Abstract: In order to analyze the corporate strategy of supporting employees to develop creative idea, our research is based on principal-agent theory and incentive theory, separating intellectual property income of creative idea from corporate residual income, studying the effects that different allocations of intellectual property of creative idea have on corporate incentive contracts by building models. We find (1) the incentive that corporate provides to employees (innovators) depends on not only internal residual of creative products, but also external residual results from intellectual property of creative idea; (2) the value of creative idea and the value erosion of creative idea which caused by franchise would influence corporate strategy of allocating intellectual property of creative idea and incentive contract. Specifically, when it comes to a creative idea that is of high economic value, if value erosion caused by franchise is small in the incentive contract, corporate rather allocate the intellectual property of creative idea for employees (innovators) to save incentive cost; if value erosion caused by franchise is relatively great, corporate prefers owning the intellectual property of creative idea to prevent franchise; if value erosion caused by franchise is extremely great, it would become more effective for corporate that transferring intellectual property to employees(innovators) and adding some punitive restricted items into the incentive contract. Our research enriches the creative idea management theory and provides strategic advices for corporate to design incentive contracts with innovators.

Key words: creative idea development, intellectual property allocation, franchise, incentive contract