I think its perfectly reasonable to do this. As someone who would love to be a remote worker as long as my total comp package is acceptable to me, I don't really give a crap if they are paying someone in SF 25% more.
I would more look at compared to local jobs in my area.
For example, my job, my years of experience, in my area (Midwest USA) is roughly $175K on a W2 salary. If that same position is 275k in NYC, but I'm offered it at $175k, sign me up!
I'm sure they would pay me the $275k if I moved to New York...but not living in New York is worth $100k a year to me.
While true, you're going to miss out on some percentage of applicants that are willing to interview a bit more to get a non-adjusted rate. This might be fine if you have a good hiring funnel, but if you're a scrappy startup, this could be challenging.
Also, you will likely end up with a slightly higher churn rate (since smart employees will continue interviewing to see if they can get a higher salary from a place that doesn't adjust based on cost of living).
It's a perfectly reasonable approach to take as an employer, and if you can make it work, all the more power to you.
I would more look at compared to local jobs in my area.
For example, my job, my years of experience, in my area (Midwest USA) is roughly $175K on a W2 salary. If that same position is 275k in NYC, but I'm offered it at $175k, sign me up!
I'm sure they would pay me the $275k if I moved to New York...but not living in New York is worth $100k a year to me.