Yes because you have to SPLIT experience between your Sov and all your Heroes/Champaions and units. So a full stack really puts a bender on you gaining lots of experience as you would have had you really fought an EPIC battle alone.

Yes but with three heroes experience is divided by 3

If you put the extra heroes in different armies, and send them in different directions, they will level up faster. I try not to have more than two heroes in any army at once, because it really messes up the xp gain.

Try with men, and train henchmen - they are very similar to heroes, except they do not cause the xp splitting, so you can stack lots together (possibly with a hero too).

The dragon was in a wandering mob.

The xp system seems to impose severe penalties when in stacks of 3 or more heroes. I assume this is deliberate to prevent the 'stack of doom' type of gameplay.

There must be a better way of doing this. In the highest difficulty settings they are now completely useless as you do not have enough time to level them up to a point where they can succesfully contribute to an army before the AI swarms you.

This may be a bug.  Screenshots and save games would be nice.

There is no xp 'penalty' per se. 

The xp the mob gives to champions is divided equally among all champions, then unit modifiers are calculated. 

The xp the mob gives to trained units is always 50% of the mob's value for all trained units, then unit modifiers are calculated.

I quick test with some starting units (that had no xp at all) against a Banished Ogre.

With 2 heroes and 2 soldiers: both heroes get 5 xp, both soldiers get 2 xp each.

With a single hero and 2 soldiers: hero gets 10xp, and soldiers get 5 xp each.

With a single hero who dies during the combat, and two soldiers, the soldiers both get 5xp each.

With two heroes, and two soldiers, and only one hero dies, the other hero gets 5xp, and the soldiers get 2xp each.

With just my two soldier units, when they eventually beat the ogre (extra reload required), they both got 5xp.

So, if there is more than one champion, xp is divided by the number of champions in the army to provide an xp amount. Otherwise the amount is the total from the mobs.

Then Champions (and Henchmen and maybe scions) get that amount of xp, + any bonuses.

And other units get half that amount.

Don't group up your champions if you want to level up your normal units with them.

Hero stacks of death? What? Am I the only one that thinks heroes are not doing very well when compared to produced troops? 
In my current game, the level 26 assassin hero with an ignis and tons upon tons of perks and gear deals ~30 damage per attack, on average, while a 7-man "cheap" yew archer with absolutely no equipment one-shots drakes for over 150 damage.

Thank you for the replies.

I was conducting further tests and there is a penalty there or the game simply disregards the bonuses XP traits give. I was playing with a map mod that allows huge maps (12x9) and that is why I did not put up any savegames. The mod is a simple one from these forums that just increases map size so it should not have any effect on the xp system.

I am making a custom Sovereign with the XP traits enabled (knowledge, trainer, etc.) to further test this. If anyone is interested in testing this further, let me know and I would be glad to upload the relevant files and savegames in Dropbox.

Is there any way to revert back to the 1.2 version of the game so that I can provide specific numbers and savegames?

Problem is that this doesn't deter stacks of doom. It only deters keeping them together for extended periods of time. Not to mention, if you know your stack of doom is the biggest bully on the block, than gaining further experiance becomes useless as the opponents can never recover from their bloodied nose.