Hi TsandM,
Tips and advice for herding cats - and yes, despite all the best briefings and encouragement and instruction on buddy techniques, it is exactly like herding cats from time to time.
It goes without question that problem management begins in the classroom and pool. Reinforcing correct technique with regards to inflating and deflating BCDs (especially deflating) time after time after time will go a long way to preventing those head-down feet-up divers paddling furiously to get back down to the dive group.
I would suggest 90% of up-and-downings are due to excessively weighted divers, so spend as much time as possible getting their weights correctly sorted. This helps prevent the heavy breathing due to the physical exertion required when people try to paddle against an excessively buoyant BCD - incorrect breathing techniqe (heavy, fast etc) worsens the panic as it leads to a CO2 accumulation to which the body quite naturally responds to by breathing even more heavily which of course as a medical person you will know and that underwater, the panic response is that much greater as it becomes a fear of drowning, a basic instinct.
For the stressed and the slightly panicked, eye contact and physical contact go a long way to steady the nerves. In this litigious day and age, one has to be *very* careful with something as simple as holding hands, but it really does work; holding an arm or shoulder maybe. Holding gear of course is more no-contact but I don't think has the same reassuring effect. One also has to say that contact should be limited not because it might be offensive, but because we want our divers to be a little more independent rather than rely on somebody holding onto them for a dive.
Aggressive underwater signals and commands place undue stress on nervous divers and are the underwater equivalent of "yelling". This will make some people angry, disappointed, potentially aggressive and then they are focused on beating themselves up (or you!) and not concentrating on the task at hand. Smooth, gentle gestures as reminders, not demands, to reunite with a buddy will serve you well. Congratulations and thanks for a task well performed also help. After living and traveling through a number of Eastern countries, I have an automatic tendency to say "thankyou" with a nod of the head and a Japanese/Thai style "prayer" gesture, (The "Wai" in Thailand) - it's something I do automatically both above and below water. Whatever people think about PADI, the "positive reinforcement" for accomplishment and achievement is spot on perfectly accurate. It's a simple work-and-reward thing. I even do it after asking people how much air they have.
For keeping an eye on people, swimming backwards is obviously essential and you are DIR trained so the backwards frog kick should be no trouble for you, but of course you need to swim forwards as well. I simply drop my head and look between my legs and automatically have a "picture" in my head of group location. Hovering upside down or balancing in the sand on your head amuses some people and can add some fun to the dive, therefore lessening stress; finishing off with a flourish by spinning round the other way lends to your character underwater. It's daft, but it works, and allows you too see the whole group again, albeit upside down!

I've never used a mirror, but I do like masks such as the Scubapro Crystal-Vu which has little side panels that give a limited reverse view.
Some people are not going to like what I say next so please look away now. Buddy separation is inevitable, especially in the beginning stages. If I have a group of divers or students then yes, of course I teach buddy technique but I also suggest that if there are four people in the water with me, then we are a "buddy team" of five people. This way, if buddies get separated underwater, as they inevitably will, they know that they are all there to help each other and should something happen, another member of the team will be there to help them, rather than have them feel they must rely solely on the buddy they have been assigned. Another person close by is still another air source, and reassuring in case one person cannot immediately see their assigned buddy. We don't have 360 degree vision after all.
Other tips - where possible, I always have my divers' gauges face out so I can read their air supply without the need to ask. Asking a person's air supply when they should be giving you the half tank signal is a good reinforcing technique, because it makes them feel a bit silly without undue stress.
If a diver is that nervous, have a good long chat to them topside and find out why they are diving. Is it because they don't want to disappoint their significant other, is it a personal challenge to help them overcome their fear of water or fish (yes, I've had to help people overcome that). I've spent time floating about in shallow water one-one with some people just getting them used to being underwater without the pressure of being in a class. This can be very valuable because then peer pressure is automatically eliminated.
Finally, if they really can't cut it underwater, end their class. Suggest they go out snorkelling or something and get some experience there before rejoining the class if they really want to dive.
Hope that helps a little,
Crowley