A lower court ordered the cows' owner in February to pay the woman's family €180,000 ($200,000) plus a monthly pension of €1,500.
The verdict was seen as potentially harmful for agriculture and tourism in the Alpine country known for its picturesque mountains and cows grazing freely on their slopes in the summer.
A higher court however ruled that the 45-year-old who was hiking with her dog bore 50 percent of the blame as she needed to be aware of the risks cows, especially those with calves, posed when confronted by dogs, a court official said on Tuesday.
She also did not heed warning signs to keep a distance from the herd. The farmer in turn had known his cows with calves to be aggressive and should have fenced off part of his pasture, the official said.
The decision means the compensation will also be cut by half. Both parties can appeal the verdict.
The incident took place in July 2014 in the Pinnistal Valley in Tyrol when a herd of cows suddenly surrounded the hiker and trampled her. She died of her injuries at the scene.
Her husband and son had accused the farmer of negligence, while the farmer insisted he had put up warning signs on the pasture.
The February ruling led to Tyrol's farmers describing it as a threat to their livelihood and threatening to close off their lands to hikers.
Following the outcry, the government published a "code of conduct" for hikers.
The guidelines include keeping a distance from cows and walking dogs on a short lead but unleashing them in case of attack.