What are good models for an Honors Program for CS students?
First, I will describe my university's program, and then I will give my thoughts on its efficacy as a participant of this program.

My university makes a distinction between the general "University Honors" program and specific "Honors in the Major" programs. Students are invited to the honors program based on particular GPA requirements, which then need to be maintained to remain in the program. You can complete University Honors without completing Honors in the Major (although the latter fulfills the second criterion for the former, which I will elaborate on below), but not the other way around. Honors in the Major has specific requirements for each particular major (although almost always means writing a thesis on some form of undergraduate research), whereas University Honors is standardized.

The criteria for fulfilling University Honors are two-fold: First, the student must fulfill 12 semester hours of honors courses. This can be done in several ways: taking specific honors courses/seminars (which are intended to provide a broad, liberal arts education), courses in their major which have been designated as honors, or as you describe, contracting a course to count for honors credit. This entails approaching a professor and agreeing on an honors project to complete by the end of the semester.

The other criteria that must be filled is what is called "experiential learning". This involves getting "12 semester hours" via doing things like participating in undergraduate research, getting internships, being a TA, etc. It's a fairly extensive list, with each particular experience counting for a different amount according to the duration/time commitment involved.

In my experience, I think the latter portion of this program is much more effective than the first. It incentivizes students to apply themselves beyond immediate academic rewards, a trap that I have noticed many honors students fall into -- obsessing over their GPA at the expense of everything else. The first is relatively trivial -- the requirement can be fulfilled during a single semester, and often is -- and honors courses are not excessively difficult when compared to their regular counterparts at my university.

I think the purpose of an honors program should be aligned more towards the second criterion if the intention is to create exceptional students. If the focus is mostly on courses, you risk trivializing the program (in my case) or burning out your students through excessive work (in your case). I think putting the emphasis on ensuring students apply themselves, rather than just taking more difficult courses, is a better model for developing students personally and professionally.