---
title: "Offers, Compensation and Non-Competes"
book: "The Interview Book"
subject: quant
language: en
chapter: 7
exercises: 0
source: https://one-course.com/books/quant/18/en/chapter/7-offers-compensation-and-non-competes
---

# Chapter 7 — Offers, Compensation and Non-Competes

Two offers arrive in the same week. One pays a higher base salary and a guaranteed first-year bonus, with a sign-on payment repayable if the candidate leaves within two years and a twelve-month non-compete. The other pays less cash now, defers a large share of the bonus over three years, and has no non-compete at all. Which is worth more depends on numbers the letters do not print: how likely the candidate is to leave, when, and what the non-compete costs in the year it bites. This chapter reads an offer as a set of cash flows and conditions, values it, and negotiates it. It explains how the clauses work and where the rules are; it gives no legal advice, and a candidate with a contract to sign should have it read by a lawyer where they live.

## 7.1 Reading an offer letter

**Definition 7.1 (Offer letter).**

An *offer letter* is the firm’s written proposal of employment: the role, the start date, the pay and its conditions, the notice period and the restrictive covenants, and the conditions on which the offer depends (references, background checks, regulatory approval). It is followed by, or incorporates, the employment contract, whose terms govern.

The pay vocabulary is One Quant Book 17’s (chapter 13: base salary, total compensation, sign-on bonus, guaranteed bonus, restricted stock units, forfeiture and good-leaver provisions) and the pay-policy and contract vocabulary is One Quant Book 16’s (chapter 10: bonus pool, discretionary bonus, deferred compensation, vesting schedule, malus and clawback; chapter 11: non-compete clause, garden leave, non-solicitation clause, confidentiality agreement, invention assignment clause).

**Method 7.2 (Reading an offer, line by line).**

1. *Fixed pay* : base salary, when it is reviewed, in what currency.
2. *Variable pay* : guaranteed or discretionary; if discretionary, how the pool is set and whether a formula applies; when it is paid.
3. *Deferral* : what share of variable pay is deferred, into what (cash, shares, fund units), vesting when, forfeited in which leaving cases (the good-leaver provision defines the exceptions), subject to malus and clawback.
4. *One-off payments* : sign-on bonus, buy-out of forfeited deferrals from the current employer, and the conditions for repaying them.
5. *Time* : start date, notice period on both sides, probation.
6. *Covenants* : non-compete (length, scope, whether paid), garden leave, non-solicitation, notice of competing offers; and whether the firm can waive them.
7. *Conditions* : what must happen before the offer becomes binding.

## 7.2 Valuing an offer

An offer is a set of cash flows whose amounts and timing depend on whether and when the candidate leaves. Guaranteed cash is worth what it says; deferred cash is worth what it says only if the candidate stays until it vests; a sign-on payment is worth nothing if it is repaid; and a non-compete costs the pay of the months it keeps the candidate out of work, unless those months are paid.

**Proposition 7.3 (Value of an offer with a leaving probability).**

Let $V_{\mathrm{stay}}$ be the pay received over a horizon if the candidate stays, and $V_{\mathrm{leave}}$ the pay if the candidate leaves at a given date, counting forfeited deferrals as lost, repaid sign-on payments as lost, and months kept out of work by a non-compete as unpaid. If the candidate leaves with probability $\pi_{\mathrm{leave}}$, the offer is worth $V_{\mathrm{offer}} = V_{\mathrm{stay}} - \pi_{\mathrm{leave}}(V_{\mathrm{stay}}
- V_{\mathrm{leave}})$ in expectation. Two offers are equally valuable at $\pi^\ast = (V^A_{\mathrm{stay}} - V^B_{\mathrm{stay}})/\big((V^A_{\mathrm{stay}} - V^A_{\mathrm{leave}}) -
(V^B_{\mathrm{stay}} - V^B_{\mathrm{leave}})\big)$.

**Example 7.4 (The hook’s two offers).**

In thousands, undiscounted and before tax, over three years. Offer A: base 230, a guaranteed first-year bonus of 120, an expected bonus of 90 in later years, a sign-on of 80 repayable in full on leaving within two years, a twelve-month unpaid non-compete, no deferral. Offer B: base 170, an expected bonus of 150 a year of which 40% is deferred and vests in equal thirds over the following three years, no sign-on, no non-compete. If the candidate stays three years, A pays $80 + 3 \times 230 + 120 + 2 \times 90 = 1\,070$ and B pays $3 \times 170 +
3 \times 150 = 960$. If the candidate leaves after one year for a job paying 320 a year, A pays $230 + 120 =
350$ for the first year, the sign-on is repaid and the non-compete costs the second year: $350 + 320 = 670$; B pays $170 + 0.6 \times 150 = 260$ for the first year, forfeits the year’s 60 of deferral, and nothing else: $260 + 2 \times 320 = 900$. A loses 400 on leaving and B loses 60, so B is worth more once the probability of leaving exceeds $110/340 \approx 0.32$ ([Figure 7.1](#fig-iv-offers-compensation-and-non-competes-value)).

