At one of my companies we pay SF/BayArea market salaries and the way we hire (pretty much everyone, not just programmers) is: 1) short (10-20 min) phone interview, 2) if it seems like a good candidate we invite them for a paid test run, usually 2 weeks of actual real work, either remotely or in person, 3) if it works out, they get hired.

Pretty much nothing will accurately predict how well someone is going to do on the job. The best approximation is for them actually doing the job.

Also, the two most important things that we look/test for throughout the process are: 1) how good of a fit the candidate is for the team/company (do they get along with their team?) and 2) how enthusiastic they are about working with us (did they do some research on us ahead of time? are they excited about the opportunity?)