One-liner: The authors examine the current Air Force pay system, suggest ways it could be strengthened, and assess two pay concepts: skill pay and capability pay. 450-character abstract: Recruiting difficulties and manning shortfalls in certain specialties have prompted the Air Force to consider significant alterations to the compensation system. The authors describe Air Force recruitment and retention, then examine the current pay system and suggest how it could be strengthened. Finally, they assess two pay concepts, skill pay and capability pay, and consider ways to analyze their effects and cost-effectiveness. Recruiting difficulties during the 1990s, as well as manning shortfalls in certain specialties, have prompted the Air Force to consider significant alterations to the compensation system. The authors first describe Air Force recruitment and retention and compare them to the situation in the other military services. They then examine the current pay system and suggest ways it could be strengthened: monitoring civilian wages more closely; reshaping the basic pay table to make basic pay grow increasingly rapidly with respect to rank; restructuring selective reenlistment bonuses to make them worth more; and revamping Hostile Fire Pay/Imminent Danger Pay from a flat monthly rate to a level that depends on the number of hostile episodes. The book also provides an initial assessment of two pay concepts: skill pay (intended to provide higher pay for certain valuable skills) and capability pay (intended to provide compensation and incentives for superior individual capability, especially current and prospective future leadership potential). The authors discuss methods and standards for establishing these pays and examine questions of fairness and the administrative and human costs of implementing new systems. Finally, they consider ways to analyze the effects and cost-effectiveness of skill pay and capability pay: microsimulation modeling, a demonstration experiment, and surveys to query Air Force personnel about their retention intentions under a large number of potential skill pay and capability pay alternatives.