How to design incentive systems for the agents with multiple objectives

Agency theory has often been employed to discuss how to design incentive systems in organizations. Though in conventional agency models agents are assumed to devote their efforts only to objectives defined by the principal, in practice employees seem to have individual objectives different from the ones assigned by the management. Moreover, large conflicts exist between the objectives of a creative organization, such as the research and development department, as a whole and of its members as individuals. Based on these observations, a new model considering not only the defined objectives but also the employee's individual objectives is developed. It discusses how to provide incentives according to the monetary and non-monetary productivities of both the organization's and the individual objectives. The results of the analysis show that the principles on which the design of incentive systems is based vary according to whether a conflict between the organization's and individual objectives exists or not.