1. How much do you value commuting by bike 15 minutes, instead of taking the tube for one hour? 2. How much do you value walking 15 minutes to the nearest forest, instead of being surrounded by highways, buildings and artificial parks? 3. How much do you value having a proper lunch break, instead of taking a sandwich in front of the computer? 4. How much do you value your male CEO regularly staying home with sick kids, instead of women getting that task by default? 5. How much do you value not having to see beggars and homeless people everywhere you look? 6. How much do you value living in a 9-5 culture, instead of a "constant death march" one? 7. How much do you value pedestrians being given priority, instead of a honk? 8. How much do you value breathing in fresh air, instead of getting smog alerts every week?
I could go on and on.
Once you put a value on all of the above, location-based pay actually makes sense. Maybe not based on your exact zip code, but when moving from a large city to a smaller city, or from one country to another, you get certain things "for free" that you might value more than total compensation.