There are a lot of things that can be said about why this is a bad idea, but Scalzi has -- as usual -- said most of them.
What I want to do is just emphasize how very low this is. Many people don't really grasp what payment-per-word means, certainly not many starting authors, in terms of actually making money.
Grand Central Arena, my forthcoming novel, clocks in at about 155,000 words. At Black Matrix' prices, that would be a grand total of $310.
I'm known to be a very fast writer. I can average about 1200 words per hour when I get going. So -- ignoring the likelihood that there will be research, world design, etc., involved, assuming I can just sit down and the words flow like an undammed river from my fingers, needing no editing ever, they are offering to pay me $2.40 per hour. That's lower than minimum wage was when I was working jobs that might pay minimum wage. If I devoted a normal working year to writing, and never had any delays or problems writing (I'll assume two weeks off), that'd be 2,000 hours, or 2.4 million words, for a grand total of less than five thousand dollars (4800, to be exact) -- of which a significant chunk would have to be paid out in taxes (as it's self-employment).
This is not acceptable as "payment". This isn't even TOKEN payment. My advance for Digital Knight -- a first-time, completely unknown author selling a cobbled-together collection of shortish stories as a novel -- was $5,000 for 112,000 words, or TWENTY TWO TIMES what these people would pay. This is the difference in yearly terms between making $10,000 per year and making $220,000 per year.
Either pay a REASONABLE rate, or don't pay at all. But if you don't pay, you'd better be distributing your product for free.