You're probably right - I just killed a level 99 merc at level 74 with 70 gear. (I assume he was 99 because that's the level his gear drop was despite seeing the red skull where his number would be.) Most of my gear has been upgraded to the 10th engraving slot already with the exception of my poison daggers - the innate poison damage engraving is level dependent.

So I noticed that I got the same rewards (other than leveled gear) for the 99 as I do for the mercs at my level. I think this is an oversight. You should get, at the very least, an XP multiplier for higher tier mercs. All levels could benefit from this - reward the 99 misthioses (sp? misthii!) with more XP for mastery points and incentive the lower leveled folks to tackle the red skulled mercs. Win win. As it is now, it seems ACO wants to be an RPG but has absolutely no clue as to how to be a good one.