There has been a steady increase in college enrollment rates in recent decades, which has not been accompanied by a corresponding increase in graduation rates. If this discrepancy is partly due to insufficient effort exerted by students, policies that aim at rewarding effort explicitly may succeed in increasing graduation rates. A unique and rich administrative dataset was used to analyze the impact of a new grading policy at Benedict College, a private historically Black college, on the college's performance and retention rates. The introduction of this policy was followed by an increase in students' cumulative grade point averages, but also by decreases in retention rates and predictive power of cognitive ability measures.