This article presents a simulation-based analysis to first evaluate the impact of excessive transistor output capacitance on class-E power amplifiers and to second show how inductive compensation can be used to recover optimum class-E operating conditions. As a starting point, the finite-feed inductor in a parallel-circuit topology is replaced by a frequency-dependent inductor, which in turn can be substituted by a network composed of a series inductor and additional subharmonic resonators. This complex lumped-element network is then replaced by a generalized transmission line equivalent topology, suitable for microwaves. Calculation of the transmission line impedances and electrical lengths of the proposed generalized network is shown in detail and a design procedure for this modified class-E is provided. The analysis presented here is further extended by using a simplified large-signal model for the employed GaN HEMT device, which allows evaluating the effects of non-ideal switching as well as of capacitance voltage-dependency and feedback capacitance. The analysis is validated by simulation and design of a test board. Measurements of the test board showed a drain efficiency of 80.3%, power-added efficiency of 76.3% and output power of 40.1 dBm at 1.96 GHz, demonstrating the validity of the proposed approach.