New Delhi, Aug. 23 -- Employee stock options (Esops) can create life-changing wealth, but unlocking that wealth comes with a big price tag.

A startup employee getting stock options worth Rs.1 crore has to pay several lakhs just to convert them into shares. She may also have to pay several lakhs more as perquisite tax, even before selling a single share. Employees can sell shares only during a liquidity event - a buyback, secondary sale, or an initial public offering (IPO).

Still, the eventual payoff depends on the valuation at which the employee gets to sell the shares. It needs to adequately compensate for the money she has already put in towards the exercise price and perquisite tax.

The stakes are higher if the employee borrows to p...