The business owner in me says start low and raise your rates until you get the talent you're happy with. I would offer uniform base pay as typically lower costs of living come with other tradeoffs. If someone wants to make that work let them (but make it clear that it's their responsibility to make sure the electricity and internet are flowing when it's time to get to work)
> How is payroll and benefits handled?
I would suggest doing it like the oil companies, you setup a company and banking in the caribbean somewhere, and then pay folks salary into bank accounts there for them as well. Make it their problem to move/repatriate money. Don't withhold any taxes and factor in a fixed rate for any bennies you want to offer (unless legally prohibited in specific jurisdictions of course, IANAL). Let them optimize the money. I know this is how big oil companies pay most of their workers who are on rigs in various locales in the world (and not just offshore!).
The short version is it's mostly fixed to Chicago rates. We do have a fixed bump for folks in SF/NYC. It's an imperfect but simple way to handle this.
Payroll and benefits are solved using a service like TriNet.
A remote worker's "market" is the world, so you are competing with other remote companies, not other local-to-me companies.
We don't downsize your salary. But sometimes we can't upsize it. There's a few companies we can't compete with on salary like Google. Most of those employers seem to be in the bay area. Sometimes we lose out. A lot of times we don't. The world isn't quite so black and white here.
Jill can do better. Hopefully other remote companies seek out the Jills and pay them what they are worth.
My 2c: You don't have to accept the job offer if you don't like the salary. Hiring is a 2-way street, if the employee and employer aren't both happy with the salary package - then bail. Plain and simple.
Or pay rural/developing world employees more than they demand?
IMO, both are at least a little bit irresponsible.