I think it's fantastic. The whole 120% thing is up to the individual: there have been times I've made it a 120%, and there are times when it's been just "take a friday off to work on other stuff". You end up getting less of your "job" done but my managers have always been supportive.
It's been great for sanity: some weeks/months feel just, like, meetings and chore work. It's great having that one day a week to work on a rockstar feature request in some fun project. It's also cool to work on your dream projects without the luck/physical move/whatever to get on the actual team. (you can effectively work on anything since no project is going to say no to free headcount)
It's also nice because it spreads your professional network in the directions you choose to spread it, rather than the more organic spread that your normal job entails (assuming luck and available are big drivers of where and which projects you "end up" working, rather than 100% your choice). So, maybe I don't work on project X today, but I can 20% on it and build up those connections, and later in my career I have a much better shot getting on the project. That agency is a nice feeling.
So, as far as the employee happiness goes, I think it's fantastic.