It's based on predicted grades corny. Eg. I have lower/middle ability group of 23 in a good/outstanding school - target (based on KS2 levels, similar kids right across the country & our previous performance as a school) is mostly Cs with the odd D.
Hopefully, I will get a few Bs to make up for the two C-targets who really can't be arsed doing any work, & the one who gets pregnant, & the one whose drug-dealing empire keeps him too busy.
Everyone's grades get fed into the computer, converted into a numerical score & compared against the target.
This gives a figure called a residual for each teaching group. If it's >0 all is well - if it isn't I have some explaining to do.
In the real world, top sets generally have positive residuals (nice hardworking kids with previous good performance) as do bottom sets (small group, lots of support) whereas middle sets are bloody hard work.
I will be extremely lucky to get a positive residual next month. I'm already on UPS3, based on years of good results, so no big deal. If I were eligible for progression I probably wouldn't get it.
& if I had a similar group next year - I could find myself on capability.