Upgrading experienced units is kind of a Stardock staple. It is obviously something they wanted to do here, the system either is just not working or we don't know how to make it work.
The idea of having the units take time/resources to "upgrade" is also rather obvious for anyone who has played GalCiv2. You could also make them come back to a city in order to upgrade to get away from the whole "upgrade in the field" thing.
What I would like to reward is people who manage to keep units alive in battle, otherwise it is just a matter of who can create the most units and throw them against an enemy and experience really has little meaning.