how TFL better explains work engagement than TSL. According to the authors, TFL had a stronger impact on work engagement than TSL, but both approaches were significant predictors for engaging the workforce. Similarly, Adeniji et al. (2020) found that TFL and TSL were positively related to employee engagement, but TFL had a higher impact on engagement than TSL. On the other hand, Ali et al. (2023) argued that TSL is critical for generation Z as they prioritize the exchange rewards. Talented employees become more engaged when they find clear task assignments and transparent rewards and acknowledgements for their accomplishments (Ali et al., 2023). Ghani et al. (2018) concluded that both TFL and TSL styles adopted by female leaders could significantly contribute to engaging employees in their working place. According to SET, TFL and TSL encourage employee engagement by offering social exchange and economic exchange, respectively. These arguments assist in developing the following hypotheses:

H2a.

TFL is positively related to employee engagement.

H2b.

TSL is positively related to employee engagement.

3.3 Employee engagement and retention

The capability to retain employees is a dominant criterion that indicates the company’s strength (Lee et al., 2022). Employee retention largely relies on the extent of employee engagement which is negatively proportional to turnover intention (Chopra et al., 2024). Researchers found that engaged employees tend to stay longer in the organization. Employees are inclined to contribute more to the organizations if they are committed and engaged (Kundu and Lata, 2017). On the other hand, employees with less emotional bonding have a greater tendency to quit the organization (Al Mehrzi and Singh, 2016). Engaged employees generally feel motivated, involved, enthusiastic and energetic toward their work (Al Mehrzi and Singh, 2016; Ali et al., 2023). Engaged employees are passionate at such a level that they cannot even feel when time has passed, and employees' attitude toward work leads to higher performance consistency. Bhattacharya (2015) confirmed that employee engagement is positively related to Seafarer retention. A meta-analysis conducted by Pandita and Ray (2018) disclosed that talent management is an effective tool for keeping employees engaged, and a strong sense of engagement ensures the longer attachment of employees to the organization. Initiatives, such as acknowledgement and feedback, taken by the organization leaders to improve employee engagement can significantly contribute to retaining employees (Jindal et al., 2017). Book et al. (2019) claimed that employee engagement is a significant determinant of intention to stay, and it mediates the relationship between leadership satisfaction and intention to stay. Similarly, Houssein et al. (2020) concluded that employee engagement, work-life balance and career development are the central factors of employee retention. Hence, the study hypothesized the relationship between employee engagement and retention in the following manner.

H3.

Employee engagement is positively related to employee retention.

3.4 Mediating role of employee engagement

The current study is extended by assessing employee engagement as a mediating variable in the relationship between TFL, TSL and employee retention. The importance of a sound relationship between leaders and subordinates to enhance employee engagement has been prioritized in the prior literature (Edelbroek et al., 2019; Gemeda and Lee, 2020). Study outcomes revealed that the higher the employee engagement, the more the possibility to stay with the organization or less tendency to quit the job (Bellamkonda et al., 2021). Likewise, several leadership publications have identified that leaders play a crucial role in increasing engagement with the job and organization. TFL significantly enhances employee engagement, while TSL positively improves employee task performance (Gemeda and Lee, 2020). Hence, it can be claimed that TFL and TSL may lead to increased employee engagement, increasing employee retention in the organization. The mediating effect of employee engagement can be related to the SET perspective, which explains that social attitude evolves through a reciprocal relationship. Reciprocity, revealed through engagement and intention to serve, for TFL is considered social exchange and TSL is considered an economic exchange. Particular rules of exchange drive this connection and both parties (leaders and followers) abide by the exchange rules, which develop a loyal relationship over time. Consequently, leaders who influence and relate well with their followers may have the possibility to get a highly engaged workforce in the organization.

Accordingly, this study examined the mediating effect of employee engagement in leadership literature. Edelbroek et al. (2019) identified that employee engagement influenced by TFL and TSL is a potential mediator in the relationship between these two leadership approaches and the quality of open innovation. Their study supported the partial mediation effect of employee engagement between TFL and the quality of open innovation. Moreover, it was found that employee engagement partially mediates the relationship between transformational, transactional and laissez-faire leadership and work outcomes (Gemeda and Lee, 2020). Similarly, Obuobisa-Darko (2020) found a partial mediating role of employee engagement in the relationship between TFL and employee task performance, but in the case of TSL, the mediating effect of employee engagement was not supported. Other studies also found that employee engagement mediates the impact of leadership on employee performance (Buil et al., 2019), turnover intention (Naeem and Khurram, 2020), affective commitment (Aboramadan and Kundi, 2020) and OCB (Aboramadan and Kundi, 2020). Hence, the current study argues that employee engagement may mediate the relationship between TFL, TSL and employee retention. Therefore, the hypotheses can be formulated as:

H4a.

