I'm not going to build up here and just go with what I think is the biggest concern. When a company adjusts pay based on a remote employee's location, what they explicitly saying is that "Your compensation is not based solely on the value you bring to the company." Think about that for a second. Two employees who generate the same value for the company, are paid different rates, simple because of where they are.
"But wait Sam! They just want employees to have the same quality of life!" Well...
You can't enforce an equal quality of life by scaling pay, because cost of living is a function of quality of life. Places like San Francisco and Miami are more expensive because demand is higher. Demand is higher because people think they are better places to live.
Does anyone honestly think that a studio apartment in Palo Alto is the same quality of life as a studio apartment in Sheldon, Iowa? There are so many factors at work here they go beyond living space (cost of rent is one of the most popular inputs to cost of living pay calculators). That apartment in the bay area has great weather, it's above a fun little Thai fusion dive bar, and within walking (or public transport) distance to some of the worlds largest tech conferences and meetups. Meanwhile, an employee in Iowa has to drive an hour for a P.F. Chang's and has to wake up 5am to shovel his driveway 5 months out of the year to get his kid to school. That's why he gets four bedrooms and a boat (which again, he can only use half of the year).
Diversity and inclusion are one of the top (if not THE top) priorities for many tech companies and rightly so. It goes without saying that none of these companies would ever dream of scaling pay based on race. But it's well understood that zip code is a proxy for race. It wouldn't be hard for a civil rights attorney to overlay a map of racial distribution with a map of cost of living and see what lines up. This represents a HUGE HR risk.
Does any company really want to try explain to an employee that he makes less than his peer who happened to inherit a home in an affluent city from a grandparent that the pay difference isn't a consequence of privilege?
Humans are smart. Post office boxes are real things. Many people live full time out of campers, or hop from AirBnB to AirBnB. Now it's HR responsibility to check up on employees constantly, "I see you have a lot of photos from Utah on your facebook... do you really live in Soma?"
The entire point of remote work, or remote first companies (like GitLab, who scale pay based on cost of living.) is that where you are doesn't matter... Except it suddenly does when it can save the company some money. Note that many of these Silicon valley startups and tech giants have founders and C-level executives who just happen to live in these high cost of living places.
It's been said by some that employees who are focused solely on the monetary compensation aren't a good fit, and they should care about the work they do and the people they work with and the company culture they're a part of.
All true, but that doesn't mean employees that like their job, colleagues, and company deserve to get paid any less than employees that are just in it for the money.
Consider two engineers at the same level in an organization, one a single male who lives in a small apartment in the center of a bustling metropolis. One, a recently divorced mother of two who finds her self unable to afford her downtown condo. She needs to move to a more affordable place and not just for housing, there's things like childcare to consider as well. She finds a small town with great schools and affordable housing, and what is the outcome of a cost of living "Fair to all employees" system? She gets a pay-cut on top of the all the new hardships she has to deal with.
The whole reason people move to lower cost of living areas is to make their money go farther, and this isn't always a personal choice, sometimes it's out of necessity.
It's very easy to say "Rent costs twice as much in city B, so employees in City B make twice as much" and think that's even. But so many parts of a standard compensation package are based on this base salary. Bonus calculations are often a percentage of base salary. 401k or IRA contributions are a percentage of base salary. Raises (which compound annually) are almost always done by percentage.