Quote Originally Posted by Mount Suribachi
One is reminded of the warnings of Machiavelli regarding the use of mercenaries

Playing as Byzantilium last night I was forced to rely on mercs to bulk out my army in order to hold off the Turks. And was reminded once again of just how much mercs suck.

Fresh, full strength Saracen Infantry and Italian Infantry in ordered ranks fleeing when charged head on by Horse Archers!!!

GAH!

Anyway, I should've remembered how easily mercs flee from the battlefield. I never seen it in writing, but I assume they receive some kind of morale penalty? Only explanation for their consistent cowardice.
Playing on Expert, I've never noted a mercenary morale penalty compared to an equivalent unit of my own construction. In fact, there have been several battles in my campaigns (one bridge battle invoving a single merc who gnawed thru the enemy was particularly memorable) where mercenary units won the day for me.

The drawbacks to mercenaries that I see are several:
1) they can't be merged, so their valor gains mean less and less as the unit is attritted.
2) they can't receive titles, so any acumen owned is not useful to you.
3) their command stars are insecure, as every casualty in the merc general's unit is irreparable (see point 1 above).
4) their maintenance cost is double a regular unit's - large numbers of mercs drain the treasury at an alarming rate.

There are probably other points to be made on this issue - I'm just not remembering them now.
Given that most players are aware of their drawbacks, I suspect that mercs get used more recklessly than regular troops. That puts them in more precarious positions, and leads to more frequent routs - which may be what you're seeing. But at the same valor, in the same positions, I see no combat differences between merc and regular units.