This document considers two possible changes to the Air Force compensation system: skill pay and capability pay. Skill pay is pay for designated pay is pay based on individual capability. The Air Force asked RAND to consider these pay concepts and bring to bear information on whether the Air Force should adopt them and in what form. To learn more about what role these pays might play, we reviewed the Air Force's manpower situation, considered underlying causes of problems, tracked relevant trends in civilian wages, and examined data on the level and composition of military compensation. With this information in mind, we identified possible changes in the current compensation system and addressed the potential benefits and implementation issues of introducing skill pay and capability pay instead.