Using manually collected data on fair value estimates (FVEs) of employee stock options (ESO) disclosed in the notes to financial statements, this paper investigates the managerial discretion over FVMs and its incentives. We find that managers exercise considerable discretion over the FVEs of ESOs, and the discretion causes the severe bias of FVEs, particularly at the level of under valuation. Earnings management and salary self interest of managers are significantly related to the discretion of ESO fair value estimates, however, which is not significantly related to managers’ private information. The results indicate that opportunistic incentives explain the bias of FVEs instead of informational incentives. We also find that the opportunistic incentive significantly reduces the accuracy of FVEs, and is predominated in firms with lower quality of corporate governance and independent audit. Besides, the result shows that the FVE bias, especially the understate discretion, significantly reduces the accuracy of analyst forecasts.