![Expected three-year pay of the two offers of against the probability of leaving after one year (thousands, undiscounted, before tax). The dotted line marks the break-even probability, 11/34 0.32. Data: fig_iv_offer.py.](https://one-course.com/images/onecourse/chapters/quant-18/iv-offers-compensation-and-non-competes/fig-e0a1d3099cbd.svg)

***Figure 7.1.** Expected three-year pay of the two offers of [Example 7.4](#ex-iv-offers-compensation-and-non-competes-two) against the probability of leaving after one year (thousands, undiscounted, before tax). The dotted line marks the break-even probability, $11/34 \approx
0.32$. Data: `fig_iv_offer.py`.*

The same model makes the other trade-offs explicit: discounting shortens the value of deferrals, tax changes the cash but rarely the ranking, and a higher next salary makes a non-compete more expensive. One Quant Book 17’s `firm.payoffer` builds a fuller version with tax and vesting schedules; the chapter’s own checks are in `iv_offer.py`.

## 7.3 Negotiating

Negotiation is the subject of One Quant Book 16, chapter 23: each side has a best alternative to a negotiated agreement, a reservation value it will not go beyond, and between the two reservation values lies the zone of possible agreement. For a candidate, the best alternative is the next best offer or the current job; the firm’s reservation value is set by its pay bands, what it pays similar hires and what losing the candidate costs.

**Definition 7.5 (Exploding offer, counteroffer).**

An *exploding offer* is an offer that lapses if not accepted within a short deadline, set to prevent the candidate from completing other processes. A *counteroffer* is an improved offer made in response to another: by the hiring firm when the candidate asks for more, or by the current employer when the candidate resigns.

**Method 7.6 (Negotiating an offer).**

1. Know your alternative and value it with [Proposition 7.3](#prop-iv-offers-compensation-and-non-competes-value) .
2. Learn the firm’s range: published pay ranges where the law requires them ( [Box 7.1](#dat-iv-offers-compensation-and-non-competes-law) ), the recruiter, peers.
3. Ask for specific items with reasons: a buy-out of deferrals you will forfeit, a sign-on to cover a notice-period gap, a guarantee for a first year whose bonus cannot yet reflect your work, a shorter or paid non-compete.
4. Negotiate once, in writing, with a single consolidated request; accept or decline promptly after.
5. Never invent an offer; never accept an offer you do not intend to honour.

An [exploding offer](#def-iv-offers-compensation-and-non-competes-exploding) is a negotiating position, not a law of nature: the answer is to ask for a date that lets the other processes finish ([Chapter 2](https://one-course.com/books/quant/18/en/chapter/2-the-process-by-firm-type#ch-iv-the-process-by-firm-type)). A [counteroffer](#def-iv-offers-compensation-and-non-competes-exploding) from the current employer deserves the same valuation as any offer, plus one question the numbers do not answer: whether the reasons for leaving are removed by money.

**As of September 2026 — Pay transparency and salary history.**

**European Union**: Directive (EU) 2023/970, article 5, gives applicants the right to receive the initial pay or its range for the position before the interview or otherwise, and forbids employers to ask applicants about their pay history; member states had to transpose it by 7 June 2026. **New York City**: since 1 November 2022, employers with four or more employees advertising a job performed in the city must state the minimum and maximum salary they in good faith believe they would pay. **California**: Labor Code section 432.3 forbids employers to seek or rely on an applicant’s salary history, requires the pay scale to be given to an applicant on reasonable request, and requires employers with fifteen or more employees to include it in job postings.

## 7.4 Restrictive covenants

A non-compete, a garden leave clause and a long notice period all delay the day the candidate can work for a competitor, and they differ in who pays for the delay: garden leave and notice are paid, an unpaid non-compete is not. Their enforceability differs between jurisdictions and changes over time; the mechanisms and the litigation record are in One Quant Book 16, chapter 11, and the career consequences in One Quant Book 17, chapter 28.

**As of September 2026 — Where the rules on non-competes stand.**

**United States, federal**: the Federal Trade Commission’s Non-Compete Clause Rule of 2024 is not in effect: a district court set it aside on 20 August 2024 (Ryan, LLC v. FTC), and in September 2025 the Commission voted to dismiss its appeals and accede to the vacatur. **California**: Business and Professions Code section 16600.5, in force since 1 January 2024, makes a non-compete that is void under California law unenforceable regardless of where and when it was signed, and forbids employers to enter into or attempt to enforce one; section 16600.1 required employers to notify affected employees by 14 February 2024 that such clauses were void. **United Kingdom**: the government published a working paper on options for reforming non-compete clauses on 26 November 2025 (a statutory limit on length, a ban, or a salary threshold); it closed for responses on 18 February 2026.