Employee engagement positively mediates the relationship between TFL and employee retention.

H4b.

Employee engagement positively mediates the relationship between TSL and employee retention.

4. Methodology

4.1 Population and sample

The study is correlational and cross-sectional since data were collected and analyzed the corresponding relationship of the constructs used in the research framework (Rubel et al., 2018; Sekaran and Bougie, 2010). The study used a structured questionnaire as this approach is highly suitable for sociological constructs like leadership, engagement and retention (Burmester et al., 2015). Population indicates the entire set of people the researcher intends to examine (Sekaran and Bougie, 2010). Though it is crucial to know about the population, there is no clear and specific information about the total number of employees working in the pharmaceutical industry of Bangladesh. BBS report (2016–2017) revealed 177,000 as the approximate number of employees which can be considered as the population of the present study. Specifically, employees at different levels (lower, mid and top) were considered as the population of the study. Three levels of employees have been taken into consideration as they are under the direct supervision of the immediate upper level. Moreover, each level of employee knows about the leadership behaviour of their immediate supervisor.

The present study collected data only from employees of allopathic companies as most employees, around 67% of the total, work in these companies (Ali, 2021). Additionally, Dhaka city companies were considered the sampling frame since 75.39% of total pharmaceutical companies are located inside the capital. The study used a judgemental sampling technique, a non-probability sampling design, for collecting the data from the respondents. Respondents were chosen based on the following three criteria; (1) One year of serving experience in the current organization, (2) working under a specific supervisor and (3) the individual has regular interaction and has to report to his or her reporting supervisor. Employees working at three different levels in pharmaceutical companies were considered as the sample. The number of samples is 650 which is endorsed by the scholarly arguments (Hair et al., 2013; Sekaran and Bougie, 2010).

A formal mail was sent to the organization to seek the approval of pharmaceutical companies through the HR department, and the mail covered a short description of the project and the criteria for choosing respondents. Data were collected (October–November 2021) online due to the Covid-19 pandemic using a well-prepared comprehensive Google form sent to participants using their mail addresses. The respondents were communicated earlier before sending the mail. After sending the questionnaire, they were communicated as soft reminders to fill it out. Google forms are now widely used to collect data as this method is highly appropriate for distance communication and quick data collection. It is also convenient for the respondents as they can complete the questionnaire at their preferred time (Kapade, 2017). Furthermore, there is no need to input data separately and hardly any possibility of missing data, as choosing each option for each item was mandatory to submit the response finally. We sent the Google form questionnaire to 1,000 respondents working in allopathic pharmaceutical companies and collected 657 responses, while seven were eliminated as outliers and 650 were considered suitable. For multivariate analysis, a range of samples from 30 to 500 is adequate (Roscoe, 1975); hence, a sample of 650 is deemed enough.

4.2 Measures

A total of 25 items for four constructs were adapted from earlier recognized studies. The independent variables are TFL and TSL, which were evaluated by five items and four items adapted from Alrowwad et al. (2020). The sample items of leadership style are “My immediate supervisor encourages me to take challenges” (transformational leadership) and “When I am unable to complete my work, my immediate supervisor reprimands me” (transactional leadership). The study used nine items to measure employee engagement from Bakker and Schaufeli (2003), which is the current research’s mediating variable. The sample item of employee engagement is “At my work, I feel bursting with energy.” The study followed Kyndt et al. (2009) for adapting seven items to measure employee retention, and the sample item is “I find future growth of my career within this company.” The items for all the constructs were measured using a five-point Likert scale of “1 = strongly disagree” to “5 = strongly agree.”

