As it stands, you can't set the background to the size you want. Turning on "reduce motion" makes a little more of the image appear on the screen, but it's impossible to size your wall paper to the size you'd like. I don't know if it's a glitch, or apple just deciding that this is the way things are now, but it's really annoying either way.
The best solution I've come up with is go into photoshop, make a new image the size of your screen, basically you're standard 4:3 aspect ratio, size it up to whatever the width of the photo you want to use, and then drop the photo in, save it, and put it on your iPad. It's still going to zoom in a bit, but you get a bit more image, if you're finding it's been zoomed in too much normally. Again, reduce motion is going to need to be turned on.
I've even tried making an image with a larger canvas size around the image, and it can work perfectly in vertical mode, but when you turn it over to horizontal, then you get problems with white bars on the side.