Contains spoilers for early manga readers or anime viewers
After the Phantom Lord arc, two mages
Juvia Lockser and Gajeel Redfox
who were the S-rank members of their previous guild who had joined Fairy Tail. Why did they not retain their S-rank status?
Each guild follows its own criteria to promote its members as S-rank mages.
Fairy Tail's criteria for being promoted to S-rank mage are more stringent that those of Phantom Lord. Master Makarov mentioned that he selected the participants for the S-rank exam by watching their strength, heart and soul. From Master Jose's personality and his obsession with making Phantom Lord as the strongest guild, we can be certain he uses only fighting strength as the criteria, and doesn't care about things like heart and soul.
Moreover, although the S-rank mages were the strongest Phantom Lord's mages, one could not be certain where they stand in comparison to Fairy Tail's members. To determine that, they too would need to go through the S-rank exam.
Also, it is a Fairy Tail tradition to conduct an S-rank exam every year. It could also be part of the tradition that the only way to get promoted to S-rank is to pass the exam, and there are no direct appointments.
