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I've heard of that happening, so it's not just a scare tactic, it has been known to happen. It seems unfair, as people doing the same work should get the same pay. But companies can do it, and remote workers are always free to quit and find something better. Chances are they won't, so they stick around and absorb the pay cut.
Why wouldn’t they do this? Companies don’t just want to pay VHCOL if employee doesn’t live there
I've never had a pay cut, but I did go through a period when a bunch of my colleagues got location-based COL increases and I didn't.
Pro
Lots of companies did this several years ago shortly after Covid. What really matters is how much out of line with your current market vs where you are coded out of. If significant I’ve heard of companies reducing pay but if it’s just slightly out of line or high they will likely reduce raises in the next few years to better align you with the market that you live.
To be honest: If you were to move to a HCOL area, you would want or expect an adjustment upwards.
So employees shouldn't be surprised when a company comes back to their employees who moved to LCOL areas and ask them to scale downward.
It sucks, but it unfortunately works both ways.