[mikeash]

The problem with this is that it sends unpleasant signals to the other developers.

If the SV developer's value to the company is the same but they get paid more, then you're saying to all the other developers who work there, "You produce enough value that we could pay you this much, but we don't want to. We prefer to pay you less, simply because we can."

This is, of course, their right, but that sort of thing tends to make people unhappy, and unhappy employees tend to be unproductive, and then gone.

[rspeer]

I'm asking something simpler than that: why would the company pay a Silicon Valley salary at all?

Several people here are taking it as a given that a technology company has to hire some quota of people from the Valley.