Gov. Arnold Schwarzenegger, using a carrot-and-stick strategy on lawmakers considering new workers' compensation laws, offered a key compromise Wednesday even as he whipped up public support for a ballot initiative to bypass the Legislature.

The governor, during an appearance at a Costco warehouse store in Roseville, opened the door to regulating insurance compensation rates, an issue Democratic leaders believe is essential. It "is definitely something to consider," he said.

But as legislators worked to reach agreement by the end of this week, Schwarzenegger also continued his public signature-gathering campaign to qualify an initiative for the November ballot that contains his proposal for workers' compensation reform.

"The signatures will put the pressure on the legislators now," he said to a Costco customer who was signing the petition. The GOP governor added later, "Our legislators work much better if they are under a deadline and they are under the gun."

The state's insurance premiums are among the nation's highest and twice the U.S. average. The workers' compensation system's huge price tag has split the governor and the Legislature over his plan to cut costs by billions of dollars.

The partisan divide over how to fix a system pits employers and insurance companies against doctors, trial lawyers and labor unions.

As lawmakers learn more about their new governor, they are watching the political power of Schwarzenegger's Hollywood celebrity and his style for pushing his proposals in the state house.

Unlike his predecessors, Schwarzenegger has the ability to draw large crowds to events about arcane government issues like workers' compensation or the state budget. He demonstrated Wednesday that his appearance alone is enough to build public support.

Voters like Carla Turner of Rocklin flocked to Costco to see Schwarzenegger because he's a celebrity, not because she wanted to know more about workers' compensation. But after hearing him speak, she rushed to sign the petition.

During Schwarzenegger's 30-minute appearance, onlookers gathered outside the store to catch a glimpse of the governor and snap photographs.

The governor wore a black windbreaker emblazoned with a logo reading "Join Arnold, Fix Workers' Comp, Terminate Fraud." As he collected signatures for the petition, he also signed autographs.

The governor gave a short talk to about 50 people at the store's food court before addressing a crowd outside.

"It is extremely important that we get rid of the poison of our economy which is workers' compensation costs. We are losing jobs continuously because of the high costs," Schwarzenegger said to a cheering crowd.

Lawmakers have seen Schwarzenegger's carrot-and-stick strategy before.

In December, when he was seeking legislative approval for a controversial ballot measure to cap state spending, Schwarzenegger campaigned in key political districts of legislators who opposed him even as he negotiated a deal with Democrats. Lawmakers eventually placed the spending cap on the March ballot, where it was approved by voters.

"He views his election in March as a mandate to continue his reform agenda," said Barbara O'Connor, director of the Institute for the Study of Politics and Media at California State University, Sacramento.

But Schwarzenegger's tactics are ruffling some feathers in the Legislature. Assembly Speaker Fabian Núñez, D-Los Angeles, said Wednesday that the governor's signature-gathering effort "bothers him."

"I've expressed this to him," he added. "But I understand what he has to do."

O'Connor said veteran Democratic legislators like Senate President Pro Tem John Burton, D-San Francisco, are unfazed by the initiative threat and will continue to promote their own workers' compensation ideals, especially those espoused by labor groups.

"I think they are digging their heels a little more. I can't see the (Democratic) leadership giving up what they view are ideological issues," O'Connor said.

Schwarzenegger's offer to consider regulation of insurance rates came after staff members sent mixed signals about the governor's position on the issue. As recently as Tuesday, his press secretary said he favored a "free market" approach to the problem.

The governor stopped short of embracing the insurance rate regulation pushed heavily by top Democratic lawmakers, labor leaders and consumer groups.

While heightened talks with Democratic and Republican legislative leaders have brought them closer to an agreement by Friday, the governor said: "We're not there yet."

The deadline was set by Schwarzenegger to urge lawmakers to pass a plan before they recess next week and before the mid-April deadline to submit signatures for his initiative.

But Schwarzenegger said he is willing to work into the weekend if a deal is near.

State Sen. Richard Alarcón, D-Sun Valley, a major player on the workers' compensation front and a vocal advocate of a cap on insurance rates, downplayed Schwarzenegger's public campaign for the ballot proposal.

He said the governor's action "helps us to ensure people are focused. I'm confident the governor wants a legislative compromise."

But at a press conference with consumer groups Wednesday, Alarcón said he is confident any compromise package will include regulating insurance rates - something the Legislature scrapped a decade ago.

Alarcón called a proposal unveiled Tuesday by state Insurance Commissioner John Garamendi a short-term fix. The commissioner proposed a three-year rate plan that would require insurance companies to lower their rates to employers if the reforms generate a savings.

Some legislators are frustrated that insurers did not lower rates more this year, despite legislation passed last summer that lowered the cost to treat injured workers.

Alan Zaremberg, president of the California Chamber of Commerce, called the insurance regulation a diversionary tactic. "Any rate regulating would drive insurers out of California," he said.