My criterion is to choose work that is "hypercanonical," in other words, not just works that are included on many standard reading lists, but work that lives on in the work of other writers, or that is famous on a world-wide scale. Works you should be embarrassed not to have read before the first day of Graduate School. If you have read these works in your undergraduate program, that is fine: then you can spend some time reading more in a particular field. This is kind of a bare minimum so please don't confuse it with an MA reading list. It is also not a list of books / authors I admire or love, though I do love and/or many of these texts.
Saint John of the Cross
Calderón (Vida es sueño)
El burlador de Sevilla
A few sonnets by Garcilaso, Lope, Quevedo, Góngora
One romantic play from Spain, like Don Juan Tenorio, and one realist novel by Galdós.
Neruda: Residencia en la tierra
Vallejo: poems from Trilce and Poemas humanos.
Lorca: Bodas de sangre / Casa de Bernarda Alba.
Some poetry by Lorca and Machado.
Borges. Otras inquisiciones.
Rulfo. Pedro Páramo
GGM: 100 años de soledad
That's the start. After that, I would read some boom novels, some more contemporary Spanish American and Spanish novels, and some Crónicas. The problem is that if the list gets to long, it becomes self-defeating. The idea is, that if you don't have course work in all fields as an undergraduate, you should at least have some inkling of what is there. Especially, since so many students want to do something in the contemporary period, it is helpful to have some grounding in medieval and early modern.
KU requires only four literature courses for the Spanish major. The first is introductory, so it doesn't really give a student a full idea of a canon. The last is highly specialized, so it doesn't provide wide coverage. The other two are confined to a single period and nation, so they don't provide coverage either. Students don't read books not required for school, so really the major does not prepare for graduate school. Most students, in fact, do not go to Graduate School in Spanish after the major, so I don't think that should be the only aim of the major.