4.3 Data analysis techniques

The study used Statistical Package for Social Science (SPSS) for descriptive analysis, and SEM with Analysis of Moment Structure (AMOS) was employed to test the hypotheses. SEM is an integration of two interconnected models, one is a measurement model, and another is a structural model. The measurement model is also known as the outer model, which examines the linkage between observable indicators and latent variables, and the structural model is acknowledged as the inner model, which assesses the combined interconnection between latent variables (Mueller and Hancock, 2019).

As a second-generation technique, SEM has several advantages which overcome the limitations of first-generation techniques. Regression analysis as the first-generation technique just can develop a model but cannot assess the unobservable variable. Moreover, measurement of error of variables (both random and systematic error) is also not possible in regression analysis (Haenlein and Kaplan, 2004). The first-generation technique cannot demonstrate the direct association of exogenous variables and the relationship between multiple endogenous variables with multiple exogenous variables. Anyway, SEM can demonstrate the relationship between multiple dependent variables with multiple independent variables and develop complex models. It enables the researchers to construct unobservable variables measured by indicators (items, manifest) as well as to present explicitly model measurement error for the observed variables (Chin, 1998; Rubel, 2015). Thus, SEM emerges as a dynamic analysis to assess measurement and structural model simultaneously with errors of the observed variables.

5. Result

5.1 Common method variance

Common method variance (CMV) is a frequently occurring problem when data for dependent and independent variables are gathered from the same participants (Tehseen et al., 2017). CMV appears due to high common variance (≥50%) of a single factor from the dataset (Lindell and Whitney, 2001). To minimize CMV, the current research employed several measures, such as the proximal methodological separation technique used in the questionnaire. Harman’s single-factor test was used to trace such problems with un-rotated factor analysis and eigenvalue greater than one. In the present study, three factors accounted for 62.80% of the total variance, and one single factor explained 44.90%, the highest variance. CMV was not a major concern for this study since a single factor did not account for more than 50% of the variance.

5.2 Respondent’s profile

In the current study, most respondents were male (74.6%), and the result was consistent with the earlier literature in the same industry (Ali, 2021). The most common age group was 21–30 (60.5%); more than half of the respondents fall into this age range (21–30). Around 50% of the employees in this survey have a Bachelor’s degree, and 46.2% acquired a Master’s degree. The highest percentage of the length of service went for 1–5 years (64.2%), and it showed consistency with the study of Haque and Islam (2018). In addition, most respondents (70.9%) worked in mid-level positions in the organizations, and the position holders at the lower and top levels were consecutively 11.7% and 17.4% (Table 1).

5.3 Correlation matrix and descriptive statistics

Employee engagement has the highest mean value (4.20), the lowest mean score (3.56) was for TSL, and the mean value of all the constructs was above 3.0 (Table 2). TSL and employee engagement were found to have the highest and lowest standard deviation, with a score of 0.91 and 0.65 consecutively. The current study found a positive correlation between the constructs used in the research framework. TFL showed significant positive correlations with TSL (0.795^**, p < 0.01), employee engagement (0.442^**, p < 0.01) and employee retention (0.619^**, p < 0.01). Similarly, TSL demonstrated positive correlations with employee engagement (0.405^**, p < 0.01) and employee retention (0.575^**, p < 0.01). Lastly, employee engagement indicated a significant positive correlation with the pharmaceutical industry’s employee retention (0.680**, p < 0.01).

5.4 Confirmatory factor analysis (CFA)

Confirmatory factor analysis (CFA) was performed to test the constructs' measurement scale, whereas each dimension’s variance was fixed at 1.0. The extent of the goodness of the relation between the observed and latent variables was tested in the measurement model. The goodness-of-fit of the measurement model determines how good the items are in examining the intended constructs (Ooi, 2013). The study used Chi-square statistics, GFI, AGFI, CFI, NFI, RMSEA and RMR to assess the goodness of fit of the measurement model. The study considered standardized factor loading of each of the constructs. An acceptable range for factor loading is slightly different according to scholarly opinions, for example, Stevens (2002) recommended that the minimum value of a factor loading must be more than 0.4, while Hair et al. (2009a, b) stated that the standardized factor loading value needs to be minimum 0.5 and preferably, at least 0.7. In the present study, the factor loading ranges between 0.617 and 0.849 (Table 3), which indicates the loading of the items is more than 0.50, but two items (EE 9 = 0.42 and ER 7 = 0.37), were removed due to low loading. Hair et al. (2013) suggested deleting the item if the factor loading is less than 0.50.

