POOLS AND BENCHES
Whenever a new person (players, GM) joins the campaign, either on day one of the campaign or later, these new persons create three characters by doing the following:
1. Giving them a name. Preferably just a first name or a nickname, but whatever.
2. Choosing their Class.
3. Giving them a single Trait (nothing to do with a Background/subspecies).
This is the extent of detail/granularity. No one should take more than ten minutes. After doing this the first couple of times, it tends to take no more than three minutes.
DIBS AND CHARACTER CREATION
Now, each player picks a character to play. If you just created some characters, you can get "dibs" on one of those characters by keeping the character to yourself, not relinquishing it to the pool. In any event, the one to three characters you just created that you chose not to play are now up for grabs. Dump them in the pool.
Characters picked from the pool or generated raw have to be mechanically fleshed out and draped in diegesis as normal:
1. Roll 3d6 in order, you may re-roll the lowest and/or swap one rolled score for another.
2. Fill out a character sheet, pick subspecies, gear, skills, etc.
3. Pick a starting location for the character.
4. Pick a second Trait for the character (this can be a Background/Subspecies Trait).
RELINQUISHING CHARACTERS & CUMULATIVE XP
Characters with Wounds or characters stuck in some kind of limbo can be abandoned and a new character picked from the pool as per the "refreshing" rules below.
Note: characters with Wounds have to make saves to recover, even while in the pool. Failure to make a save is adjudicated as normal (can lead to a worsening condition or death).
Note: for every session that a character is alive and being actively played by a player, it earns a 1-2% cumulative bonus for each (in fiction) day it survived potentially perilous situations, up to 16%. The bonus is calculated at the end of a session and applied retroactively to all XP earned. It rolls over into future sessions, into the character dies, is retired or otherwise no longer played.
Note: Characters stuck in limbos like, "soul stolen by a troll" or "encysted in frozen giant snot," can be more or less "paused." Ie, they don't gain or lose a bonus to their XP, though they will be consistently imperiled by the GM until they are eventually killed by their surroundings or rescued.
REFRESHING THE POOL, THE DEEP END OF THE POOL
The number of characters in the pool is limited to twice the number of players, so, after just a few character deaths, nobody except maybe the GM going to be creating any new characters. At the start of a session, any player can abandon their existing character, returning its sheet to the pool and generate a new character. Abandoned characters are up for grabs or may be retired completely, should the group so decide. The GM is encouraged to provide stuff for the abandoned PC to do. It is entirely legitimate and wholly encouraged for the GM to threaten or otherwise place in danged abandoned PCs.
After the number of characters in the pool dips below the "maximum," any player in need of a new character can create two more characters rather than pick an existing one from the pool. Alternatively, the player can pick a character from the below-the-limit pool and ask the GM to create a new characters to dump in the pool (ie, to do the work for them).
Any character picked from the pool is level 1, regardless of the previous character's level. Furthermore, players cannot create characters with existing relationships to major NPCs, villains, etc. nor can they fork over from the setting major NPCs, villains, etc.
The GM, on the other hand, can create and add to the pool existing NPCs, villains, as playable characters. Furthermore, these playable characters need not be (likely aren't) level 1. Henchpersons are ripe for the picking, and will bring the party their own replacement in tow. These characters may have exotic gear or hail from exotic locales, as yet unknown or unexplored.
RATIONALEThis is one of those times where you do these various things and you don't really think of them as a system until someone else describes something similar and you're all, "Oh right." I like what +Gus L and +William Broom wrote here and here, but it's not for me or my group. This is meant for play that involves a fair bit of major injuries, Wounds, disabilities, dismemberment, diseases, plagues and big parts of the map that are just a nightmare of hazards, poisons, toxins and are generally terribly unpleasant.
Contra to what Gus and Will suggested though, this isn't really meant to "address" anything in highly lethal play. Any time saved in generating a replacement character is negligible and it intentionally limits the amount of pre-plotting that happens with unplayed characters so it's not really any use resolving "dropped threads."
There are really two things this is meant to address: how to handle PCs "taking a break," (ie, getting "benched") and how to encourage player creativity (ie, encourage interesting choices at PC generation).
Hope this is useful to someone.
Picture: from Wild Men by Charles Fréger