Transformational and transactional leadership strategies have become prominent in public administration research, but it is unclear whether they are compatible or whether they could undermine each other. We examine the combined and interactive effects of transformational and three types of transactional leadership (contingent verbal rewards, material rewards, and sanctions) on employee work motivation, conceptualized as work engagement and intrinsic motivation. Panel analyses using repeated measures of 385 leaders and 3,797 employees show that transformational leadership and contingent verbal rewards increased employee motivation. However, simultaneous use of contingent material rewards undermined the benefits of transformational leadership. Thus, the motivational potential of service‐ or community‐oriented visions was undercut, when leaders also appealed to extrinsic material motives. This could help explain why financial incentives do not always have the expected benefits in public organisations. We therefore argue that research and practice should pay more attention to how different leadership strategies work in combination.