OP is also correct in that the following is how HR at almost every large company thinks about comp:
1. Comp is usually not set by a Hiring Manager and is specifically based on "comparable" which is based on job type and location.
2. Job type and location is by far the easiest way to create a heuristic for pay rates because the data is public
It's basically impossible to individually value everyone's contribution consistently and without bias across hundreds or thousands of employees - plus I don't think people would want to actually be judged with any method that puts granular measurement on something as vague as "value"
So if you can come up with a better way to determine pay *at scale* other than the open market approach, I'm super interested.
The only way to do this in my mind is to never pass -- lets say -- 100 employees.
I would just like to add that I have found myself extremely happy working for a company of ~100 people (especially when compared with my previous company of ~30,000).
That's backwards, though. It's a social norm because it's the most workable solution. Firms that overpay salaries (defining overpay as paying far above the market rate in any given region) will not be able to afford as many employees / highest quality employees / as much marketing / as much downturn stability or runway / as much other investment as their competitors, so they will lose on average.
And this makes sense. The same forces that drive salaries up (competition from other employers willing to employ the same person) also drive it down. You can't only have upside.
Why the market rate in any given region? Why not just the market rate?
So salaries might go up in one region if people want to do business there, for the sole reason that there is competition amongst employers for the employees there. They'll go down (or stay the same) if there's competition amongst employers for employers.
How does your example raise salaries all over the world to the most expensive salaries, worded in a way that also explains how those expensive salaries came about?
Hell, I worked for a Canadian company that paid Canadian employees 30% less.
Only in an imaginary world of perfect information and labor liquidity, which is about as far from what we have (and could have) as can be.
Location-adjusted pay for remote US workers is indeed a social norm, proposed by some firms and accepted by enough of labor for it to work for them. It persists mostly because it exists and because there’s no organized effort to disrupt it.
Nonetheless, their are still many firms that don’t do that, many employees that don’t settle for it, and some firms that initially negotiate from it while accepting counteroffers that reject it.
Reducing an extremely complicated market to an oversimplified post hoc theory, just because it exists a certain way, is neither correct nor helpful to the issue at hand. It does nothing but shut down richer discussion and reinforce an incidental status quo.