## 7.5 Question bank

**Interview question 7.1 ★ trader, researcher, developer • any.**

Which facts must an [offer letter](#def-iv-offers-compensation-and-non-competes-letter) give you before you can compare it with another offer? List them in the order you would check them.

**Solution of Interview question 7.1.**

In order: base salary and currency; whether the first bonus is guaranteed and how later bonuses are decided; the deferral share, instrument, vesting schedule and leaver rules (including malus and clawback); one-off payments (sign-on, buy-out) and their repayment conditions; start date and notice period; restrictive covenants (length, scope, whether paid, whether the firm can waive them); and the conditions precedent. Without the leaver rules and the covenants, two offers with the same headline cannot be compared.

*What the interviewer is looking for: the full set of terms that change an offer’s value, and why the leaving terms matter.*

**Interview question 7.2 ★ trader • proprietary firm.**

Your sign-on bonus of 60 000 is repayable pro rata if you leave within 24 months. You leave after 9 months. How much do you repay?

**Solution of Interview question 7.2.**

Fifteen of the 24 months remain: $60\,000 \times 15/24 = 37\,500$.

*What the interviewer is looking for: pro-rata arithmetic, and reading the clause’s clock correctly.*

**Interview question 7.3 ★ researcher • multi-manager fund.**

Your bonus of 200 000 is 40% deferred, vesting in three equal instalments 12, 24 and 36 months after the bonus date, and forfeited if you resign. What cash do you receive at the bonus date, what are the instalments, and what do you forfeit if you resign 18 months after the bonus date?

**Solution of Interview question 7.3.**

Cash at the bonus date $0.6 \times 200\,000 = 120\,000$; deferred $80\,000$ in three instalments of about $26\,667$ at 12, 24 and 36 months. At 18 months one instalment has been paid and two are unvested: $53\,333$ is forfeited, unless the new employer buys it out (One Quant Book 16, chapter 10, on deferral buy-outs), which is the item to negotiate.

*What the interviewer is looking for: the deferral schedule, what is at risk on leaving, and the buy-out as the remedy.*

**Interview question 7.4 ★★ trader • market maker.**

Using the two offers of [Example 7.4](#ex-iv-offers-compensation-and-non-competes-two), which do you prefer if you think there is a one-in-five chance you will want to leave after a year? And a one-in-two chance? At what probability are you indifferent?

**Solution of Interview question 7.4.**

A is worth $1\,070 - 400\pi$ and B $960 - 60\pi$. At $\pi = 0.2$: A 990, B 948, so A. At $\pi = 0.5$: A 870, B 930, so B. Indifference at $\pi = 110/340 = 11/34 \approx 0.32$. The honest answer adds that $\pi$ is not known, and that offer A’s value is far more sensitive to it (400 against 60 a unit of probability): A is the bet that you will stay.

*What the interviewer is looking for: expected value linear in the leaving probability, the break-even, and sensitivity.*

**Interview question 7.5 ★★ developer • proprietary firm.**

A firm makes you an offer on Tuesday that expires on Thursday. You are in the [final round](https://one-course.com/books/quant/18/en/chapter/6-the-final-round-and-trading-games#def-iv-the-final-round-and-trading-games-final) elsewhere next week. What do you say to the first firm, and what do you do if it refuses to move?

**Solution of Interview question 7.5.**

Thank the firm, say that you are very interested and that you are completing one other process whose [final round](https://one-course.com/books/quant/18/en/chapter/6-the-final-round-and-trading-games#def-iv-the-final-round-and-trading-games-final) is next week, and ask for an answer date after it (give the date). Offer something in return: a call on a named day, an early start. If the firm refuses, value the offer against your estimate of the other process ([Chapter 2](https://one-course.com/books/quant/18/en/chapter/2-the-process-by-firm-type#ch-iv-the-process-by-firm-type), the accept-or-wait method) and decide; do not accept with the intention of reneging.

*What the interviewer is looking for: a specific request for time, honesty about the other process, and a decision rule if refused.*

**Interview question 7.6 ★★ researcher, trader • multi-manager fund.**

One offer has a six-month garden leave paid at your base of 250 a year; another has a twelve-month unpaid non-compete. Your next job would pay 400 a year. What does each clause cost you if you leave, in thousands? Which would you negotiate on, and how?

**Solution of Interview question 7.6.**

Paid garden leave of six months costs the difference between the next job’s pay and the garden-leave pay for six months: $0.5 \times (400 - 250) = 75$. The unpaid twelve-month non-compete costs a full year of the next job’s pay: 400. Negotiate the non-compete: ask for it to be shortened, paid, or limited in scope to the competitors that matter, or ask for a sign-on that compensates it.

