Process supervision has improved mathematical reasoning, where intermediate steps are naturally expressed as chains of thought. In code generation, however, process supervision remains underexplored because there is no standard notion of a step. Supervision can target lines, reasoning traces, or program states, making it unclear what to label and optimize. We propose STEP-KTODER, a framework for code preference optimization that defines steps as module-level functions in decomposed multi-function programs and assigns binary correctness labels via automatically generated unit tests. Our method provides a code-specific instantiation of stepwise KTO, combining function-level process supervision with outcome-level feedback on the full program. We evaluate on HumanEval(+), MBPP(+), BigCodeBench, and LiveCodeBench, showing that STEP-KTODER improves over outcome-only KTO and DPO. Further analysis shows that execution-based labels are essential: LLM-as-a-judge annotations systematically over-predict function failures, corrupt positive step labels, and degrade downstream preference optimization. Code is available at: https://github.com/inechnech/STEP-KTODER

Pause-token methods improve LLM reasoning by inserting special tokens into sequences. Prior work explains these gains through computational expressivity. However, there is relatively little investigation into the training dynamics of pause tokens. We explore how pause tokens reshape the training dynamics of fine-tuning. Two controlled pilots expose distinct asymmetries. On a synthetic continual-learning task, masked pauses overwrite a previously-learned distribution roughly 4× less at matched final adaptation (H1, mode retention); on a synthetic math-reasoning probe, the boundary-adjacent token comes to encode substantially more downstream-step information (H2, non-myopic compression). We formalize a training rule consistent with both — Masked Boundary Pause (MBP), pause tokens placed at reasoning-step boundaries with their loss masked. Across 1B-8B Qwen and Llama models, MBP consistently improves reasoning, achieving gains of up to 6 points on math and 2.5 points on code, while preserving general language understanding abilities. We further demonstrate that the gains from this mode-preserving strategy extend to GRPO. These results recast pause tokens as a training-dynamics intervention on the retention–adaptation trade-off, rather than merely an inference-time computation device.