This measurement model’s goodness-of-fit indices are as follows: normed chi-square value ((χ²/df) = 2.751, GFI = 0.922, AGFI = 0.903, CFI = 0.958, IFI = 0.958, NFI = 00.936, TLI = 0.952, RMSEA = 0.052 and RMR = 0.037. Standardized estimates of the constructs of the CFA model are presented in Figure 2. The default model is statistically significant, and model fit indices demonstrate that the model is well fit. This model meets most of the fit indices as normed chi-square values are 2.751 and GFI, AGFI, CFI, IFI, NFI and TLI are greater than 0.90 (Ooi, 2013) as well as RMSEA and RMR are less than 0.08. Therefore, the data is successfully verified to fit the model.

5.5 Reliability and validity

We tested content validity, construct validity, convergent validity and discriminant validity. Content validity refers to the extent to which the measurement unveils the specifically aimed domain of the content (Ooi, 2013). High loadings (>0.90) and high inter-item correlation (>0.80) are required to be avoided, whereas the correlation of inner items is suggested to be moderate (Ooi, 2013). In the present study, the highest factor loading is for TSL 2 (0.849) below 0.90. Hair et al. (2013) described construct validity as “the degree to which a set of measure items assess the identical construct.” The factor loadings are above 0.50, which supports the factorability of items and establishes construct validity. The value of composite reliability (CR) was also used to measure construct validity. The minimum value of CR should be 0.70 (Ooi, 2013), and the range of CR of this study’s constructs is acceptable. The construct’s lowest composite reliability value is 0.850, indicating that all the constructs' CR value is above 0.80. Convergent validity was used to test the state of agreement of multiple items used to measure the same concept (Rubel, 2015). CR, AVE and factor loadings are often used to measure convergent validity. The value of AVE should be a minimum of 0.50 (Kline, 2010). Ooi (2013) and Bagozzi and Yi (1988) recommended that CR should exceed 0.60.

The AVE of each construct is as follows: transformational leadership = 0.656, transactional leadership = 0.589, employee engagement = 0.592 and employee retention = 0.612, so all constructs' AVE are above 0.50 as recommended. CR of each construct is as follows: transformational leadership = 0.905, transactional leadership = 0.850, employee engagement = 0.885 and employee retention = 0.904. As suggested by Alarcón et al. (2015), the CR values of four constructs are above 7.0. Most of the factors are highly loaded with a value greater than 0.60. The findings reveal that reliability and convergent validity are satisfactory. Hair et al. (2009a, b) stated that discriminant validity is the extent to which a construct is truly distinct from other constructs. To establish discriminant validity, the correlation coefficient should not be too high (more than 0.90) or too low (less than 0.10) (Hair et al., 1998; Ooi, 2013). The correlation matrix shows that the highest value of the correlation coefficient is 0.867 (transactional leadership), less than 0.90 and the lowest value is 0.780 (employee engagement), greater than 0.10. Thus, discriminant validity is confirmed in this study. Discriminant validity is also tested by comparing the AVE’s square root with the correlation coefficients between the constructs (Ooi, 2013). Table 4 shows that the square root of AVE was larger than its correlation between every pair of the constructs. Therefore, this evidence is enough to conclude that the discriminant validity of this study is at an acceptable level.

5.6 Assessing structural model

5.6.1 Direct effect

The structural model was well-fit to meet the criteria of fit indices; chi-square value ((χ²/df) = 2.751, GFI = 0.922, AGFI = 0.903, CFI = 0.958, IFI = 0.958, NFI = 00.936, TLI = 0.952, RMSEA = 0.052 and RMR = 0.037) (Figure 3). The standardized path coefficient is shown in the path diagram of this model. The present study formulated hypotheses to assess the relationships between TFL, TSL, employee engagement and retention. Based on the standardized estimate and p-value of AMOS output (Table 5) of this model, a decision on the hypothesis was made. In hypotheses 1a and 1b, it was hypothesized that TFL and TSL positively impact employee retention. The relationship between TFL and employee retention was significant (β = 0.229, CR = 2.309, p = 0.021). Moreover, the impact of TSL on employee retention was found significant (β = 0.199, CR = 2.039, p = 0.041); hence, hypotheses 1a and 1b were accepted. Hypothesis 2a and 2b postulate the positive influence of TFL and TSL on employee engagement. The analysis reveals that TFL’s effect on employee engagement (β = 0.492, CR = 3.505, p = 0.000) was positive and significant. The positive relationship between TSL and employee engagement (β = −0.007, CR = −0.051, p = 0.960) was not accepted because of the insignificant p-value. Accordingly, Hypothesis 2a was supported, while 2b was rejected. The impact of employee engagement on employee retention was illustrated with hypothesis 3, and the relationship was found to be significantly positive (β = 0.558, CR = 12.121, p = 0.000); therefore, this study accepted hypothesis 3.

