I would think the closer you are to the transom, the lower you run the engine.
In my simple mind, it's relative to any object having force applied to it. Take a yard stick, support it at both ends and push it down in the middle 6". Relate the area you pushed down on as the back of the transom. Where is the water at it's lowest point? Right at the back of the transom. The further you get away from the transom, the higher the water.
That's how the Stroker guys are running 17" of set back and 2" over pad. The more lip on your pad, the lower you should run your prop as that's forcing the water even lower as it comes off the back of the boat.