Instead of giving kids grades with a ceiling, each subject would have (unlimited number of) levels of proficiency, and to attain a level, kids would have to pass a test (demonstrate certain skill). The choice of subjects and levels to attain would be up to each kid, but they would have to choose to do something (working at getting next level of something would be mandatory). (Although perhaps they should be encouraged to explore different subjects and attain some minimum of levels.)

Also, I would group kids by subject, and not by age. So kids of slightly different levels would train together, and the higher level kids would be obligated to help kids on lower level to learn, while lower level kids were taught to be respectful of higher level kids.