Is it permissible to pray behind someone who openly commits iniquity, knowing that there is someone more pious than him but who fears leading people in prayer?

Prayer behind these two men is valid as long as they perform it well and fulfill all its conditions and pillars. Prayer is valid behind every righteous and sinful person. The imamate of a fasiq (openly sinful person) is valid, though it is disliked.

It is better to prioritize others who are not known for open sinfulness or publicly committing acts of disobedience. However, if you pray behind one of them, the prayer is valid, and you should advise them gently and kindly. If you are qualified for imamate, then there is no harm in you leading the prayer. As for your fear that your colleagues might perceive you as arrogant, this can be avoided through good treatment, cheerfulness, and improving your character.