I have been thinking about the combat system and the problems with it. (Yeah, I occasionally think.) Many people complain about the combat being unbalanced in one way or another, and I have to agree. The root of the problem is with heroes, which, as many people know, are useless late-game. I will try to explain why.
Now, just as a preface, I will not cover monsters here, because monster stats can always be changed to balance them with the core system of normal units and heroes. Also, I will not cover magic for the same reason - balancing it is a separate issue. Finally, I will only cover the Kingdom side of things, since I haven't played as the Empire yet. However, the same ideas should carry over to the Empire.
Analysis of the Problem
Heroes and units essentially start out the same. One hero is more or less equivalent to a normal unit. The hero generally has a little higher stats, which you would expect. He is a hero after all. Heros and units can also use the same equipment, but a hero's increased stats mean they will generally be a little higher overall. So at the start of the game, heros work fine.
The problem arises when units start getting grouped together. The first grouping is four units. When four units are grouped together, their attack, defense, and health (i.e. their combat stats) are all totalled. For a similarly equipped hero to compete, he would have to raise his strength, dexterity, and consitution all to 40, which would give him a x4 multiplier to the combat stats. Given that a hero can usually raise about 2 points of attribute per level, this means that a hero would have to be level 45 to compete against a similarly equipped 4-man party. (Raise 3 attributes 30 points each at ~2 points per level.) When you get to 8 man squads or 12 man companies, the problem is only made worse.
1. I assume a hero starts with ~10 points in each attribute. I know some start higher than this, but that doesn't change the conclusion much.
2. I also assume that a normal unit starts with 10 points in each attribute. If I am making a wrong assumption, let me know.
3. Upgrading armor/weapons is not considered, because you can always equip units with the same items.
So, in conclusion, the current combat system is wholly unsuited to heroes in the late game.
Several suggestions have been posted. One common one is to increase the number of points that are issued to a hero per level. Consider that even if you give a hero 10 points per level (enough to raise ~20 points of attributes), the hero would be able to compete against a 4-man party at level 5. To compete against a 12-man party would take level 17. (12x combat values means the hero would have to have 120 in his 3 attributes. That 110x3 attribute points to raise, or 330/20=16.5 levels to gain.) The problem here is that this is a dramatic increase of combat abilities for each level. A level 2 hero could mop the floor with a level 1 hero, instead of being only marginally better, as the designers intended.
Another possible solution could be to reduce normal unit stats. However, even if you halve the stats, you are just halving the levels needed to match the unit, which still puts it in the ridiculous range.
A third solution could be to stagger a hero's points per level. For example, get 2 points at level 2, 3 points at level 3, etc... This only slightly alleviates the problem. (Fight 4-man party at L15, 8-man squad at L20.) It also could cause imbalances against heroes of high levels.
My solution is to do away with the 1-man units, and make all normal units appear in groups. Start with a 4-man party as the basic unit, which is equivalent to a hero. An 8-man squad would be essentially two 4-man units, which is double the normal stats, and a 12-man company would be triple strength. Now, this still leaves the hero with a problem - his stats aren't going to be up to par with a double-strength unless his 3 combat stats are double normal (20). So, in addition, we make these changes:
1. A hero automatically gets 10 more hit points per level. Normal units get HP each level, so why shouldn't heroes? This also some other beneficial side effects. First, combat heroes can focus purely on strength and dexterity, which puts them on even ground with caster heroes who focus entirely on intelligence and essence. Second, fewer points are needed to advance a hero's stats.
2. A hero can raise exactly 5 attributes points per level. This means he can get both his strength and dexterity to 20 by level 5. At level 5, he will be able to go toe-to-toe with the 8 man squad. At level 9, he will be able to fight the 12-man company. And, if needed, a 16-man group could be added that he could fight at level 13.
So, that is my solution. Let me know what you think.