Description of Short-term Compensation Plan Exhibit 10.12 

        As part of the total compensation package for the nine top executive
officers who are members of the Company’s Senior Leadership Team and other
executives (the “Executives”), the Management Continuity and Compensation
Committee (“MCC”) of the Board of Directors sets consolidated annual earnings
per share (“EPS”) and specific business unit operating profits targets for the
Company, usually in the month of February for a given year. The MCC then grants
contingent award values to the Executives pursuant to the Bandag, Incorporated
Stock Grant and Awards Plan. The award values are typically based on a
percentage of the target compensations for the Executives set by the MCC. The
awards are payable in restricted shares of Class A Common Stock if the EPS
and/or business unit operating profits targets are met. The EPS and business
unit operating profits are determined after the release of financial results for
the year in which the contingent awards were made. For example, contingent
awards made in February 2005 will be based on financial results for the year
ended December 31, 2005 and, if the targets are met, restricted stock will be
granted in February 2006 in satisfaction of the contingent awards.

        The MCC sets the EPS and business unit operating profits targets and
award values to the Executives as follows: the first is a Threshold EPS and a
Threshold business unit operating profits number, below which no restricted
stock grants are made and, if met, provides for the lowest award value; the
second is a Target EPS and a Target business unit operating profits number,
which provides for a higher award value if the Target EPS is met; and the third
is a superior EPS and a Superior business unit operating profits number, which
provides for the highest award value if the Superior EPS and/or Superior
business unit operating profits number is met. If EPS or the applicable business
unit operating profits number falls between identified target EPS or the
applicable business unit operating profits numbers, arithmetical interpolation
is used to determine the award value. The number of shares of restricted stock
to be granted are computed by dividing an individual award value by the fair
market value of a share of Class A Common Stock on the first meeting of the MCC
following the public release of annual financial results of the Company. The
shares of restricted stock become freely transferable after three years from the
date of grant, but terminate if employment is terminated within such three-year
period, except that the shares vest and become freely transferable if the
termination of employment is caused by death, Disability or Retirement, as
Disability or Retirement are defined in the Stock Grant and Awards Plan.

        The executive officers who are members of the Senior Leadership Team and
who are receiving the contingent awards currently are:

Martin G. Carver Chairman of the Board, President and Chief Executive Officer
Dennis M. Fox Vice President, Manufacturing Design
Warren W. Heidbreder Vice President, Chief Financial Officer and Secretary
John C. McErlane Vice President of the Company and President of Tire
Distribution Systems, Inc., a wholly owned subsidiary of the Company
Frederico V. Kopittke Vice President, International
Michael A. Tirona Vice President and General Manager - Europe
Janet R. Sichterman Vice President, North American Fleet Sales
Andrew M. Sisler Vice President, North American Franchise Sales
Timothy Chen Vice President, Innovation