At first glance, Sumner seem to be saying: Let's punish those who are successful and reward those who are not. I think what Sumner really means by "penalties" is the consequences that come with not being successful (e.g. poor living conditions). Similarly, when he discusses giving the "rewards" to the less successful, he means that we should share the benefits of success (e.g. money) with those who may not have had the opportunities to succeed like their counterparts so that they may live better, healthier lives. For example, Carnegie had libraries built for the public so that they could access books for knowledge and entertainment, whereas they may never have had access to readily available, free books before.