You should get paid for your time if it's longer than an hour, the work should not be related to the company's work, and ideally it should be a short prep for an actual interview where you go over the work together and explain your thinking and where you would go with it if you had the amount of time you would usually dedicate to a real project.

Unfortunately you can't make places change to that, but if they do all of the above it's a good sign they respect your time and design process.