Adding the picture to the header just pushes all of the text on the page down. I don't want an image in the header, I need a watermark background for the page.
This will happen if you put the picture in line with the text in the header, so that the picture behaves like a (large) character and increases the header downwards. That is not desirable.
The trick is to anchor the object to the header and position it, wrapped, in the document body or actually behind the text in the body of the document. You would also want to change the Transparency setting to mimic a "washed out" watermark. (This is actually how the Watermark facility in Word works.)
As noted elsewhere in the thread, changing the connected experiences will present another workaround for the underlying issue.
