Empirical studies of risk-induced overgrazing have been rarely reported in northern China grasslands, thus, the risk indicators that act as proximate drivers of herders stocking rate (SR) are poorly understood. This paper investigates the impact of the Chinese Grassland Eco-compensation Reward and Subsidy Policy implementation (2011–2015) in Inner Mongolia on overgrazing as a consequence of SR. We used a linear mixed-effects model to develop the relationship between SR and designated risk indicators. The best-fit models obtained were used to evaluate the role of each indicator on the tendency of herdsmen to overgraze grasslands. The major drivers of SR identified prior to the policy implementation are the area of grassland owned, living expenses, and the area of grassland rent-out. Subsequent to the policy implementation, the area of grassland owned and the area of grassland rent-in emerged as the principal factors that induce herders to use high SR on grassland, indicating the persistence of overgrazing. Our most promising finding was that the policy eliminated living expenses from the factors that compel herdsmen to use high SR on grassland. This represents a significant positive impact on herders’ welfare, which is one of the objectives of the subsidy and reward policy. Therefore, to sustain the success recorded in the first phase of the policy implementation, we advocate for an improved grassland rental market that will encourage livelihood diversification, better funding, herdsmen cooperation, consideration of local ecological condition and herders’ perspective in policy design, and consistent education of herders’ about the merits of reducing SR on grasslands. To achieve the desired target of reducing overgrazing, we recommend an independent process of policy inspection that will strengthen effective bottom-up feedback and village level governance.