According to the rules, the XP to be given to each player is the sum of the Monsters' XP, divided by the number of players. See the Dungeon Master's Guide page 120, under Earning XP:
Characters earn XP for every encounter they overcome. The XP reward for completing an encounter is the sum of the XP values for each monster, NPC, trap or hazard that makes up the encounter. You noted or assigned this number when you built the encounter, to judge its difficulty against your players. [...] Divide the XP total for the encounter by the number of players present to help overcome it, and that's how many XP each character gets.
That said, as long as everyone agrees on how to do it, then there is no wrong way to hand out XP. In fact, having players level up as a quest reward might promote a less "kill everything that moves"-style of play, if that is what you're looking for.
This might not be as much of a problem as you think. Why? Because munchkining, minmaxing, optimising, whatever you want to call it - is severely limited in 5e. The main techniques for it in previous editions of D&D involved things which are significantly less effective in 5e.
Multiclassing has been crippled by the all-important ability score increases/feats being a feature of class advancement instead of character advancement. There is currently a limited selection of classes and feats, so taking advantage of obscure classes, prestige classes, variants, and feats is no longer an option.
D&D 5e also introduces the concept of 'bounded accuracy'; see here for a good explanation of this idea. There is only so much it's possible to do to optimise a character in 5e, and the gap between an optimised character and an unoptimised one will be fairly small.
Your players will still spend time optimising their characters, of course, but that's not necessarily a bad thing. If a player hasn't spent any time on their character, that's a sign that they may not be particularly invested in them.
As far as creating playable characters with reasonable backstories goes, this is a great opportunity to use their munchkin-ness against them. They're going to want to choose a certain background for the proficiencies it offers - make them justify it. You want to be a Sailor who became an adventuring Wizard with a single level in Cleric? That's fine, but you'd better have a damn good explanation for it.
And using their munchkin-ness against them is a great technique to make them roleplay, too. When they create their characters, they'll choose a bond, a flaw, an ideal, and a trait. Let them know that you're happy to hand out inspiration (which is incredibly powerful - advantage to a roll of your choice? Sweet damn, who wouldn't want that?) if they play their character. Positive incentives have been used to motivate people to do what the motivator wants for years, because it works.
Quick bit of backup for all this - I'm DM-ing 5e for a group consisting of 3 munchkins and 2 roleplayers. One of the munchkins is so bad he walked into a core-only 3.5 game and insisted on creating an Artificer. And you know what? He's playing a single-classed Fighter, roleplaying as much or more than the roleplayers, and (as far as I can tell) having a great time doing it. (Oh, and he also has by far the most extensive backstory, he really got into it when he was choosing his background options.)
Best Answer
If they aren't scared of death, make them scared of negative modifiers.
DMG pg. 272, Lingering Injuries
Nothing is stopping you from having a monster tear a guys arm off in battle with a particularly vicious strike. The kind of magics needed to reconstruct a limb are a lot harder to come by.
Other things you can run into are things that can cause real damage to magical weapons and gear. Things that erase spells from a wizards mind (temporarily, you want to scare them not give them a stroke). Things that steal all the rogues money.
Think outside the box. Death isn't always terrifying, especially with the ease of reviving people. Being a burden to the team because you're short an arm and leg would be. Not being able to use Zeus' Lightning Sword of Olympus because it's two handed and you don't have a right hand would be enough to terrify your Champion until he's rolled into a ball crying.
Think about critical wounds. Take an eye. Make somebody deaf for a weak. Cripple the most mobile member of the team.
See how they react. Watch how fights become a more cautious affair, as traps no longer deal just damage, but take things from your players permanently.