I think that's too subjective. We look at average local salaries as a way to see "what does the local market say this job is worth right now?" - basically deferring the range to what the market decides is fair.
"9. then all weighed by the cost of living in each location: this is important because it's fair. The fact that we're using cost of living instead of average wages is even more fair (i.e. Italy has low wages relative to the cost of living)."
The last sentence, regarding Italy, corresponds to the situation I described. So, if it is fair for profit sharing, then it also seems logical to treat it as fair for salaries as well.
