The purpose of the paper is to explore how an individualized incentive system could increase professors’ motivation to contribute to the university’s mission to become entrepreneurial in transition countries. The paper proposes a conceptual analysis that draws on the principal-agent problem to examine incentives that may stimulate institutional change. It considers the framework of a university becoming entrepreneurial and assumes that the principal is dean while the agent is a professor. It contributes to the national innovation system literature by providing new insights about the institutional change in transition countries. The contribution is threefold: it distinguishes between an ordinary and an entrepreneurial university, it explains relationship between micro and meso levels in the process of institutional change towards entrepreneurial university, it refines knowledge on individualized incentive system acting as a motivation for professors to contribute to university becoming entrepreneurial. The paper challenges studies that dismiss the micro level role of human agency in institutional change. The conceptual arguments have important managerial implications for all public and private institutions.