Drawing upon cognitive appraisal theory of emotions in conjunction with incentive pay research, I examine the mechanisms and boundary conditions for the effects of group leaders' differentiated development of leader-member exchange (LMX) relationship on group coordination and performance. I propose that it is when groups receive a higher average proportion of group, as opposed to individual, incentive pay that LMX differentiation is more likely to foster group climate of admiration, rather than envy, which then enhances group coordination and subsequent performance. Using data on 828 sales groups in a major Chinese retailer, I find evidence that groups' use of group, rather than individual or hybrid (i.e., [1] incentive pay based on individual and group performance or [2] incentive pay based on individual, group, and store performance), incentive pay with a higher average proportion in total pay facilitated LMX differentiation to improve group coordination by cultivating group admiration climate. Also, group, as opposed to individual or hybrid, incentive pay buffered the negative effects of group envy climate on group coordination. Lastly, it was found that group coordination predicted groups' six-month lagged sales performance above and beyond prior sales performance. Several theoretical and practical implications are discussed.