DLA Piper is slashing salaries for its U.S. associates in conjunction with an announcement that the law firm is shifting to merit-based compensation.

The law firm will reduce first-year associate salaries in major markets from $160,000 to $145,000. First-year salaries of $145,000 in other cities will drop to $130,000.

It will cut salaries at other class levels on a case-by-case basis, based on performance and class year. The firm has about 550 associates in the United States.

DLA Piper announced the changes Friday in a firmwide memo written by Global Chairman Frank Burch Jr., Joint Chief Executive Lee Miller and U.S. managing partner Terry O’Malley. The memo stated that the three firm leaders themselves and other partners had taken “significant reductions” in their projected 2009 compensation. It also said that the firm had reduced compensation for senior counsel and of counsel attorneys.

The memo stated that changes were based on the downturn in the economy and on client needs.

“The broad consensus is that the business environment in the next few years will be fundamentally different, and our clients have taken dramatic action to reshape their businesses to fit this new reality,” the memo stated.

To implement the new plan, which will base associate pay primarily on job performance rather than years of service, the firm has appointed partners Fredrick H.L. McClure, a member of its executive committee, and David E. Nachman to develop compensation alternatives.

The law firm declined to comment on the new plan. The salary cuts become effective on June 8. The firm will continue to pay associate bonuses in 2009 for “exceptional performance,” the memo stated.

DLA Piper, with 3,785 attorneys worldwide, is ranked No. 1 on the NLJ 250, The National Law Journal‘s annual survey of the nation’s largest law firms.

It is one of several law firms that recently have announced reductions in salaries. First-year salaries at major law firms shot up to $160,000 from $145,000 in 2007 amid intense competition for associate labor at the time. Many law firms have found those salaries unsustainable during the recession.

Many of the recent salary cuts have occurred at regional law firms. However, 3,627-attorney Baker McKenzie has “in select instances reduced some salaries to preserve jobs,” a firm spokewoman said.

DLA Piper’s move to merit-based compensation mirrors changes at other firms, including Orrick, Herrington & Sutcliffe; Shearman & Sterling and Howrey.

As at dozens of large law firms across the country, DLA Piper laid off attorneys earlier this year because of recession. In February, it let go of 80 attorneys in the United States and 100 staffers.