This study presents an emotion-based explanation regarding the pay differential effects. Previous studies have frequently emphasized unfairness perceptions as the key mechanism in explaining pay differential effects, relying largely on equity theory and relative deprivation theory. Alternatively, the authors propose that emotions, especially envy, play important roles in the effects of pay differentials. Invoking the self-evaluation maintenance perspective (Tesser, 1988), the authors propose that a pay differential increase social undermining behaviors when mediated by envy. The authors also suggest that this mediated effect is contingent upon employee self-esteem. Analysis of Taiwanese employee data of 614 dyads nested within 186 members of 46 teams shows supportive evidence.