This paper examines the impact of career concerns—concerns about the effects of current performance on future compensation—on optimal incentive contracts. Career concerns arise when the market uses a worker's current output to update its belief about the worker's ability, leading to future wages that reflect these updated beliefs. These concerns are stronger for workers closer to retirement, as a longer prospective 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 contract. As a result, explicit incentives should be strongest for workers close to retirement. The paper provides empirical support for this prediction through an analysis of the relationship between CEO compensation and stock-market performance. The findings suggest that pay becomes more sensitive to performance as CEOs approach retirement. The study also discusses the implications of career concerns in internal labor markets and the role of risk aversion in shaping optimal contracts.This paper examines the impact of career concerns—concerns about the effects of current performance on future compensation—on optimal incentive contracts. Career concerns arise when the market uses a worker's current output to update its belief about the worker's ability, leading to future wages that reflect these updated beliefs. These concerns are stronger for workers closer to retirement, as a longer prospective 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 contract. As a result, explicit incentives should be strongest for workers close to retirement. The paper provides empirical support for this prediction through an analysis of the relationship between CEO compensation and stock-market performance. The findings suggest that pay becomes more sensitive to performance as CEOs approach retirement. The study also discusses the implications of career concerns in internal labor markets and the role of risk aversion in shaping optimal contracts.