Dear Glenn

Exhibit 10.1

Dear Glenn,

This letter and your employment will be effective on your Start Date (defined below) and sets forth our offer to you to join The Gap, Inc. (the “Company”) as Chief Executive Officer. Your “Start Date” shall be July 30, 2007 if you obtain admission to the United States by the United States Customs and Border Protection Agency in a classification authorizing work for the Company in the United States (“Admission”) on or before July 30, 2007, or if not, then your Start Date shall be the business day after the date you obtain Admission, provided that this letter and your employment will only be effective if the Company receives your authorization to work in the United States on or prior to your Start Date. You agree that (i) if you personally receive the Form I-797 Approval Notice issued by U.S. Citizenship and Immigration Services classifying you as an O-1 nonimmigrant (“Form I-797 Approval Notice”) by 9:00 a.m Eastern Time on July 29, 2007, you will seek Admission on July 29, 2007, and (ii) if you personally receive the Form I-797 Approval Notice after 9:00 a.m. Eastern Time on July 29, 2007, you will seek Admission within 24 hours of receipt of the Form I-797 Approval Notice.

1. Duties and Scope of Employment. The Company agrees to employ you on an “at-will” basis in the position of Chief Executive Officer. You will report directly to the Company’s Board of Directors (the “Board”) and be given such duties, authorities, and responsibilities that are consistent with your being the Company’s most senior executive officer as determined by the Board. During your employment, you will devote your full business efforts and time to the Company. You may engage in civic and charitable activities in your individual capacity, and, subject to the consent of the Board, may serve on the board of directors of another company so long as such activities do not interfere with the performance of your responsibilities to the Company. Your primary work place will be at the Company’s corporate headquarters in San Francisco, California.

2. Board Service. The Governance, Nominating and Social Responsibility Committee of the Board will recommend to the Board that you be made a Director of the Board without prejudice to the shareholders’ ability to remove or not re-elect you. The Governance, Nominating and Social Responsibility Committee of the Board will also recommend to the Board that you be made Chairman of the Board without prejudice to the Board’s ability to remove you as Chairman.

3. Salary and Incentive Compensation.

(a) Salary. Your annual salary will be U.S. $1,500,000, payable every two weeks in accordance with the Company’s normal payroll practices. The Compensation and Management Development Committee of the Board (“the Committee”) will review your salary at least annually.

(b) Initial Bonus. You will receive a bonus of U.S. $1,000,000 within 30 days of your Start Date. In the event you voluntarily terminate your employment without Good

Reason (as defined in Section 13(b)) or your employment is terminated for Cause prior to the second anniversary of your Start Date, you will be required to repay a pro rata portion (based on the number of full calendar months remaining in the initial 24 months of employment divided by 24 months) of this bonus (net of any associated income or employment taxes not recovered in a later period) within sixty (60) days of your Termination Date (as defined in Section 9). For all purposes under this letter, the term “Cause” shall mean any of the following committed by you: (i) willful failure to follow the reasonable and lawful directions of the Board; (ii) conviction of a felony (or a plea of guilty or nolo contendere by you to a felony); (iii) acts of fraud, material dishonesty or misappropriation committed by you against the Company and intended to result in personal enrichment; (iv) willful misconduct by you in the performance of your material duties required by this letter which is likely to materially damage the Company’s financial position or reputation; (v) a material breach of this letter; (vi) your material breach of the Company’s policies and procedures; or (vii) any breach by you of the Company’s Code of Business Conduct. To terminate your employment for “Cause”, the Board must determine in good faith that Cause has occurred, the Company must give you written notice detailing the specific clause of the definition of Cause on which termination is based and the Company must deliver to you a copy of a resolution duly adopted by a majority of the entire Board (excluding you) at a meeting of the Board called and held for such purpose that finds in the good faith opinion of the Board, Cause has occurred and states the basis of that belief. With respect to Sections 3(b)(i), (v), (vi), and (vii), the Board shall give you 10 business days notice of its good faith determination that Cause has occurred and shall give you 10 business days following the end of such notice period during which to cure the applicable failure or breach to the good faith satisfaction of the entire Board (excluding you) at a meeting of the Board called and held for such purpose.

