May 18 (Bloomberg) -- U.S. House Financial Services Chairman Barney Frank is considering legislation to put restrictions on private-equity firms that take over public companies, including shoring up pension funds and reporting to regulators on potential payouts to executives who make the deals.

``My message to the private-equity people is a very straightforward one: Treat your workers fairly, and then you won't have to worry about us,'' Frank, chairman of the House Financial Services Committee, said on Bloomberg Television's ``Political Capital with Al Hunt.''

Frank said he and Representative George Miller, a California Democrat who chairs the House Education and Labor Committee, are weighing a statute modeled after a U.K. law that may require companies to add financing for pension funds deemed compromised by a private-equity buyout.

Private-equity firms have announced $372 billion in transactions this year, Bloomberg data show. In a deal announced this week, DaimlerChrysler AG handed control of U.S. carmaker Chrysler Group to Cerberus Capital Management LP, getting clear of almost $19 billion in pension and medical liabilities for retired U.S. employees.

Frank, other lawmakers and worker advocates have been concerned that the rise in acquisitions by private-equity firms will profit the buyers while harming employees through wage cuts, job losses and reduced pensions. Private-equity firms typically buy underperforming public companies and sell them after a few years of increased profitability.

Executive Payouts

Frank said any private-equity legislation may also require the Securities and Exchange Commission to have public companies disclose compensation provisions for top executives in the event of a buyout, he said.

``Private equity, done right, can create value, hundreds of millions for some people,'' Frank said. ``If all that value is held only by a handful of people and the workers not only don't get to participate in the increased value of the company but are penalized by it, then we are going to put more conditions on what can happen.''

The federal government should also consider raising taxes on executives who profit from purchases of public companies, Frank said.

``There are people who are profiting very, very much, and I think they're being under-taxed,'' Frank said.

Tax Changes

Any legislation to change tax rates would originate in the Ways and Means Committee, not Frank's Financial Services panel.

A staff-level review in the congressional tax committees is looking into the taxation of hedge funds and private-equity firms, including the ability of fund managers to pay the 15 percent capital-gains rate on a large portion of their pay.

The review includes so-called carried interest, a common payment structure under which fund managers are paid a management fee of 2 percent of a fund's assets and a 20 percent share of future profits. This structure allows them to effectively pay the 15 percent capital-gains rate on most of their income, rather than the tax rate for salary, which is as high as 35 percent.

Frank has focused on ways to reduce economic inequality and shift wealth to average U.S. workers since taking the committee chairmanship in January. He has called on American companies to support labor unions and increase wages in exchange for congressional support on trade and other issues.

``People said, `Well, government shouldn't be dictating to corporations,' but without government making a conscious decision, there would be no corporation,'' Frank said. ``You get great advantages in the corporate form and could put some restrictions on what happens'' in private-equity buyouts.

Lobbying Campaign

Private-equity firms have poured millions of dollars into Democrats' campaign coffers. The largest firms, including Carlyle Group and Blackstone Group LP, have also stepped up their lobbying efforts in Washington, forming a trade group called the Private Equity Council.

Frank dismissed the idea that the growing clout of the industry would influence the legislative process.

``People greatly exaggerate the power of money here,'' Frank said. ``There isn't enough money in the world to get us to sit by passively if they are going to be not treating private workers fairly.''

Hedge Funds

Frank said he's considering legislation limiting the extent of pension fund investment in hedge funds, while ``not keeping them out altogether.'' Frank expressed concern about unspecified ``political people'' running public pension funds ``who are under some pressure to show a quick increase in the return.''

Frank also wants to require hedge funds to retain e-mail and documents.

Frank withheld support for a legislative proposal announced May 15 by Senator Charles Grassley, an Iowa Republican, to subject hedge funds to routine inspections. A federal court struck down such rules last year.

Grassley's measure, aiming to improve transparency within the hedge fund industry, would require hedge-fund managers with at least 15 investors and more than $50 million in assets to register with the SEC.

The prospect of requiring hedge fund registration causes ``a lot of concern and unnecessarily,'' Frank said.

The Bush administration should propose a successor to former World Bank President Paul Wolfowitz based on a consensus with other member nations in the world's largest development agency, Frank said.

Wolfowitz Resignation

Wolfowitz, former U.S. deputy defense secretary, resigned yesterday after the White House bowed to pressure for his ouster from European governments.

``Appointing Wolfowitz was kind of an in-your-face gesture to the rest of the world,'' Frank said. Bush administration officials ``have to swallow hard and say, `You know what, this cannot just be a unilateral American decision.'''

Treasury Secretary Henry Paulson said he will quickly identify a replacement.

To contact the reporter on this story: James Tyson in Washington at Jtyson@bloomberg.net.

Last Updated: May 18, 2007 15:40 EDT