This concept makes sense, and has been used successfully in the state of Maryland. It would create a new pot of state money that would be used to reward public colleges that meet performance targets, such as increasing overall 4 year graduation rates, increasing minority graduation rates, and maintaining low tuition increases.
Pres. Obama has also proposed a similar system of funding incentives, which would replace the Perkins program after it expires. However, the US House has shown no interest in following up on that recommendation.