If every fighter from chaos space marine to grot has the courage to stand their ground and fight to the death then why have fear and panic? Those are feelings (or state of being) that affect a single individual and are fairly particular to a specific situation.
Fear could be worded as
hesitation; after all, you can still fight while affected with
Fear but your reactions are slowed (represented by limiting the To-Hit rolls.) Once you get over this 'hesitation' you can act normally.
Panic, on the other hand, is the irrational terror that a Fighter may feel when he truly believes all is lost ... basically his
Fight or Flight Response takes over and he runs away. You also have a chance to get over the 'instinct' and act normally. The only time you are asked to do a Panic Test is by a specific Critical Hit... something VERY rare, which could justify such 'strange' action. (
Here you go ClausLars!)
Not only these two psychologies affect an INDIVIDUAL Fighter, but you can recover from them. In top of that, there are 'methods' (or I should say tactics and strategies) to minimize impact. Some Fighters are Immune to Psychology, or you could position other Fighters (i.e. IG Captain, etc) that could decrease their chances of failure or increase they chances of recovery... there are even re-rolls for such counters.
At then end, failing a Fear or Panic Test does NOT mean you automatically loose the game. This is very important. Depending the conditions, you may loose the game (you feel it was critical that the Fighter passed the Fear Test), but then you could roll a 6 To-Hit and roll a Critical Hit that grants you victory... VERY HEROIC! If you fail a Routing Test, the game is over. No last ditch efforts, no paper ticket parades, no "What the hell, let me try this anyway...", no change of plans, no memories of a legendary battle... game is over. Another meh game won (or lost) by a single die roll, regardless if it was a bad strategy that put you in Routing or if it was exactly what you were trying to accomplish the mission and your loses were calculated (thus acceptable.)
Since my primary concern is not to have another way to end the game but to have something to represent squad moral, I'd be more then happy to have routing replaced by some other mechanic for squad moral.This concept of 'Squad Morale' is a subjective matter. You are 'pretending' that everyone panics and runs like a head-less chickens (definition of routing), yet you can't 'pretend' that your seasoned veterans are wiling to do their best (or even die) for their cause. In a competitive environment, Players will quit after 30% losses... and those who don't quite (even at 50%) are always happy with the result of the game... be it good, bad or (most likely) horrible. After all, it was their decision.
That said, it seems to me that you are looking for 'realism'. You could simulate it this 'lost cause' feeling. You could argue that Routing should be something like "You reach 25% looses, then you roll a Panic Test for every Fighter." This would accurately represent 'morale' at an individual level. I don't think it would work because the mechanic is time consuming; try rolling 8 to 15 Ld Tests EVERY Turn. Anyway, those Fighters that fail are 'forced' to run away; either they 'vanish' (as it happens with Routing... obviously you are NOT concerned at all about how unrealistic this is) or the Fighter could physically suffer
Panic and run away (get ready for the opponent to start picking Panic Fighters and killing them) and those that do not fail, stay as normal (but they are at a tactical disadvantage with fewer numbers.) You could create a rule that if the Leader 'flees' everyone else it at a disadvantage (more likely to flee) for this Test, but it is... convoluted. The more you look at how Routing operates, you see how broken it is.
The only thing I can tell you... Play with Tactical Retreat. Allow people to stay if they want... you will be surprised. The people who tend to 'quit' will continue to do so, and those who 'wait until they fail a Routing' would discover it is better to make the decision. Nobody will miss it and everyone will be happier and pleased. You see the disappearance of
tactics (like camping in a roof-top while using powerful long range weapons to pick weak units like Workers or Grots just to reach Routing) and you will see people playing their Squads more freely and making decisions based on what they
think is proper, measuring consequences of their actions. You will also notice that Scenario Objectives become the REAL reason to play. Players will stop trying to reach victory by Forced Routing, instead they would either try to complete the mission or hurt the opponent so bad that they flee. All other people who 'opposed' the change accepted this challenge... everyone of them saw (first hand) that the change was good.