Morale systems can be great depending on what you're doing, but don't fit into the 'core' Brikwars style.
As for actual mechanics, your suggestion is specifically for performance, not breaking/routing, as is typical of games with morale. I wouldn't use the whole 'scale' thing you suggested, but rather grant bonuses/penalties based on kills/deaths proportional to the original size of the squad, e.g. +1 for 1/2 squad size killed, -1 for every 1/2-1/3 squad size deaths. Counting kills is icky IMO, so I would say they'd have to be killed all in one turn for it to count. I'd also let players agree on bonuses for sufficiently awesome accomplishments, which someone else already suggested in some thread to do with in-game bonus feats.