Could you give me an example on the mechanics you envision?
While I am not Krall, I, too, would like a more organic mechanic in both cases, where limiting the size of your demesne or appointing king-level vassals/viceroys is a natural, emergent feature of ordinary mechanics rather than something that has to be imposed.
My system would be centered on the notion that it's easier to manage a single county than a duchy, and easier to manage a duchy than a kingdom, and, of course, easier a kingdom than an empire. This would be abstracted by a "management efficiency" figure, one dealing with the personal demesne, one dealing with the vassals; in both cases you would start at 100% efficiency with a single county or a single vassal, with no other laws, and experience a decline in efficiency as you vassalized or took control of more territory, down to 0%. Both efficiencies would affect what you get from the relevant groups--100% demesne efficiency means that you get the full allotment of taxes from a controlled castle, whereas 50% means you only get half as much, and the garrison and levy are also penalized. Vassal efficiency would behave similarly, but would also reduce vassal relations as it dropped, making it harder to keep them happy and more likely for them to join factions and revolt. I would also ensure that vassals rebellions are a very serious threat, as they should be. Both efficiencies could, of course, be increased over the course of the game; being at a higher tier would increase them, as would certain technologies in the cultural tree. You could also achieve an efficiency of
more than 100% if you kept your realm deliberately smaller than its "natural" limits, at least partially counteracting the possible advantages of having more land.
As a result, the player would have a significant incentive to maintain a small, easy to manage realm rather than a sprawling empire stretching across half the planet, with the latter losing much of its theoretical strength to corruption and intrigue relative to the stability and good governance of the former. Besides a global figure, you might add a local figure that further modifies the efficiency based on the distance to your capital--all else being equal, a vassal or barony located far away (for example in Palestine while you are in England) would be far harder to manage than one nearby, and would tend to be poorly controlled and restless.