Seems fair except maybe for the part where compensation takes living expenses into consideration.
If an employee decides to live somewhere cheap and it works out well, then they should see the benefits of this decision. If it means the employer must make certain sacrifices to accomodate this (telecommuting issues), then the employee should bear some extra cost to cover that, but it shouldn't be related to his living expenses.
If an employee chooses to live in Manhattan so they feel plugged in or w/e then they're responsible for covering their exorbitant rent.
Only if the employer demands they live somewhere specific should living expenses be taken into consideration.
Note that this is just the bonus. The salary is not dependent on local living expenses, but on average income for similar work in the area (plus a little bit).
I see no more insanity in basing a bonus on cost of living than in basing a salary on market rate. They're both outside the direct control of either party and lack any fundamental relationship to the properties of the particular company.
If an employee decides to live somewhere cheap and it works out well, then they should see the benefits of this decision. If it means the employer must make certain sacrifices to accomodate this (telecommuting issues), then the employee should bear some extra cost to cover that, but it shouldn't be related to his living expenses.
If an employee chooses to live in Manhattan so they feel plugged in or w/e then they're responsible for covering their exorbitant rent.
Only if the employer demands they live somewhere specific should living expenses be taken into consideration.