Tax law may need strengthening to curb abuses in executive stock option compensation, the chairman of the U.S. Senate Finance Committee said on Friday.

If the tax laws are inadequate on stock options backdating, I want to beef them up, said Sen. Charles Grassley who scheduled a Sept. 6 hearing to consider the matter. His committee has jurisdiction over tax law.

Federal investigators are combing the records of scores of companies looking for manipulation of grant dates and exercise prices of stock options that unfairly lock in profits for executives on terms not available to the public.

Representatives from the Justice Department, Internal Revenue Service and the Securities and Exchange Commission are expected to testify at the September hearing, the committee said in a statement.

The practices under investigation are not illegal in all cases, but can run afoul of the law if not properly disclosed, and taxed.

Grassley, a Republican from Iowa, said he is also concerned about the current tax treatments of other executive compensation including perks and retirement benefits and questioned whether executives deserve such lavish remuneration.

It looks as though boards of directors are approving bad deals without shareholder approval, Grassley said in the committee statement.

Stock options give the holder the right to buy shares at a fixed strike price, normally set at the market price of the shares on the date the options are granted.

At issue is backdating in which the options were awarded on one date, but then the grant date was set at an earlier date to precede a rally in the shares, locking in profits for the option recipient not available to the general public.

Also under scrutiny are spring-loading and bullet-dodging - practices in which grant dates are set to either precede announcements of good news by the company, or to follow bad news, anticipating a rally in the share price in both cases.

More than 120 companies have disclosed restatements, internal investigations or government investigations regarding past stock options grants, according to a report by market research firm Glass Lewis & Co. on Wednesday.

In addition to investigations by the SEC and IRS, the U.S. Justice Department has set up a special task force in northern California to examine potential criminal charges against some companies. Criminal charges have already been filed against former executives of Brocade Communications Systems Inc. and Comverse Technology Inc. related to stock options.