If this idea came to practise, mods would be buried in reports. Since you can go to bounty section or bitcoin discussion and just click away, pretty much, every other post and basically get enough merit for a few ranks. 
Also, this would allow farming of alts again, same method. Sooo.... Nope, not a good idea.
I'm never against people getting rewarded for their efforts, but reporting is something which is easily abused if there's gain associated with it, and it seems like Xandry may have been rewarding per report which is even worse due to the sheer amount that could be reported for merit. Maybe there is a way to reward those who report, but merit is not one of them, and anything else that I can think of would quickly lead to abuse at least the way it is users are reporting for the right reasons. Also, this would allow farming of alts again, same method. Sooo.... Nope, not a good idea.