It sounds like an interesting plan. You might have to do some math perhaps - try to find a correlation between how much a player pwns by and how much of a handicap they would need in order to bring them down to a certain level or at least make them within reach of the next best players on the server.
It could be complicated if you want to perfect it. Too much handicap and the player loses all the time - too little and they still win, just not by as much..
But handicapped players receive also less damage, I guess ...
I didn't think this was the case. They just have less base health, but the damage they will receive remains the same. The damage they can deal is reduced though.