5.6.2 Mediating effect of employee engagement

This section explains the output of the mediating effect of employee engagement between TFL, TSL and employee retention. The mediation impact is supposed to be significant if the indirect relationship between exogenous and endogenous variables comes out as significant (Preacher and Hayes, 2008). Moreover, the confidential bootstrap interval’s upper limit and lower limit values were shown to ensure the mediation result. Preacher and Hayes (2008) recommended that if the value of the lower limit is not negative or zero does not exist between the upper bound (UB) and lower bound (LB), it indicates the mediating effect.

In the current study, employee engagement was found with significant indirect effects on the relationship between TFL and employee retention (β = 0.229, LB = 0.120, UB = 0.440, p = 0.021) (Table 6). Hence, the study supported the indirect relationship between TFL and employee retention through employee engagement and accepted hypothesis 4a. The study result showed partial mediation as a direct model, mediation model and standardized indirect effect; all were found significant. Employee engagement demonstrated an insignificant mediating impact on the relationship between TSL and employee retention (β = 0.199, LB = −0.158, UB = 0.154, p = 0.041) (Table 6). Thus, the study confirmed no mediation for hypothesis 4b, and this hypothesis was rejected accordingly.

6. Discussion

The first findings from the current study supported that both TFL and TSL were positively related to employee retention. The result indicates that TFL and TSL can contribute to ensuring the longer attachment of employees to the organization, particularly in the pharmaceutical industry. The findings are consistent with previous research (Park and Pierce, 2020; Sobaih et al., 2020; Thomas and Aurora, 2024; Wells and Peachey, 2011). This study’s findings impart evidence that subordinates' intention to stay may be linked with the leadership behavior of the immediate supervisor. In other words, the positive perception of employees towards leadership style influences them not to think of leaving the company. The reforming approach of a transformational leader who prioritizes ethical values and inspires subordinates to be creative can retain employees for longer. The findings endorsed the linkage of SET as a transactional leader communicates the goals and rewards for the accomplishment of goals which directly impact employee retention.

As for the second finding, the positive relationship between TFL and employee engagement was significant, while the impact of TSL on employee engagement was not supported. Past studies also found similar outcomes regarding the relationship between TFL and employee engagement (Aboramadan and Kundi, 2020; Hai et al., 2020). The results indicate the positive influence of TFL to enhance employee engagement. In other words, followers tend to be engaged in the work once the leaders' vision inspires followers. On the other hand, TSL was not found to be significantly related to employee engagement. The current findings demonstrate some conflicts with earlier research (Ali et al., 2023; Adeniji et al., 2020; Popli and Rizvi, 2016). One possible reason for such an insignificant relationship is that employees in pharmaceutical companies may perceive limited participation in decision-making (Dai et al., 2013), while leaders use a transactional approach. Additionally, there is less opportunity to develop innovative skills (Dai et al., 2013), hindering employee engagement. Hence, it can be claimed that TFL is a crucial determinant of employee engagement for pharmaceutical employees in Bangladesh, and the insignificant relationship between TSL and employee engagement is acceptable.

The third finding endorsed the positive correlation of employee engagement with employee retention. This finding supports the results of the previous studies (Bhattacharya, 2015; Book et al., 2019; Chopra et al., 2024; Houssein et al., 2020; Pandita and Ray, 2018). Hence, it can be asserted that the extent of employee engagement affects escalating employee retention rates in the organization. In the pharmaceutical industry, the outcome is valid as work engagement is directly related to individual behavioral outcomes such as the intention to stay with the organization. When employees are motivated and dedicated towards the job and positive about the organization, they tend to serve longer periods in the same organization. Thus, it can be argued that high engagement assurance will help to retain the employees working in pharmaceutical companies in Bangladesh.

