In a sign of what’s going to happen in 2009, Starbucks and Google both announced an options exchange for their underwater options.

Starbucks Schedule TO SEC filing included this summary by Howard Schultz, Chairman and CEO, about their underwater options:

Dear Partners,

I am pleased to announce that a proposal to amend our equity incentive plans to permit a voluntary stock option exchange program (“Option Exchange Program”) for our partners will be submitted to shareholders for their approval at Starbucks 2009 Annual Meeting on March 18, 2009.

At Starbucks, we believe that an effective and competitive partner incentive program is critical for the success of our business. Broad-based stock options constitute a key component of our incentive and retention programs because we believe that equity compensation encourages partners to act like owners of the business, motivating them to work toward our success and rewarding their contributions by allowing them to benefit from increases in the value of our shares.

Like many retailers, Starbucks has been, and continues to be, adversely impacted by the global economic crisis. Due to the significant decline of our stock price during the last few years, many of our partners now hold stock options with exercise prices significantly higher than the current market price of our common stock (known as “underwater” stock options).

If we receive shareholder approval, the Option Exchange Program would give eligible partners a one-time opportunity to exchange certain outstanding underwater stock options for a lesser amount of new options that will be granted with lower exercise prices. The number of new stock options would be determined using exchange ratios designed to result in the new stock options having a fair value approximately equal to the stock options that are exchanged. The Option Exchange Program would be approximately expense-neutral from an accounting perspective.

Lazlo Bock, VP of People Operations at Google, wrote about underwater options today on Google’s company blog:

Today we announced our plans to do something more for the people who are responsible for Google’s success — our employees. Recognizing that about 85% of our employees have at least some stock options that are underwater (i.e., have an exercise price higher than the current market price of our common stock), we plan to offer our employees the opportunity to exchange those options. Our goal is to continue to reward our employees for their contributions and do everything we can to keep them engaged and focused on serving our users.

This is big news today folks. Underwater options exchanges might look scary, but they’re going to be done in droves this year. Companies are evaluating their competitive position, and options have retentive value when they are in the money and not hopelessly underwater. Companies who are doing options exchanges early are going to be in a more competitive position early.