I’ll go through 3 again.
We divide the command rank. All people ranking Captain gets a grade, although the title is purely cosmetic, as was done with every flag rank in the napoleonic-era RN. The grades are decided on an ad hoc basis, so that a captain with less seniority going by date-of-rank can be effectively above a more senior captain.
Doing so allows, for example:
a. An inactive captain can be placed in the lowest grade, placing less senior but more tactically current ones in posts pertaining high command
b. A captain who proves able at handling single ships but not so much at a higher level, or is not interested in such tasks, can be placed lower to someone who is junior but capable or interested
c. Allows for sanctioning ship losses without rank-demotions being involved.