The fourth finding focuses on the mediating role of employee engagement between TFL, TSL and employee retention. The study’s results supported that employee engagement functions as a mediator in the relationship between TFL and employee retention. The study confirms consistency with prior studies (Gemeda and Lee, 2020), and the outcome is pertinent in the present context of the pharmaceutical industry. In fact, followers feel encouraged to engage in in-depth work when they observe leaders aware of their needs and focus on individual development. Moreover, transformational leaders can ensure high engagement by inspiring subordinates to be innovative and creative. Hence, TFL is essential for the high engagement of pharmaceutical employees. At the same time, employees will be morally obligated to work with such leaders and stay with the organization longer. Thus, employee engagement mediates between TFL and employee retention.

However, the mediating role of employee engagement between TSL and employee retention appears insignificant. This finding contradicts the results of earlier studies (Edelbroek et al., 2019; Gemeda and Lee, 2020) but the result was consistent with the study of Obuobisa-Darko (2020). Several reasons might be assumed for this insignificant result of the mediating impact. TSL is only limited to the exchange of interest, which may not be able to influence the intrinsic inclination of subordinates towards work. Additionally, the fear of punishment or losing rewards also limits employee engagement, which influences employees' intention to stay with the organization. These forces may have dulled the impact of employee engagement between TSL and employee retention.

7. Implications

7.1 Theoretical implications

This study is anticipated to erect three theoretical contributions. First, SET has been adopted as a theoretical lens to investigate the impact of TFL and TSL on employee retention mediated through employee engagement in the context of the pharmaceutical industry of Bangladesh. This study contributes by presenting the concepts of TFL, TSL, employee engagement and retention in one context. The study also contributes to the literature by providing evidence that TFL prioritizes social exchange in the form of emphasizing ethical values, change adaptation, continuous inspiration and individualized consideration. On the other hand, transactional leaders highlight economic exchange in the form of prioritizing clear roles, rewards for task accomplishment, clear communication of exchange and active involvement. Both transformational and transactional leaders play crucial roles in retaining employees in the present context which clarifies the importance of both social and economic exchange of SET.

Second, the study has clearly demonstrated a comparative assessment of each leadership style’s effect on employee engagement and retention. The study revealed that TFL is a more vital determinant than TSL in influencing subordinates’ engagement and such findings may stimulate more investigation separately on TFL. A recent meta-analysis also demonstrates that TFL in many specific cases, for example, project performance, may be more critical than TSL (Lee et al., 2023). In the present context, although TFL and TSL both contribute to retaining employees, the effect is different for employee engagement. Social exchange is more important than economic exchange for employee engagement, which means, TFL is very crucial to engage employees. However, the effectiveness of TFL and TSL may vary in different contexts, cultures and the requirements of the situation. Finally, the current study could respond to the emerging calls for further research to measure the direct impact of leadership on retaining employees and, more specifically, consider the role of mediating constructs such as the extent of employee engagement. Hence, the indirect impact of leadership on employee retention through the proper engagement of employees has been clearly reflected in this study.

7.2 Practical implications

The study is also expected to contribute three practical implications to the pharmaceutical industry. First, it is evidenced in the study that employees can be retained by practicing both TFL and TSL, but pharmaceutical managers should closely monitor the well-being of employees and be proactive to ensure the inseparability of employees. The positive intention of employees to stay with the organization may be influenced by growth and development opportunities offered by the transformational leaders of the pharmaceutical industry in Bangladesh. On the other hand, psychological and material rewards provided by transactional leaders can retain the valued workforce. Together, our findings suggest that transformational leaders’ vision and inspiration and transactional leaders’ clear communication of roles and rewards are required to influence employee intention to stay longer with pharmaceutical organizations.

Second, paying attention to the generation gap and the expectations of Generation Z employees are suggested to assess how leadership should be exercised to boost the employees' tendency to stay with the organization. For example, employees working in Bangladeshi pharmaceutical organizations positively perceive TFL to be engaged and attached in the workplace. Transformational leaders focus on employee development, and a learned workforce enjoys the work with high devotion. The high standard personality of transformational leaders working in the pharmaceutical industry also increases employee inclination to work. Moreover, the current findings would be of great support to mention that as the engagement of employees in pharmaceutical organizations is inevitable, the importance of TFL to engage employees in the workplace is parallelly essential to increase employee retention. The findings suggest that leaders should prefer TFL over TSL to ensure higher engagement of employees in the context of the pharmaceutical industry. Mere communication of contingent rewards is not good enough for employee engagement and leaders’ focus on individualized consideration is crucial to engage employees in their role assignment and go beyond that.

