Had the same issue, worked out it is to do with the languages and keyboard on your phone. The settings of the phone are passed to the gear S.
Here is Samsung faq on the Samsung gear S, it helped a bit in leading me to where the problem is
Get the manual from here:
h t t p : / / w w w .samsung.com/ca/support/model/SM-R750WZKAXAC
Page 35, here is snip of it:
1.Connect you gear and phone via bluetooth
2. On your phone set the keyboard to googles keyboard (downloadable from play store), not the Samsung one. Settings keyboard and input
3. Language: English (United states)
4. My keyboard input methods on my phone are :
Default: English (US) - Google keyboard
Google keyboard: English (US)
Google voice typing:Automatic
5. Open the Samsung gear app up on your phone
6. Settings
7. Install TTS voice data, I installed English AUS
8. You should now notice the mic button on the gear s has moved to the space keys as the others suggest and is not longer under the "123" button
Test it, should work this is what I did
Just remember if you swap keyboards on your phone again the mic button may grey out again.