Lord Shiva emerged from the Supreme Lord (Paramatma). The same Supreme Lord also created Lords Vishnu and Brahma. Such Supreme Lord exists with and without form. Hence He is the highest of all.

Shiva meditates on this Supreme Lord (Paramatma) or Supreme Essence. You can either worship or meditate on Shiva or on Paramatma, it is one and the same.

Understand that there is a power which is higher/ supreme than even Lord Shiva. Hence Lord Shiva meditates on that supreme power. What you have enquired is actually a great Vedanta secret. This is a simple explanation for the same. It actually implies that He meditates on himself, his own Power!

(Q&A Session, 12 Mar 2017)