Upon rereading the OP, the main question is this:
One issue raised was how can we recognise the seniority and contribution these lieutenants make.
Both solutions discussed by the SO’s involve having more available ranks. Blaze’s suggestion is sort of proposing two tracks, command and non-command.
I propose something similar. There are various departments in the division, Intelligence, TSN Instructor, Systems Operations, and the Archives and Records Department, as well as command. Instead of just command vs not, officers could be rewarded by having positions of authority in alternate departments.
Perhaps we could take a closer look at the organization of the fleet from the department standpoint: what they do, how they operate, even what new departments we could integrate into the fleet.
Officers could request assignment in one department upon reaching the required rank (this is already in effect I think) and could request transfer to another department if they felt they could better assist the fleet in that way. I would suggest that officers be assigned to only one department at a time, to allow others the chance to have a position.
This could be another reasonable excuse to have more higher ranking officers (say Lieutenant and above, for example): heads of departments and such.
I think this would work well as a sort of reward system for officers who have demonstrated a dedication to the fleet and deserve commendation.