A log file with plain text passwords can be seen by some employees: maybe they are all honest, maybe not.
I guess that a generous amount of money could motivate the right employee to disclose famous (and not) people's passwords.
You mention the carrot, there are sticks too - blackmail, threats, physical violence.
I can imagine that in a not so distant future, people will think twice before joining Twitter, FB, etc.
It is not really heavy handed. It is what it should be.