As has been explained in other topics at length, incentives for flagging specifically don’t work. It just results in players running around flagged, but avoiding any and all PVP.
The game should scrap all incentives for flagging, and instead implement achievements only available when flagged, that give rewards.
These achievements should try to be PVP-combat focused (for example: X amount of damage to enemy players, X amount of certain type of damage, use specific attacks successfully X times, dodge/block successfully X times). Other people might be able to come up with a bigger variety of achievements, but i think, one other worthwhile goal of this system, apart of getting players to engage in PVP, would be to help new players to understand and train the combat system.
I know, there is a way to exploit this, but honestly, if PVP-players are hellbent on spoiling their fun in the game, let them and focus on developing the PVE-content.