Finally, the study postulates some guidelines for managers to sustain a good relationship between leaders and subordinates. For instance, departmental managers of pharmaceutical companies should have better comprehensiveness regarding applicants' motives for coming into the pharmaceutical industry and provide an appropriate working environment for the followers to increase their engagement and intention to serve longer. Engaged employees are passionate to such an extent that they do not think about leaving the job, reducing their inclination to leave the organization. It is recommended that managers impart individualized support and adopt TFL to influence employee behaviors and attitudes. Moreover, managers should continuously emphasize, organize and offer leadership-related training and workshops to help leaders improve their abilities to practice TFL. Our findings suggest that a combination of TFL and TSL can together contribute better to retaining employees but more emphasis on the TFL style is required to engage employees in the pharmaceutical company of Bangladesh.

8. Limitations

Although the research was designed with due sincerity, the study confronts some limitations. First, the study collected data only from the respondents of the pharmaceutical organizations around Dhaka city and a non-probability sampling method was applied to choosing respondents. Hence, it was impossible to generalize the findings that might represent the entire pharmaceutical industry in Bangladesh. The second limitation is related to the characteristics of the sample, as the majority of the respondents were male (74.6%), which may be problematic in simplifying the outcomes. Third, only two leadership approaches were used to assess the predictors of employee retention and engagement. Contemporary leadership approaches such as responsible leadership, entrepreneurial leadership, distributed leadership and ethical leadership can be used in similar research. Fourth, the elements of transformational (idealized influence, inspirational motivation, intellectual stimulation and individualized consideration) and TSL (contingent reward, active management-by-exception and passive management-by-exception) were not separately tested, although each component may have a different extent of the impact on retaining and engaging employees. Fifth, only the study was performed in a single industry context (pharmaceutical companies), limiting the generalization of the findings nationally. Furthermore, from methodological aspects, the current study was based on self-reported responses of the employees working in pharmaceutical companies. Hence, the problem related to CMV cannot be avoided. Additionally, there might be the possibility of partial responses in the statements of the questionnaire since the researcher did not directly interview respondents.

9. Direction for future research

Although the study confronts limitations, the study revealed unique findings and can be the foundation of future research on leadership, retention and engagement of employees. First, the same model can be used for further research on other Bangladeshi industries, such as ready-made garments, healthcare, telecommunication, banking, nonbanking financial institutions, foods and beverages. Furthermore, the study suggests incorporating the study model in the high-tech manufacturing organizations of both developed and developing countries to examine the generalizability of the findings in the international context. Since most participants were male compared to female, conducting further research on the male employees is suggested to evaluate their intention to stay in a separate study. Furthermore, this study incorporated only SET although other theories are relevant in the same context, such as the Leader-Member Exchange theory; hence, the study recommends connecting other relevant theories in the existing framework. Moreover, TFL and TSL components could be measured separately to comprehend the effect of individual components on employee retention. Another exciting area of future investigation would be assessing contemporary leadership practices to retain valued employees with multiple mediation effects. OCB and employee development can be investigated as mediating variables between leadership style and employee retention. Moreover, moderating variables such as a supportive working environment can be tested in future studies and moderated mediation can be a valuable framework to reinvestigate a similar research framework.

10. Conclusion

The significance of employee retention, which, in turn, reduces employee turnover, has been extensively recognized in this study. In this regard, leadership approaches for retaining employees have attracted the researchers' attention. The present study investigated two prominent leadership approaches (transformational and transactional) to retain employees mediated through employee engagement. The SET was integrated as the lens to confirm the result of the study. The study revealed that TFL and TSL contributes to retaining employees, but employee engagement mediates only the relationship between TFL and employee retention. The study indicates that pharmaceutical companies should comprehend and acknowledge the significance of TFL and TSL to confirm employees' longer attachment to the organization. In the context of industry and the private sector of the nation, pharmaceutical organizations need to practice suitable leadership approaches to retain employees working at different levels of the organization. Furthermore, pharmaceutical companies also need to determine the extent of employee engagement by ensuring proper care, welfare and application of enthusiastic leadership since employee engagement is directly related to the intention to stay. To conclude, the study serves as empirical evidence to believe that TFL and TSL play crucial roles in increasing employee retention through employee engagement which will eventually determine the sustainable competitiveness and success of the pharmaceutical companies.

