Because if you kill anyone who might otherwise defect to you, the defections will only ever flow one way. And if you kill all your prisoners, the enemy will fight to the death because they have nothing to lose. This is a 'hearts and minds' campaign as much as a military one, and Smodur's policy hands that advantage entirely to the Dominion. This is a cultural thing first and foremost. Blame the Charr, not him.