*What the interviewer is looking for: pricing covenants as lost pay, and knowing that paid and unpaid restrictions differ.*

**Interview question 7.7 ★★ trader, researcher, developer • bank.**

The recruiter asks: “What number do you have in mind, and what are you paid now?” How do you answer both questions?

**Solution of Interview question 7.7.**

On the number: give a range anchored on evidence, not on hope (“for this role in this city, total compensation of X to Y, based on the published range and my other conversations”), or ask for the firm’s range first where it must publish one. On current pay: in some places the firm may not ask ([Box 7.1](#dat-iv-offers-compensation-and-non-competes-law)); elsewhere, you may decline politely and redirect to what the role is worth, or answer truthfully including the deferrals you would forfeit, which the firm will have to buy out. Never inflate it: it can be verified.

*What the interviewer is looking for: anchoring on market evidence, awareness of the law, and truthfulness.*

**Interview question 7.8 ★★★ trader, bank • bank.**

You resign to take an offer; your current employer counters by raising your base by 20% and promising a larger bonus. How do you decide? Name the quantities you would compare and the one you cannot compute.

**Solution of Interview question 7.8.**

Compare the two offers as cash flows over the same horizon (base, expected bonus, deferrals and their forfeiture, covenants), with the same probability-of-leaving analysis; check what is written (a 20% base rise is written, a larger bonus usually is not). The quantity you cannot compute is whether the reasons you started looking are removed: if they were not about money, the [counteroffer](#def-iv-offers-compensation-and-non-competes-exploding) buys time, and the next move starts from a position in which your employer knows you were leaving. Decide on the written terms and on those reasons, and honour the commitment you have made to the new firm unless you have not yet accepted.

*What the interviewer is looking for: a like-for-like valuation, the distinction between written and promised pay, and the non-financial question.*

**Interview question 7.9 ★★★ researcher, trader • multi-manager fund.**

Your best alternative is worth 260. You believe the firm’s walk-away value is uniformly distributed between 250 and 350, and that you can make a single take-it-or-leave-it request: if it is at or below the firm’s walk-away value it is accepted; otherwise you take your alternative. What do you ask for, and what is it worth to you in expectation? What does the model leave out?

**Solution of Interview question 7.9.**

Asking $a$ is accepted with probability $(350 - a)/100$, so the expected value is $260 + (a - 260)(350 -
a)/100$, a parabola maximised at $a = (260 + 350)/2 = 305$, with acceptance probability 0.45 and expected value $260 + 45^2/100 = 280.25$. The model leaves out that negotiation is not one shot (a counterproposal is the usual reply), that asking may change the firm’s view of you, and that the firm’s walk-away value is not uniform; its useful lesson is that the best ask is well above your alternative and well below the firm’s maximum.

*What the interviewer is looking for: an optimisation over the ask with an acceptance probability, and the model’s limits.*

**Interview question 7.10 ★★★ risk, bank • bank.**

A clause reads: “For twelve months after termination the Employee shall not be engaged in any business that competes with any business of the Group in any country in which the Group operates.” What does it restrict, what questions do you ask before signing, and why might its enforceability depend on where you work?

**Solution of Interview question 7.10.**

It forbids working in any competing business, in any role, anywhere the group operates, for a year, unpaid unless another clause pays it. Ask: whether it is paid, whether the firm will confirm in writing which competitors it has in mind, whether it can be waived and in practice is, how it interacts with garden leave and notice (whether the periods run concurrently), and which law governs the contract. Enforceability depends on the law of the place: in California such a clause is void and may not be enforced ([Box 7.2](#dat-iv-offers-compensation-and-non-competes-noncompete)); in the United Kingdom the starting point is that a clause in restraint of trade is unenforceable unless the employer shows that it is reasonable, which a court decides if the clause is challenged (as the government’s 2025 working paper puts it), and a twelve-month worldwide ban on any competing business is hard to show reasonable for most roles. Take legal advice before signing.

*What the interviewer is looking for: reading the scope of a clause, the right questions, and the role of the governing law.*

Sources and further reading

- Directive (EU) 2023/970 on pay transparency, articles 5 and 34.
- California Labor Code section 432.3; California Business and Professions Code sections 16600.1 and 16600.5.
- New York City Commission on Human Rights, *Salary Transparency in Job Advertisements* (fact sheet).
- Federal Trade Commission, Non-Compete Clause Rule page (status after Ryan, LLC v. FTC).
- Department for Business and Trade, *Reform of non-compete clauses in employment contracts: working paper* , 26 November 2025.
- One Quant Book 16, chapters 10, 11 and 23; One Quant Book 17, chapters 13 and 28.