Interest in applied performance testing and concern about the quality of the high school diploma are finding a common ground: graduation requirements. A competency is a complex capability applicable in real life situations, and can be used as program objectives in a competency-based, criterion-referenced program. In such a program, applied performance testing is used to measure the mastery of the required competencies. Government at all levels has attempted to control proficiency standards, and 27 states now have mandated proficiency testing. Many local districts have also initiated competency tests. New tests are being developed to meet these demands. Two approaches are being taken: individual schools are writing items, and existing item pools are being tapped. The NASSP Task Force on Graduation Requirements holds that the diploma should certify that the graduate possesses the baseline skills and knowledge essential to effective adult citizenship. The current interest in competency tests as graduation requirements faces two problems: at which grade level the test should be administered, and the status of students who do not qualify for a competency-based diploma. The appendices include sample items from 15 competency tests, and a summary of school district and state competency requirements. (BW)