I would rather a fatigue mechanic than an initiative penalty. Heavy armor doesn't necessarily make you move slower, but it will make you get fatigued quicker. In other words, each time the heavy armor character has a turn there is a penalty for initiative for the next turn. So as the battle wanes on, the heavy armor character becomes less and less effective.
I.e. battle initiative 20 to start. First round initiative down to 17, second round initiative to 14... third round initiative to 11... with a minimum initiative of say 50% of your initial initiative (10 in the above case). I'd even take it that once the initiative is less than half, there is no penalty anymore, i.e. in this case it would be initiative of 8 for the fourth round and the heavy armored character gets a few turns to act.
This can be done with any of the armors, say light armor the initiative penalty is 1 per round, medium 2 per round, heavy 3 per round...
I'm not sure if this mechanic sounds good, but in practice too complicated for the average player or just plain not fun, but I can see potential in bringing an alternative to combat. This mechanic can bring in abilities like endurance, giving the character less fatigue penalties... wash away fatigue, a reset of the characters fatigue to the maximum level again. Exhausted, curse an enemy unit to have more fatigue penalties. Weakness... shortness of breath, higher fatigue penalties.
Another thing about this mechanic it should be supported in the current engine. As I think I can mod this into LH.
