In our style, rank is determined simply by how active you are and how long you've been a member. It determines nothing more than seniority and isn't really a gauge of how good you are in kata, sparring, etc. In my former school though, rank was determined by how well you did in tournaments with prerequisites for everything from shodan and above regarding kata and kumite. IIRC, you must place (1st, 2nd, 3rd) in an open tournament for both kata and kumite at least once in order to advance passed godan (5th degree). It really depends on the school, but one thing that remains consistent from what I've seen is that those who are of higher rank generally have more experience in the style than those of a lower rank.