Figures

Figure 1

Research framework

Figure 2

CFA model

Figure 3

Structural model

Table 1

Demographic profile of respondents

Demographic variable	Attribute	Frequency (N = 650)	Percentage
Gender	Male	485	74.6
	Female	165	25.4
Age	21–30	393	60.5
	31–40	189	29.1
	41–50	51	7.8
	51–60	17	2.6
Education	Bachelor	326	50.2
	Master	300	46.2
	MPhil	12	1.8
	PhD	12	1.8
Experience	1–5 years	417	64.2
	6–10 years	127	19.5
	11–15 years	77	11.8
	16–20 years	18	2.8
	Above 20 years	11	1.7
Job Level	Upper level	113	17.4
	Mid-level	461	70.9
	Lower level	76	11.7

Source(s): Table by authors

Table 2

Correlation matrix and descriptive statistic of the constructs

Constructs	TFL	TSL	EE	ER	Mean	SD
Transformational leadership	1				3.64	0.90
Transactional leadership	0.795**	1			3.56	0.91
Employee engagement	0.442**	0.405**	1		4.20	0.65
Employee retention	0.619**	0.575**	0.680**	1	4.04	0.76

Note(s): **Correlation is significant at the 0.01 level (2-tailed)

TFL-Transformational Leadership, TSL-Transactional Leadership, EE-Employee Engagement, ER-Employee Retention

Source(s): Table by authors

Table 3

Factor loadings, Cronbach’s α, AVEs and CRs

Constructs	Items	Factor loading	Cronbach’s alpha	CR	AVE
Transformational leadership	TFL1	0.831	0.904	0.905	0.656
	TFL2	0.846
	TFL3	0.778
	TFL4	0.817
	TFL5	0.775
Transactional leadership	TSL1	0.800	0.846	0.850	0.589
	TSL2	0.849
	TSL3	0.784
	TSL4	0.617
Employee engagement	EE1	0.655	0.887	0.885	0.592
	EE2	0.686
	EE3	0.703
	EE4	0.703
	EE5	0.730
	EE6	0.743
	EE7	0.665
	EE8	0.721
Employee retention	ER1	0.757	0.904	0.904	0.612
	ER2	0.799
	ER3	0.817
	ER4	0.777
	ER5	0.796
	ER6	0.747

Note(s): TFL-Transformational Leadership, TSL-Transactional Leadership, EE-Employee Engagement, ER-Employee Retention

Source(s): Table by authors

Table 4

Discriminant validity of the constructs

Constructs	TFL	TSL	EE	ER
TFL	0.810
TSL	0.808	0.867
EE	0.486	0.440	0.780
ER	0.681	0.653	0.757	0.783

Note(s): TFL-Transformational Leadership, TSL-Transactional Leadership, EE-Employee Engagement, ER-Employee Retention

Source(s): Table by authors

Table 5

Direct effects of the model

Hypothesis	Direct path	Std Estimate	Std Error	Critical Ratio	P Value	Decision
H1a	TFL → ER	0.229	0.078	2.309	0.021	Supported
H1b	TSL → ER	0.199	0.095	2.039	0.041	Supported
H2a	TFL → EE	0.492	0.087	3.505	0.000	Supported
H2b	TSL → EE	−0.007	0.106	−0.051	0.960	Not supported
H3	EE → ER	0.558	0.059	12.121	0.000	Supported

Note(s): TFL-Transformational Leadership, TSL-Transactional Leadership, EE-Employee Engagement, ER-Employee Retention

Source(s): Table by authors

Table 6

Mediating effects of the model

Hypothesis	Indirect path	Stnd Estimate	Lower bound	Upper bound	p Value	Result
H4a	TFL → EE → ER	0.229	0.120	0.440	0.021	Partial mediation
H4b	TSL → EE → ER	0.199	−0.158	0.154	0.041	No mediation

Note(s): TFL-Transformational Leadership, TSL-Transactional Leadership, EE-Employee Engagement, ER-Employee Retention

Source(s): Table by authors