Executing enemies goes like this:
Scant Mercy: 1 Dread
No Mercy: 2 Dread -1 Morale
Merciless: 2 Dread -2 Morale
Secret Blood Lover
and Blood Lover (actually not the worst Vices)
and if you execute 1000 enemies you get the Vice Butcher which gives +3 Dread.

But those Vices comes almost always after you have executed enemy troops. So you would need to do it at least four times before you up to the good Vices... By then your troops might not want to fight on any more.

While you are right troops get better armour the gameengine can't destinguish that, it can only see the Armourlevel go up. And the higher number in the Armour department means faster fatigue, not matter it be upgrades or inherent.