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We document that credit rating changes significantly affect chief executive officer's (CEO's) incentives. Modeling both credit rating changes and CEO incentive changes as two jointly endogenous processes, we present strong evidence that CEO incentives increase subsequent to credit downgrades and, to a much weaker extent, decrease after credit upgrades. A one-notch downgrade in the credit rating improves CEO incentives by about 15%. We also find that the impacts of credit rating changes on CEO incentives are greater for firms with more distorted incentive contracts. Our analysis favors a corporate-governance-based argument and suggests that rating agencies', or more generally, debt-holders', monitoring complements equity-based incentive contracts to mitigate agency conflicts between managers and shareholders.