Fair warning: I'm ex-military, so the abysmally inaccurate promotion system in X-Com is probably more of a peeve of mine than it needs to be.
Additional caveat: I have no idea how promotion is going to work in Xenonauts. I've never gotten anybody past SGT in the game. That said, I have been running a crew of like 9 SGTs and 3 CPLs.
In X-Com, promotion runs as follows: Rookie, Squaddie, Sergeant, Captain, Colonel. You can find yourself with a team of 10 Captains running around.
I think this is an unnecessary and easily remedied mechanic. As a general rule, enlisted men don't spontaneously become officers, and whether you're upper enlisted or low-ranking commissioned officer, you're generally going to be in a command role, directing your men, and such, not just humping along a shotgun right next to Pvt. Humptyscrunch, with no difference between the two of you but some TUs and a better Aim statistic.
In the real-life military, your grunts are going to be relatively lower-enlisted, immediately supervised by sergeants (occasionally corporals), who are in turn supervised by higher-ranked sergeants (Staff SGT or SGT 1st Class) and by lower commissioned officers (usually finding Captains or maybe the occasional 2nd LT in these kinds of roles. The highest enlisted and mid-range officer levels are really going to be administrators, responsible for a command, and anywhere from a few score to hundreds of people.
Now, for many years, until some time in the mid-80s (making this perfect for Xenonauts) -- the US Army had a couple of different career paths available to enlisted soldiers. They could go through the -->
Non-commissioned officer path: corporal, sergeant, staff sergeant, etc.; or (I believe if they were less promising, and didn't play as well with others) they could become -->
Specialists, instead: specialist 4 was an E4, just like a corporal, spec 5 was the same grade as a sergeant, spec 6 as staff sergeants, and so on. Specialists weren't necessarily expected to take leadership roles, they just needed to focus on being good at their MOS.
My suggestion is to differentiate your soldiers in this manner. Keep your grunts as grunts. Just promote them through the grunt ranks, so they become ever-more-awesome grunts.
Allow the player to designate some soldiers as leaders. One officer initially (the number perhaps varying as the total Xenonaut numbers increase) and a few billets for non-commissioned officers. These leadership positions I think would probably be pretty easily implemented as a morale-boosting presence to help try and combat the panic which can occur in tense situations in the game.
(And of course the possibility for an officer to be able to call in air-strikes or something quickly leaps to mind, but while the coding for that sort of thing may be prohibitive, implementing a leadership positions primarily as a morale-impacting mechanic certainly shouldn't be too difficult.)
The trade-off for having these types of characters of course could be that the leveling mechanic for these leadership folks would probably take significantly longer. I do think that dividing promotion tracks like this would also allow for a more regular rate of promotion (if you go Private, Spec 4, Spec 5 all the way through Spec 9, that's 7 ranks...and by the time you get some guys to Spec 9, you'll possibly have some slots open to make a few battlefield commissions. You could end the game with some truly terrifying officers leading squads around the world.)
People like seeing their mans level up. I think my suggestion would lead to some much-needed carrot in a game that's full of stick, (just in terms of providing promotions more frequently) and also doing away with a silly promotion mechanic which, while fine for X-Com, seems like it would be a bit out of place in a more serious endeavor such as Xenonauts.
What do you think?