Player/Party deaths deducts from the morale (of the player/party that suffered the death) and the reverse happens when you kill an enemy.
Although this hinges on actually killing something.
If you were to add damage... then clerics would get morale from healing (at a reduced rate - since they can heal for a lot, and that's all they will usually be doing in a group pvp fight) and everyone else from damage given/taken, thiefs from robbing (dont think that would happen much in pvp though).
Morale eventually drains/raises until it is neutral again (tick regen/degen?).
What about barbarians... how would it work for them?
Anyway, im still slightly sick, so I am going now before I develop a head ache. I do not like to think at the best of times

Addition:
Morale could be linked/replace with death sickness.