It is about supply and demand, this is just an attempt to fine tune it to the individual level rather than regional or market level.

It's fucked, basically an attempt to reduce purchasing power of everyone to low income levels so employers can offer large salaries without needing to actually allow wealth to transfer because of them (assuming the entire economy adopted this and had perfect information to set the price fully proportional to income).

But it is all about supply and demand but attempting to pull information about each individual's supply and demand for money itself into the equation.

Though income is only part of the story. Commitments, cost of living, other household income, needs, and other expenditures also play a big role in the value someone sees in their money. Eg, if three people make the same but one likes to always have a brand new sports car, one is content with anything that gets them from a to b, and the third bikes everywhere, they'll have different amounts of money available for everything else. Their car payments affect their demand for money while their salary (and other income) is the supply.