Past research on pay dispersion has found that hierarchy hurts commitment, cooperation, and performance. In contrast, functional theories of social hierarchy propose that hierarchy can facilitate coordination and performance. We investigated the effects of hierarchical differentiation using a sample of professional basketball teams from the National Basketball Association (NBA). Analyses of archival data revealed that hierarchical differentiation in pay and participation enhanced team performance by facilitating intragroup coordination and cooperation. The data provide the basis for a theoretical analysis which suggests that hierarchy is particularly beneficial for procedurally interdependent tasks (e.g., basketball) but can harm team performance for procedurally independent tasks (e.g., baseball; Bloom, 1999). Overall, the current data indicate that team structure (hierarchy) affects team outcomes (performance) through team processes (cooperation and coordination). Thus, under certain conditions, hierarchical differentiation helps lead groups to victory.