This is something I looked at last year. My assistant and I were in our first year at the new gig, and this is exactly what we fought. We went into the end of the first semester with re-auditioning in mind.
We did hold a final exam - prepared etude, and light sight-reading, and told the kids that we might be moving some students around based on how it went. Ultimately, we decided that any students that I would move down into our 2nd band, for the exact reasons you are specifying, would create too toxic of an environment to get the work done they needed.
It's easy to think about what would be best for *your* band, but really, it's more important to think about what is best top to bottom. Sometimes when you are at a new job, you just have to grin and bear it, then make it your own when they are your kids, which is at least my take. Everyone does it differently!
I took over a new program this year. Previous director did all of the placement for fall bands. As we approach the end of the semester, I very much want to reorganize some students into different band classes.
According to my assistant (who was here last year), the previous director very strictly did placement solely on musical skill. Blind auditions, the whole bit. I want to factor in behavior and attitude, consider the whole person. There are a few kids in 2nd band, for example, who have great attitudes and could absolutely hang on 2nd or 3rd part in the top band. Some of the top band kids sound great, but give me a lot of eye rolling, talking in class, general bad attitude. Some of them I've written up, others haven't risen to that level (yet). My assistant seems to think I will get a lot of pushback from parents and administration of I demote kids for attitude problems.
How much do you consider a kid's attitude and work ethic when deciding band placement?
If you factor that in, how do you document it in case parents or administrators call you on it?