Yeah, It works before 5.7, I tested it with Percona Server 5.5 and 5.6 but couldn't reproduced same problem.

master [localhost] {root} ((none)) > SHOW VARIABLES LIKE '%version%';
+-------------------------+------------------------------------------------------+
| Variable_name           | Value                                                |
+-------------------------+------------------------------------------------------+
| innodb_version          | 5.6.36-rel82.0                                       |
| protocol_version        | 10                                                   |
| slave_type_conversions  |                                                      |
| tls_version             | TLSv1.1,TLSv1.2                                      |
| version                 | 5.6.36-82.0-log                                      |
| version_comment         | Percona Server (GPL), Release 82.0, Revision 58e846a |
| version_compile_machine | x86_64                                               |
| version_compile_os      | Linux                                                |
+-------------------------+------------------------------------------------------+
8 rows in set (0.00 sec)


master [localhost] {root} ((none)) > show plugins;
+-----------------------------+----------+--------------------+----------------+---------+
| Name                        | Status   | Type               | Library        | License |
+-----------------------------+----------+--------------------+----------------+---------+
| auth_socket                 | ACTIVE   | AUTHENTICATION     | auth_socket.so | GPL     |
+-----------------------------+----------+--------------------+----------------+---------+

slave1 [localhost] {msandbox} ((none)) > show plugins;
+-----------------------------+----------+--------------------+----------------+---------+
| Name                        | Status   | Type               | Library        | License |
+-----------------------------+----------+--------------------+----------------+---------+
| auth_socket                 | ACTIVE   | AUTHENTICATION     | auth_socket.so | GPL     |
+-----------------------------+----------+--------------------+----------------+---------+

slave2 [localhost] {msandbox} ((none)) > show plugins;
+-----------------------------+----------+--------------------+----------------+---------+
| Name                        | Status   | Type               | Library        | License |
+-----------------------------+----------+--------------------+----------------+---------+
| auth_socket                 | ACTIVE   | AUTHENTICATION     | auth_socket.so | GPL     |
+-----------------------------+----------+--------------------+----------------+---------+


master [localhost] {root} ((none)) > CREATE USER 'employee_ext'@'localhost' IDENTIFIED WITH auth_socket AS 'my_auth_string';
Query OK, 0 rows affected (0.01 sec)

master [localhost] {root} ((none)) > CREATE USER 'employee'@'localhost' IDENTIFIED BY 'employee_pass';
Query OK, 0 rows affected (0.00 sec)

master [localhost] {root} ((none)) > GRANT PROXY ON 'employee'@'localhost' TO 'employee_ext'@'localhost';
Query OK, 0 rows affected (0.01 sec)

master [localhost] {root} ((none)) > select * from mysql.proxies_priv where Proxied_user='employee'\G
*************************** 1. row ***************************
        Host: localhost
        User: employee_ext
Proxied_host: localhost
Proxied_user: employee
  With_grant: 0
     Grantor: root@localhost
   Timestamp: 0000-00-00 00:00:00
1 row in set (0.00 sec)

slave1 [localhost] {msandbox} ((none)) > select * from mysql.proxies_priv where Proxied_user='employee'\G
*************************** 1. row ***************************
        Host: localhost
        User: employee_ext
Proxied_host: localhost
Proxied_user: employee
  With_grant: 0
     Grantor: root@localhost
   Timestamp: 0000-00-00 00:00:00
1 row in set (0.00 sec)


slave2 [localhost] {msandbox} ((none)) > select * from mysql.proxies_priv where Proxied_user='employee'\G
*************************** 1. row ***************************
        Host: localhost
        User: employee_ext
Proxied_host: localhost
Proxied_user: employee
  With_grant: 0
     Grantor: root@localhost
   Timestamp: 0000-00-00 00:00:00
1 row in set (0.01 sec)