The rank institution for primary and secondary school principals serves as an institutional arrangement aimed at promoting professional development among principals and modernizing school governance. However, its implementation faces challenges such as fragmented regional practices and insufficient scientific grounding. This study systematically analyzes the design features, regional practice models, and inherent governance logic of the rank structure, the core institutional vehicle within China’s reform, to address the deep-seated tensions between standardization and differentiation, as well as between motivation and sustainability. Adopting a mixed-methods approach, this research integrates a comparative analysis of policy documents from 30 regions, a questionnaire survey of 1,172 principals nationwide, and field interviews in several pioneering reform areas, enabling cross-validation from multiple data sources. The findings reveal that the rank structure exhibits dual institutional characteristics of vertical stratification and horizontal differentiation. Existing practices can be categorized into three regional models: “multi-tier grading systems,” “basic hierarchy systems,” and “separate-track position sequences.” The system’s rationale is built on a triple institutional logic—facilitating professional development, implementing fiscally sustainable incentives, and integrating bureaucratic and professional elements. Accordingly, this study proposes a differentiated central-local governance framework: the central government should establish a four-tier benchmark structure, a composite ratio control mechanism, and a fiscally graded security system; local governments should conduct differentiated adaptations, and multi-stakeholder collaboration mechanisms should be introduced. The ultimate aim is to deeply integrate the rank structure into the educational governance system, transforming it from a mere personnel management tool into an institutional cornerstone for realizing educator-led school innovation.