Level Caps: Lots of strong feelings about these among old-schoolers. But the good thing about level caps is that they're easy to ignore, for GMs who don't like them. The key is to not pile so many abilities onto a race that removing the cap makes the race seem too powerful.
As described here, you can find the spells that most resemble the desired racial ability and set the level cap as 12 - (highest spell level +1/extra ability).
XP Surcharges: As an option to a level cap, you can levy some kind of experience penalty: make non-human races work harder to advance. Here are some ways to do this, all of which use the power level cost described for level caps:
- overage: character must earn +10% experience per power level. (I don't like this one, but there it is, for those who want it.)
- mortgage: 1st level nonhuman is treated as one or more levels higher, based on power level. Thus, a straight-up whitebox S&W dwarf with a maximum level of 6 would instead be treated as level + 6, needing 128,000 XP to reach 2nd level. It's a little less steep under my houserules: level +4, or 32,000 XP to reach 2nd level.
- fees: treat monsters slain as having one less hit die per power level, when calculating XP earned. Also deduct a flat 100 gp/power level from the value of treasyre earned on each adventure or excursion. A kludge, but simple to use.
Two-Ability Races: I've sort of been toying with this idea. I don't think characters should have more than one scaled ability, except for the special situation of mixed classes. I suppose if you really wanted to, you could dock the character with an increasing XP surcharge, but that seems a little complicated.
What I'm leaning towards is one or more physical oddities, each of which has both positive and negative aspects, and an optional general ability linked to one of the physical aspects: for the stripped-down dwarf I've been thinking of, the direction sense/depth sense could be bundled together as "earth sense" and linked to a Dense Body physical trait. I kind of prefer giving nonhumans one drawback, but maybe this could be optional: the default dwarf/elf/other race would use Halted Advancement, but get a bonus on the roll equal to the power level of the drawback. Dwarves that turn to stone on a failed Con save when exposed to the dawn gets a +6 bonus.