Killing PCs does not harm your reputation or ability to hire other NPC's in the future, but it should.

I would like to see NPCs have a morality rating and the sovereign's rating decline when he slays NPCs from his fraction (Empire or Kingdom) If the sovereign's morality is below the NPCs you can talk to them but you can't hire them.

Example: A sovereign with a morality rating of 100 meets an NPC of Morality rating 80. This NPC will agree to work for the sovereign. Later the Sovereign slays 4 NPCs and his morality rating declines to 80. He meets an NPC scholar with a morality rating of 90 and this NPC refuses to work for the sovereign. He then meets an Assasin; morality rating, 20, who gladly accepts the employment offer from the sovereign (who has a morality rating of 80). 

Also, killing NPCs affects your reputation. Which really doesn't do much (ok, it's used for marriage, but really, has anyone had a problem marrying their sov after a few turns?)

THanks for that, impinc.  Until now I thought that was not possible because on the same turn when you hire them the EQUIP button is not available, So I assumed they could not hold equipment.  In fact if you never send them to the shop or never TRADE an item to them the EQUIP button never comes available. 

After reading your post, however, I tried to BUY equipment for one of them and suddenly I was able to see the equip button.  It's a bug, apparently, that they cannot be equipped unless you trade or buy equipment for them, even if they have a sword, for example, you cannot uneqiup the sword until you give them or buy them a new things.  Even handing them salted pork suddenly makes them available to equip stuff.