I quite like the system as it is, since there is still a lot of skill in war, only it's more realistic, because war has always depended more on your production and $ than skill in battle, sad but true.
As for mercenaries, yes this would be very nice- maybe if you have allies, when are a square away from an allied city, or one of yours, you could have a "recruit mercenaries" button, which, depending on how much you pay for them, their skill and unit type would change. (maybe you could have a special mercenary unit, which would automatically change [although any in your care would still need to be paid for upgrading] whenever you research key techs. For instance- say you are about to buy mercenaries, if you do it this turn you'd get Merc. Mk1, but if you waited til you unlocked, say the Pub-brawling advance, you'd get Merc. Mk2s, which would of course be more expensive. Any Mercsalready deployed would have to be upgraded in the normal way of course.)