|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 earnings before tax
(EBT) and specific business unit operating 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 cash if the EBT and/or business unit operating
profits targets are met. The EBT 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 2006 will be based on financial results
for the year ended December 31, 2006 and, if the targets are met, cash will be granted in
February 2007 in satisfaction of the contingent awards.

The
MCC sets the EBT and business unit operating profits targets and award values to the
Executives as follows: the first is a Threshold EBT and a Threshold business unit
operating profits number, below which no cash payments are made and, if met, provides for
the lowest award value; the second is a Target EBT and a Target business unit operating
profits number, which provides for a higher award value if the Target EBT and/or the
Target business unit operating profits number is met; and the third is a superior EBT and
a Superior business unit operating profits number, which provides for the highest award
value if the Superior EBT and/or Superior business unit operating profits number is met.
If EBT or the applicable business unit operating profits number falls between identified
target EBT or the applicable business unit operating profits numbers, arithmetical
interpolation is used to determine the award value.

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                                                                                              

In
addition, awards were currently made to two additional executive officers, David W. Dahms,
Director, Treasury Services and Treasurer, and Jeffrey C. Pattison, Vice President and
Corporate Controller.