How a chip chop is worked out
Take the smallest prize still to be paid and give it to every player left. Whatever remains is split in proportion to the chips. This is the deal most players know, and it is quick to do by hand, but it pays the chip leader more than the stack is worth in prize money.
A worked example
The page opens on a published three-way deal: $900, $400 and $200 to pay, and the chips split 50%, 30% and 20%. Everyone locks up $200, and the other $900 is shared by chips: $450, $270 and $180. The chip chop pays $650, $470 and $380. ICM pays $617.86, $485.00 and $397.14, so the chip chop hands the leader an extra $32.14, paid by the two shorter stacks.
Which deal is fair?
Neither is exact, because neither counts skill, blinds or position. ICM is the usual starting point because it accounts for the prizes already locked up; the short stacks should ask for at least their ICM value. Players often leave some money to play for, so the tournament still has a winner: enter it and it comes off first prize before the split. For ICM in more depth, see the ICM calculator, or how deals and bubbles change shoving ranges on the push/fold charts.