I would negotiate that with them because maybe Bob doesn't care but Alice does or vice versa. Now if I was either bob or Alice. Yes I'm calculating fuel, maintenance and meal cost into pay.

Offering to finance all or part of the tickets is a good option IMO. My company offers the German "job ticket" or whatever it was called again to a percentage.

If it were me I'd just get an average commute, provide a stipend of gas or transport costs within your city, e.g. 15km distance, or a monthly pass for local area transit. If I'd want to relocate someone I may offer a signing bonus to help with moving and settling costs.

It's a reasonable expectation that if your job is at a workplace in Toronto, being within city limits is not an unreasonable expectation.

The compensation could be capped at 15 miles or 30 minutes or something, which would encourage people to live closer to work.

This is idiotic. No one compensates employees for their commute.

So many ridiculous variables that would need to be factored in and so much room for abuse. Are they going to be compensated based on distance or time?