When I read the headline, I thought your argument was of not increasing pay based on location, but as I read, I agree that it says more that someone is earning less than someone else based on where they live. A company should set salaries based on the most expensive cost of living out of their employee pool.
I found one of these companies who do this and the "places you live" were highly generic. For instance, they had a "North America" bucket, which earned the most based on cost of living. I live in a suburban town outside Toronto, Canada. If someone lived in Downtown Toronto they would earn the same as me, even though the cost of living is significantly lower not 40 km/25 miles east; not even taking into account the people who live in New York City or Miami or even Silicon Valley.
It's a slippery slope.
Basecamp pays San Francisco rates, and has no employees in that area.
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