That doesn't make sense though, 'the market' isn't wherever they decide to move to, it's 'remote'. And yes, that will be less than SF rates, but it may well be more than non-remote rates wherever the employee happens to live.

It's not paying less that's silly, it's paying an artificial amount less. The only way in which location should come into it is restricting candidates to those located in (or willing to work to) a particular time zone(s).