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MARK AUSTIN THOMAS: Stock options have become a big part of executive pay packages. In 2006, the average big-corporation CEO received $7.3 million in exercised stock options — or almost half their total compensation.

The ability to buy company stock at a set price for a specified period of time is a popular benefit for employees. But this morning, a Senate subcommittee is looking at another beneficiary of stock options: the companies themselves. John Dimsdale reports from Washington.

JOHN DIMSDALE: New rules require companies to give the Securities and Exchange Commission an estimate of how much stock options will cost the company once employees have cashed them in. At that point, the company can claim a tax deduction.

Senate investigators have found those deductions can be far higher than the reported expenses — sometimes by more than 500 percent.

Minnesota Republican Sen. Norm Coleman says the gap between expenses and tax deductions gives companies a big incentive to boost stock option pay.

NORM COLEMAN: You got a hidden system. The fact is, under SEC law the stock options were granted, the companies did not have to report anything. Then when the option was exercised, there was deductibility, so there was an IRS implication differing from an SEC implication.

The IRS say companies are claiming billions in tax deductions without giving the SEC all the details. That’s prompting senators to look at legislation to bring tax deductions more in line with reported expenses.

In Washington, I’m John Dimsdale for Marketplace.