The going rate for WFH employees is less than the going rate for in-office employees. Therefore, a price cut is in order, just like any other product or service that becomes less valuable.
The way I see it, if they're basing a pay cut on the pay they could offer someone else, they should just fire the employee and hire someone else for that lower rate. If they're not willing to fire an employee, then that employee is providing something beyond what a new hire could, and that makes them worth more than "any other work-from-home employee in the market".