Business Secretary John Hutton announced that employee engagement expert David MacLeod and director of the Participation Association Nita Clarke will lead the study.
He insisted that employee engagement is "not just a buzz word" and instead has clear links to business success.
"The most successful companies recognise that their employees are their most valuable asset," he remarked.
Beginning early next year, the review will make recommendations to employers about how they can engage with their staff to improve motivation and performance.
It will also examine the benefits of effective employee engagement to the wider economy.
A survey carried out by the Trades Union Congress earlier this month revealed that 30 per cent of UK workers do not feel engaged by their employer.
Lack of training and opportunities for progression were cited as reasons for their dissatisfaction, alongside heavy workloads and unfair pay structures.