(c) Annual Bonus. You will be eligible for an annual bonus based on achievement of the Company’s financial objectives, subject to the terms and conditions of the Executive Management Incentive Compensation Award Plan or any successor plan. Your annual target bonus will be 150% of your base salary. Depending on results, your actual bonus, if any, may be higher or lower. Your maximum annual bonus will be 300% of your base salary. Any bonus payments will be prorated based on changes in base salary or incentive target that may occur during the fiscal year. The Committee has the right to modify the program at any time. Committee discretion can be used to modify the final award amount.

For fiscal year 2007 only, in lieu of the annual bonus described in this Section 3(c), you will receive a bonus equal to 150% of your base salary, prorated based on the Start Date for the time you are employed by the Company during fiscal 2007, provided you are employed by the Company on the date bonuses are paid to other executives of the Company.

Starting in fiscal year 2008, while you are employed under the terms of this letter, you will recommend performance measures and payout levels with respect to the Company’s annual bonus program for yourself and other senior executives, but such performance measures and payout levels will be determined by the Committee, in its sole discretion and in accordance with the terms and conditions of the applicable bonus program.

(d) Long-Term Incentive Awards. Your offer includes long-term incentive awards, which give you the opportunity to share in the Company’s success over time.

(i) Fair Market Value Stock Options. The Committee approved a stock option grant to you effective on your Start Date to purchase 2,000,000 shares of Company common stock, subject to the provisions of the Company’s 2006 Long-Term Incentive Plan and the award agreement thereunder. The option price is determined by the fair market value of the stock on the Start Date. These options will become vested and exercisable as shown in the schedule below, provided you are employed by the Company on the vesting date. These options must be exercised within ten years from the Start Date or within three months, or in the case of termination due to death or Retirement (as defined in the Company’s 2006 Long-Term Incentive Plan), within 12 months, of your Termination Date (as defined in Section 9), whichever is earlier, or you will lose your right to do so.

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(ii) Premium-Priced Stock Options. The Committee approved a stock option grant to you effective on your Start Date to purchase 2,000,000 shares of the Company common stock, subject to the provisions of the Company’s 2006 Long-Term Incentive Plan and the award agreement thereunder. The option price will be 115% of the fair market value of the stock on the Start Date. These options will become vested and exercisable as shown in the schedule below, provided you are employed by the Company on the vesting date. These options must be exercised within ten years from the Start Date or within three months, or in the case of termination due to death or Retirement (as defined in the Company’s 2006 Long-Term Incentive Plan), within 12 months, of your Termination Date (as defined in Section 9), whichever is earlier, or you will lose your right to do so.

(iii) Performance Share Award. The Committee approved a performance share award for you with a target payout opportunity equal to 1,000,000 shares, effective on your Start Date, subject to the provisions of the Company’s 2006 Long-Term Incentive Plan and the award agreement thereunder (the “Initial Performance Share Award”). The Initial Performance Share Award will be paid in Company common stock upon vesting. The actual payout (ranging from zero to 2,000,000 shares) will be determined based upon cumulative reported net earnings (subject to adjustment for those items specified in the resolutions of the Committee approving the Initial Performance Share Award) for fiscal years 2008, 2009, 2010, and 2011, as follows:

Subject to Section 11(iv), the award will become vested and paid out in Company common stock as shown in the schedule below, provided that the award is earned as set forth in this Section 3(d)(iii) and provided you are employed with the Company on the vesting date.

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Except as set forth in this letter or as may otherwise be determined by the Committee in its sole discretion, you will not be eligible to receive any other long-term incentive awards (whether stock or cash-based) until 2011. Beginning in 2011, during your employment hereunder, you will be eligible to participate in the Company’s long-term incentive compensation arrangements as in effect from time to time subject to the sole discretion of the Committee.

4. Benefits. During your employment with the Company hereunder, you will be eligible to participate in the Company’s employee benefit plans on terms and conditions generally applicable to other senior executives of the Company. Under the current policy (which is subject to change from time to time), you will be eligible for 30 days of Paid Time Off (“PTO”) on an annual basis in addition to seven company-paid holidays. PTO accrues each pay period up to a cap of 35 days based on regular hours paid, and can be used for vacation, illness or charitable, non-profit or other personal business.

