Using the classic moral hazard problem with limited liability, we characterize the optimal incentive contracts when first an other‐regarding principal interacts with a self‐regarding agent. The optimal contract differs considerably when the principal is “inequity averse” vis‐à‐vis the self‐regarding case. Also the agent is generally (weakly) better‐off under an “inequity averse” principal compared to a “status seeking” principal. Then we extend our analysis and characterize the optimal contracts when both other‐regarding principal and other‐regarding agent interact.