There is nothing wrong with this, it is accepted and fair practice. HS faculty are collectively regarded as revenue generators and so they are all eligible for salary augmentation through HSPC. The University is now thinking of extending the concept to general campus faculty through a Negotiated Salary Program. In a memo detailing the proposal (link courtesy of UCLA Faculty Association), system-wide Vice Provost for Academic Personnel Susan Carlson outlines the motivation and some of the details of NSP.
NSP is intented to work pretty much like HSCP: faculty that generate external revenue would be able to negotiate some of that revenue back into a salary augmentation (typically paid, it would seem, as summer salary). Only funds that are not "state-appropriated" can be used for this purpose: "gifts and endowments, professional fees and fees in self-supporting programs, and [revenue from] contracts and grants" (the latter might run afoul of federal grant guidelines – we'll see).
Ostensibly the motivation for this is to address the notorious salary lag for CU faculty without resorting to "ad hoc state-funded off-scale salary increases in response to external offers" (fully two-thirds of all faculty now receive off-step salary) or to across-the-board increases in the salary scales. (The NSP program is not meant to supersede the University's recent commitment to a 3% salary increase or the 1.78% of payroll reserved for merits.) One aspect where NSP would differ from HSCP is that in the latter, as mentioned, all faculty are eligible, whereas in the former only small groups within a department, or perhaps only some departments within a school might be eligible, depending on the creation of "non-state-appropriated" revenue. As Carlson's memo points out,
A key factor driving the creation of the NSP is that on several UC campuses with Health Sciences schools, general campus faculty are considering appointments in the health sciences, often due to the flexibility of the salary benefits.People can make up their own minds about UCOP's proposal. But one thing to keep in mind, though, is that there is an argument for carrying this to its logical conclusions: revenue is revenue, and funds that are state appropriated contribute equally to the functioning of the University. Among such funds, of course, is student tuition, which the University is bent on increasing in leaps and bounds. These are "private" funds – just ask the students out of whose pockets the money is extracted. One would then logically conclude that faculty that generate the most enrollment would also be allowed to retain some of the funds thus generated and pay themselves summer salary according to NSP guidelines. Money is money. Pecunia non olet. The English department faculty teaching writing to four hundred freshmen, doesn't she deserve her summer salary, too?