Just have to be careful that it doesn't get too "industrialized" with the reporting .
There is the risk with any incentive that the best intentions get used by those with malignant purpose.
For instance I can report an entire thread full of account farmers with a single report - or I can report each user individually to get a badge.
LOL, you even have a problem with people getting a freaking forum badge which has no monetary value rather being only an incentive to encourage non-moderators to do more reporting?
This is only to encourage more people to do some reports and I think having a badge should become common after a few days.
I can also report a whole topic but sometimes there are some threads filled with spam but the thread itself is not the problem so that we could report and get rid of it.
Both the badge idea and report counter idea are great IMHO, both of them could be encouraging.
Blah
I'm saving my merits for the first 6 people getting the badge. +1. though we need more designs.