5. Indemnification. The Company shall indemnify you to the maximum extent permitted by applicable law and the Company’s bylaws with respect to your employment hereunder and you shall also be covered under a directors and officers liability insurance policy(ies) paid for by the Company during your employment hereunder. The Company shall maintain directors and officers liability insurance for your benefit on terms and conditions generally applicable to the Company’s other senior executives. The Company’s obligations under this Section 5 are only for acts and omissions by you while you are employed by the Company under the terms of this letter but, with respect to such acts and omissions, shall survive termination of your employment and also termination or expiration of this letter.

6. Expenses. During your employment hereunder, you will be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with your duties hereunder, and the Company shall promptly reimburse you for such expenses upon presentation of appropriate supporting documentation, all in accordance with the Company’s applicable policies.

7. Relocation. The Company will reimburse you for your reasonable relocation expenses related to your move from the Toronto, Ontario (Canada) metropolitan area to the San Francisco Bay Area (including temporary living expenses in the San Francisco Bay Area for up to 12 months until your family moves to California from Toronto). You will receive U.S. income tax restoration with respect to the relocation expenses in this Section 7, in the manner set forth in the Company’s relocation policy. You will also receive Canadian income tax restoration with respect to the relocation expenses in this Section 7, in a manner substantially consistent with the Company’s relocation policy as it applies to U.S. income tax restoration. In the event you voluntarily terminate your employment without Good Reason or your employment is terminated for Cause (as defined in Section 3(b)) prior to the first anniversary of your Start Date, you will be required to repay all of the reimbursements described in this Section 7 within thirty (30) days of the Termination Date (as defined in Section 9). In the event you voluntarily terminate your employment without Good Reason or your employment is terminated for Cause (as defined in Section 3(b)) on or after the first anniversary of your Start Date but prior to the second anniversary of your Start Date, you will be required to repay a pro-rata portion of the reimbursements described in this Section 7 within thirty (30) days of the Termination Date (as defined in Section 9) based on the number of calendar days remaining in the two year period commencing on the Start Date. For purposes of the preceding sentence, notwithstanding anything to the contrary in the Company’s relocation policy, “Cause” shall have the meaning set forth in Section 3(b) of this letter.

8. Visa Fees. The Company will pay for all fees and expenses associated with your obtaining a visa and authorization to work for the Company in the United States.

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9. Termination for Any Reason. Upon the termination of your employment for any reason, you will be entitled to: (a) all unpaid salary and unpaid PTO accrued through the Termination Date and (b) any unreimbursed business expenses. You may also be eligible for other post-employment payments and benefits as provided in this letter or pursuant to other agreements or plans with the Company. For all purposes under this letter, “Termination Date” means the effective date of your termination of employment with the Company.

10. Termination Not Related to a Change-in-Control. Except in a termination related to a Change-in-Control (as defined in Section 13(c)), in the event that your employment is involuntarily terminated by the Company for reasons other than for Cause (as defined in Section 3(b)), death or Disability (as defined in Section 13(a)), or you voluntarily terminate your employment for Good Reason (as defined in Section 13(b) and subject to the notice and cure provisions described therein) or Material Diminution of Responsibilities (as defined in Section 13(d) and subject to the notice and cure provisions described therein), the Company will provide you the following in exchange for your release of any claims in a form reasonably acceptable to the Company:

(a) Subject to the last paragraph of this Section 10, your then current salary, at regular pay cycle intervals, for 24 months from the Termination Date, as defined in Section 9 (the “Severance Period”).

(b) Subject to the last paragraph of this Section 10, a pro-rated amount of your annual bonus that you would otherwise have received had you continued to be employed through the applicable payment date for the annual bonus performance period in which your termination occurs (without any discretionary downward individual adjustments), payable, if and when paid to other executives and based on actual performance results for the annual bonus performance period in question. Such bonus will be pro-rated based on the number of days you were employed by the Company during the applicable annual bonus performance period.