This paper examines optimal incentive contracts in the presence of career concerns, which are concerns about the effects of current performance on future compensation. Career concerns arise when the market uses a worker's current output to update its belief about the worker's ability, and future wages reflect these updated beliefs. Career concerns are stronger when a worker is further from retirement, as a longer career increases the return to changing the market's belief. The optimal compensation contract optimizes total incentives, combining implicit incentives from career concerns and explicit incentives from the compensation contract. The explicit incentives should be strongest for workers close to retirement, while for young workers, current pay may be independent of current performance. The paper provides empirical support for this prediction using the relationship between chief-executive compensation and stock-market performance. It finds that CEOs less than three years from retirement experience a stronger pay-performance relationship compared to those more than three years from retirement. The paper also discusses the theoretical model of career concerns, including the effects of uncertainty, risk aversion, and market forces on optimal incentive contracts. The analysis shows that career concerns can still create important incentives even with incentive contracts, and that optimal contracts must balance both implicit and explicit incentives. The paper concludes that career concerns play a significant role in shaping optimal incentive contracts and that empirical evidence supports the model's predictions.This paper examines optimal incentive contracts in the presence of career concerns, which are concerns about the effects of current performance on future compensation. Career concerns arise when the market uses a worker's current output to update its belief about the worker's ability, and future wages reflect these updated beliefs. Career concerns are stronger when a worker is further from retirement, as a longer career increases the return to changing the market's belief. The optimal compensation contract optimizes total incentives, combining implicit incentives from career concerns and explicit incentives from the compensation contract. The explicit incentives should be strongest for workers close to retirement, while for young workers, current pay may be independent of current performance. The paper provides empirical support for this prediction using the relationship between chief-executive compensation and stock-market performance. It finds that CEOs less than three years from retirement experience a stronger pay-performance relationship compared to those more than three years from retirement. The paper also discusses the theoretical model of career concerns, including the effects of uncertainty, risk aversion, and market forces on optimal incentive contracts. The analysis shows that career concerns can still create important incentives even with incentive contracts, and that optimal contracts must balance both implicit and explicit incentives. The paper concludes that career concerns play a significant role in shaping optimal incentive contracts and that empirical evidence supports the model's predictions.