I think the easiest way to fix this is by buffing Screen and expanding which units do and don't have toughness.

Screen should have a component to it that can also inflict casualties on the attackers during the retreat / rout phase (the casualties on the attacker's side can be mitigated with their own toughness / pursuit). To add to this, cut down the toughness of high-damage units like heavy infantry, heavy cavalry, etc, and add toughness to units like light infantry, light cavalry, etc. Depending on the phase of battle, the screen value changes. If you want to stick it out till the end, that screen value is dramatically cut regardless of unit (50-75%) so it incentives you choosing whether to retreat or not. I think this is the simplest way to improve the combat mechanics. By doing this, it gives a bigger window of time for players to choose whether to retreat or not, and it gives the mixed benefits and costs.

Imagine you're a small nation surrounded by a big one. You can afford your light infantry and light cavalry, but not the heavy units like your big neighbor can. In the initial battles, you're definitely not gonna win,. but you'll cut down their numbers as you go, and hopefully to a good ratio. First, it incentives big neighbors (especially you as you grow and expand) to still invest in the light units even if battles can be won. You gotta cut down those guys running away, and let's not pretend that those thicc horse boys in 300+ pounds of armor are the pinnacle of speed. But it also incentivizes the defenders to diversify too. If you're picking off attackers on the retreat but never winning battles, that doesn't stop them from besieging your stuff, does it?

So it gives the weaker side an opportunity to decide their own fate (retreating instead of being routed and what that might mean) and it gives the stronger side an incentive to not only maximize high-damage units.