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Most of us don't have careers like that, surely you realize this? We live where we can afford, our individual rights don't really matter.
You actually do raise a good point that this would disincentivize walking, biking, and public transportation. The boss would demand the fastest possible commute i.e. driving. Not good!
Paying people a standard rate based on the optimal estimated commute would address that issue, but that's not exactly fair to people that can't drive and that still leaves motorists being underpaid for traffic jams and the like. It's better than just forcing workers to bare 100% of the cost and be uncompensated for their time.
Also the Borg made a lot of good points.
Something you might want to look into is the de minimis benefits in the Philippines. Employers can literally give their employees something like a rice subsidy tax free. It's a poor country so their benefits are different from what we'd need in the west. And the de minimis are supposed to be really tiny benefits.
In Estonia, we have something called a personal car usage compensation. There's a monthly limit in euros compensated per employee and a limit amount per kilometer as well. This year it was raised to max 550 EUR per month and 0.50 EUR per kilometer tax free. So you drive your personal car around for work for 100 kilometers, you get up to 50 euros (depends on employer). Significantly more than the fuel costs, but that's how it's supposed to be - cars also depreciate and need maintenance.
So what do I propose? A tax-free commute benefit. Limit the tax-free status to say 10 miles each way worth of benefit and (this is crucial) make it have rapidly diminishing returns. First mile is 10 dollars, second mile is 5 dollars, etc. Stop reducing it once you hit a dollar per mile. Now your commute time is worth money, but it's worth more money if you live closer to work. Round up to the nearest whole mile too. Live 100 yards from work? Employer can pay you for a mile worth of commute tax-free. This is now the most efficient minute of your day with regards to earnings.
This structure incentivizes employers to pay it out as a benefit because it's tax free so it's more efficient than paying the same amount as wages plus adding it on top of your existing compensation package makes you more attractive as an employer. It doesn't incentivize the employees to increase their commute length on purpose because the extra amount drops off so quickly plus it doesn't incentivize employers to set limits on where they hire from or how the employees compute.
Drawback is that it doesn't do a whole lot to address the density (lack of density) issue, but there are other solutions for that. Maybe sometimes two problems need two or even three or more solutions, rather than one single unifying solution that causes more problems than it solves.
Okay, but here in the US we have long commutes so I'm concerned about addressing a different problem. There are people at my factory with 40-50 minute commutes at highway speeds. One way. We don't even get paid that much!
This all happened without any incentives for for anyone to increase commute length. It's just a consequence of property markets.
You're concerned about different things than I am.
That's because you have moronic zoning laws. The fix is to start by replacing those, not punishing people.