The general rationale for setting up and distributing prize funds has been to make sure that the lower rated players receive a fair share of the total prize fund. After all, the average players make up most of the entrants at a tournament. Without their entry fees, many tournaments would not even take place.
In many tournaments, the prize fund is distributed 50% to place prizes and 50% to class prizes. That is usual for a weekend tournament. In large class section tournaments that are trying to draw in GMs, IMs, and aspirants for titles, the top section is usually supported by the fees paid by all of the other sections. To get the high prizes in each class section, you have to pay a lot of money to enter and perform very well. Class C and B players very often make more in prize money than GMs in the class tournaments. Whether that is “fair” is largely irrelevant. Do not begrudge the average players their prizes. Organizers need them to participate.
The pooling of class prizes with place prizes happens when there are ties and the class player has had an amazing performance. In dividing the tied prizes in US events run on the Swiss System, look at the pooled money as one prize that is shared equally among the tied players. In cases where the class player would benefit from only getting the class prize, that is done so that he maxes out on prize money. In no case should be denied the correct distribution of money. It is bad practice for the class player to take a smaller share than he is entitled to. If he wants to give a part of the correct share back to help an organizer out of going into the red, that is okay, but he does not really have to do that. As an organizer, after I pay out the correct prizes, I don’t really care if someone decides to give his prize money or a portion of it to somebody else.
The distribution of prizes as shown in the Rulebook, as well as in general practice, is guided by being consistent in its methodology. If the distribution changes from event to event, players do not know what to expect. They will complain they are being cheated by the organizer. That is bad for business.
In my experience as a player, TD, and organizer, for players to win a prize, they generally have to have a performance that is 200+ points above their rating. In the big class section events, to get a top prize in a class section you may have to play 400+ above your rating. There are a lot of sharks in each section wanting to win prize money. If you want to know why there is rating manipulation or sandbagging going on, there is your answer. Playing at these higher performance levels on a consistent basis is difficult for a class player, but with one glorious weekend, a player who is stronger than his peer rating pals might win a 5 digit prize. On the top level or open section of such a tournament, you often see multiple players tied for first place. Usually there are about 35 or more sharks fighting to get a share of only 10 place prizes. The lower place prizes are almost embarrassingly small. In the feeding frenzy, 2200 to 2300 rated players have to fight extra hard for their relatively small class prize compared to what their lower rated friends are playing for. If they do well, they sometimes have to share their prize money with higher rated players if they tie for place money. It is considered okay as long as these master class players max out their prize potential. All too often, they go home with nothing. Many GMs go home with nothing, too.